Do you know that how the Indian stock market works? If no, then let’s understand it.
The whole working of the Indian stock market is based upon the index and the oldest and the most common one is the Sensex. You might have seen people worrying about the movement of Sensex in the market. The stock market analyst Mr. Deepak Mohini come up with the concept of Sensex that was introduced in 1986. It comprises the stocks of the top 30 companies that are listed in the Bombay stock market that is being actively traded.
The movement of the Sensex reflects the Indian stock market. If the prices of these companies will rise automatically the Sensex will rise and in case the price of the companies shares starts decreasing, the points of the Sensex will also drop. It is one of the oldest indexes of India that provides clear information about growth and development in the industries.
Earlier the Sensex was calculated through average market capitalization but the reforms came into being after September 1, 2003. From that time Sensex has been calculated free-float market capitalization. The majority of the countries around the globe take the help of this method to calculate their indexes. To calculate the Sensex, there is the requirement to know few concepts listed below:
- Free float factor: It is referred to as the percentage of the total shares issued by the company and are ready to trade in the common public. The company issue some part of shares to the government, some to the promoters, and some to the public. For example, XYZ company has issued 5000 shares in the market. Out of this, they have kept 1000 shares for promoters and the government. Rest 4000 shares are open for the public in the market. So the free float facto will come out to be 4000/5000 = 80%.
- Market capitalization: Another important concept to understand while calculating Sensex is Market capitalization. It is the market value of the share of the company.
- So to calculate the Sensex, the person needs to find the free float of the top 30 companies and add them all together and the same is to be done with the market capitalization.
- To calculate the Sensex index formula is (Totally free-float market capitalization/ Base market capitalization) * base index value. Mostly the base index value is 100.
This is how the Sensex in the stock market is being calculated every day. If you are the person that is interested in dealing in the share. It is very important to keep a constant eye on the points level of the Sensex. It will help the person to take all the required decisions in the favour of the investment. Even beginners can start their trading with 5paisa as it is one of the trusted online trading platforms that guides the person upon each step of investment. Their easy-to-use interface makes it more convenient to deal in the Stock market. So what are waiting for invest your money now and get long-term benefits.
