“Magic Figures”: Index Calculator

We have seen many enthusiastic people on television channels who jump here and there when sensex crosses 10,000 or 20,000 mark, or nifty cross some magic figures like 5555 or 4994!! (many people can feel the thrill even while reading these numbers!! Reason: They are magic figures!) Such high level of enthusiasm related with those Magic Figures we can see on streets also, especially when name of the street is called “Dalal Street”! Have you ever wondered how those numbers are calculated? How do we calculate indexes like sensex and nifty? That is the topic of this article. Unique, informative and fresh! This article will explain the calculation of index.

Stock market!! This word is one of the most thrilling words who know it. But stock market is just an idea. To measure stock exchange, we have some indicators like, sensex and nifty. We have seen many enthusiastic people on television channels who jump here and there when sensex crosses 10,000 or 20,000 mark, or nifty cross some magic figures like 5555 or 4994!! (many people can feel the thrill even while reading these numbers!! Reason: They are magic figures!) Such high level of enthusiasm related with those Magic Figures we can see on streets also, especially when name of the street is called “Dalal Street”!

Have you ever wondered how those numbers are calculated? How do we calculate indexes like sensex and nifty? That is the topic of this article. Unique, informative and fresh! This article will explain the calculation of index.
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SENSEX
Sensex is the most common word in Indian stock exchange. Very few traders know that sensex stands for “sensitive index”. (don’t worry if you don’t know about it. It will not affect your portfolio anyhow. ) It represents Bombay stock exchange stocks. sensex is calculated using 30 market leader companies in Bombay stock exchange. Weight of 30 companies may differ. Base value for sensex is 100. And base year is 1978-1979. Since 1986 sensex calculation is in practice. Earlier it was calculated using total market capitalisation method. But since 2003 it is calculated using free float market capitalisation method. Sensex is calculated for every 15 seconds.

NIFTY
Nifty is the most frequently used word in Indian stock exchange. (this statement is not based on any research!! Sometimes common sense if enough, not research is needed.) Nifty represents 50 large companies from 24 different sectors of National Stock Exchange. These 50 companies represent almost 50% of total volume of national stock exchange. base value for index is 1000 for nifty. Base year is 1995. Nifty is calculated for every 15 seconds.

There are some criteria for stocks to be included in sensex or nifty.

1. Company should have one year history on bse as a listed company.
2. Company’s market capital should be among the top 100 market capital number of BSE listed companies. And each company should more than 0.5% of total market capitalisation of sensex.
3. Company should be market leader in the particular sector.
4. Company should have well past record.
5. Company should be traded in each and every day of last one year. (Of course, holidays are not included in “each and every day”.)

OK. After knowing the criteria for eligibility, now question should be there in your mind what is market capitalisation? Well, before calculating nifty and sensex, one should know some important terms used in the formula. (Well, do not expect the formula so easily.)

Two important factors for the calculation are market capitalisation & free float market capitalisation.

* Market Capitalisation:



In simple word, market capitalisation is total worth of particular company. It represents issued shares of the company.

Market capitalization= No of shares outstanding x market price of share

* Free Float Market Capitalization:



In simple words, free float market capitalization is shares available to trade by anyone. Free float market capitalisation is the total worth of all shares of a company which are available for trading in the open market. These shares are those shares which are not held by government or promoter of the company, held through FDI, held by private corporate bodies, held by employee welfare trust or held by any private corporate / individual bodies.

Free float market capitalization =

No. of outstanding share x market price of share



Free float factor =

No of shares available for trading in the open market /Total No of outstanding shares of the company.

For example: if one company named ABC has 1000 shares, and government is holding 300 shares, promoter holding is 500 shares, and 200 shares are available in market. And price of 1 share is 10 Rs.

In this case,

Market capitalisation of the company is 1000 X 10 = 10,000

Free float market capitalisation of company is 200 X 10= 2,000

Calculation of SENSEX and NIFTY

Sensex is calculated using free float market capitalization of 30 major BSE listed companies and by using base value 100 (base year: 1978-79). Nifty is calculated using free float market capitalisation of 50 companies of NSE using based value 1000 (base year: 1995).

Let’s understand the same with help of example: suppose BSE index (SENSEX) consist of only two stocks such as ‘ABC’ and ‘XYZ’

Company ‘ABC’:

1000 outstanding shares

500 are available for trading in open market.

Market price of share is Rs.100.

Company ‘XYZ’:

2000 outstanding shares

1000 available for trading in open market shares

Market price of share is Rs.50.

Calculation of Market Capitalization :

ABC: 1000 x 100 = 1,00,000

XYZ: 2000 x 50 = 1,00,000

Now ,Sum of market cap of companies,

Total market capital = ABC+XYZ = 100,000+100,000 = 200,000

Calculation of Free Float market capitalization:

ABC: 500 x 100 = 50,000

XYZ: 1000 x 50 = 50,000

Now, Sum of free float market cap of companies,

Total free float capitalisation = A+B = 50000+50000 = 100000

Formula for Sensex calculation:

SENSEX = (sum of free float market cap of 30 major companies of BSE) X
Index value in 1978-79 / Market cap value in 1978-79.

Assume market cap during 1978-79 is 2000. Now, as per formula:

100000 X 100 / 2000 = 5000

Value of sensex is 5000.

Formula for Nifty calculation:

NIFTY = (Sum of free flow market cap of 50 major stocks of NSE) X
Index value in 1995 / market cap value in 1995

Assuming the market cap value during 1995 is 20,000

Now, put the market cap value of the A and B in formula

100000 x 1000 / 100000 = 1000

Value of nifty is 1000

I hope you like this article. That is how we calculate our index.

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Playing with number is fun, and stock market is all about number. So let’s play…

with your permission .. i would like to say… Astalavista !!