Bse index how is it calculated

Both Nifty and Sensex use similar methods to derive their values. However, there are a few basic differences between Nifty and Sensex. You may also like to read about the Sensex vs Nifty. Benchmark index is the primary metric for analyzing market trends.

The index indicates the performance of the entire stock market. The market also uses the benchmark index as a comparative measure. In other words, it measures the market returns from an average fund versus the amount that it would have earned.

The broad market index is benchmark indices. However, they comprise more number of stocks into the index. For example, BSE Sensex comprises the 30 biggest companies that are financially sound. On the other hand, BSE comprises top companies. Market capitalization index comprises stocks on the basis of their total market capitalization, i. The index comprises companies or stocks in a particular sector or industry. For example, stocks in industries like banking, healthcare, technology, etc.

Investors can study the patterns of the stock market using these indices. A share market has thousands of companies listed on it. For an investor to study all the stocks before narrowing down his investment options is impossible. Also, without a benchmark index, it is very difficult to differentiate two stocks. Additionally, an index segregates the stocks based on their size, industry, and financial impact, etc. Therefore, investors can compare stocks that comprise an index and narrow down their search.

Equity markets are volatile, and hence investors need to proceed with caution. While beginners are not well aware of the market dynamics, market indices are a good reference to understand the performance of the share market. One can easily analyze the investor sentiments through the market indices. For example, certain reform announcements create a sense of pressure on certain stocks.

In other words, some investors expect that a change in reform may have an impact on a company and based on that they buy or sell the stock. However, analyzing the underlying sentiment is important to estimate the impact of the trend.

Investors can find a shortcut to investing in the best stocks by investing in a fund that has the same composition as an index. With a single click, they can invest in index funds that are a replica of the benchmark index. A trading account is for buying and selling of shares.

At the same time, a demat account acts as a bank for holding the shares that an investor buys. Also, one can open a demat account with any stock broker. Last updated September 30, Our weekly newsletter with finance tips and investment insights from our experts.

Your privacy is important to us. Share this article. Article Content. Introduction What is BSE? But do you know how it all started and the journey that revolves already this particular term? As a newbie investor, you will be bombarded with this word for a duration of every few minutes, and would work wonders for you if you understand this key concept. It was started in the year of —79 with a base point of The term Sensex was coined by Deepak Mohoni, a stock market analyst in There are two major stock exchanges in India.

Each stock exchange has a major index constituted by them with representation from major sectors of the economy reflecting the cross-section of the economy. The index is expected to reflect the economy and the movement of the index, and its ups and downs speak about the health of the economy.

The Sensex basically is an indicator of all the major companies listed on BSE which is located in Mumbai. Sensex is an index comprising of the top 30 stocks, among some stocks listed on the BSE.

It is assumed that these 30 stocks replicate the market. These 30 stocks are taken from 23 different industries operating in the Indian economy, based on parameters defined by the Exchange and managing the index. Sensex is calculated taking into consideration the stock prices of 30 different companies listed on BSE. Market capitalisation represents the valuation of a company. It is determined by multiplying the price of their stocks with the number of shares issued by that company.

Free-float market capitalisation is determined by multiplying the total market capitalisation with the free float factor. BSE determines the free-float factor based on the percentage of free float. The free float percentage is rounded off to a higher multiple of 5. Hence, the free float factor is 0. Hence, to calculate Sensex, we will add the free-float market capitalisation of 30 selected companies, divide the resultant figure by The Paris Climate Agreement Demystified.