S&P BSE SENSEX, first compiled in 1986, was calculated on a Market Capitalization-Weighted methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of S&P BSE SENSEX was taken as 1978-79. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, S&P BSE SENSEX is being calculated on a free-float market capitalization methodology. The “free-float market capitalization-weighted” methodology is a widely followed index construction methodology on which majority of global equity indices are based; all major index providers like MSCI, FTSE, STOXX, and Dow Jones use the free-float methodology.
S&P BSE SENSEX is calculated using the “Free-float Market Capitalization” methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. The larger the market weightage of the company the larger is the impact due to 1% change in its price on the index.
Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market.
All common equities listed at BSE Ltd (excluding companies classified in Z group, listed mutual funds, companies suspended on the last day of the month prior to review date, stocks objected to by the Surveillance Department of BSE Ltd. and those that are traded under a permitted category and SME category) are considered eligible.
Stocks must have a listing history of at least three months at BSE, with the following exceptions:-
An exception may be granted if the average float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In such cases, the minimum listing history required is at least one month. In the event that a company is listed due to a merger or a demerger or an amalgamation, a minimum listing history is not required.
Financials at 27% followed by Information Technology at 17%, Oil and Gas at 13%, FMCG at 12%, Transport Equipment at 11%, Capital Goods at 6%, Healthcare at 5%, Metals at 5%, Power at 3.74% and Telecom at 2% comprises the sector allocation in the index.
The S&P BSE Sensex Index has risen 17.15% on a year on year basis and has risen 10% year to date. The index has a Price to Earnings ratio of 22 in the current scenario. The index reached an all-time high of 30,024 in the month of March 2015. Tata Consultancy Services has the highest weightage of 9.78% in the index followed by Reliance Industries with a weightage of 8.51%, HDFC Bank with 7.1%, ITC with 6.43%, ONGC at 5% and Infosys at 4.77% while others have less than 4.75% weightage each in the index.