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    How Stock Market Index Is Calculated and It's Methodology

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    SRAVAN
    This document discusses how stock market indices like the Sensex and Nifty 50 are calculated. It explains that the indices are a measure of the performance and pricing of stocks. It then provides the specific formulas for calculating the Sensex and Nifty 50, which involve factors like free float, market capitalization, and investible weight factor. The key difference between the two indices is that the Sensex includes the top 30 companies, while the Nifty 50 tracks the top 50 companies listed on the National Stock Exchange.

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    How Stock Market Index Is Calculated and It's Methodology

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    SRAVAN
    31 views11 pages
    This document discusses how stock market indices like the Sensex and Nifty 50 are calculated. It explains that the indices are a measure of the performance and pricing of stocks. It then provides the specific formulas for calculating the Sensex and Nifty 50, which involve factors like free float, market capitalization, and investible weight factor. The key difference between the two indices is that the Sensex includes the top 30 companies, while the Nifty 50 tracks the top 50 companies listed on the National Stock Exchange.

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    How Stock Market Index is Calculated and it's Methodology

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    This document discusses how stock market indices like the Sensex and Nifty 50 are calculated. It explains that the indices are a measure of the performance and pricing of stocks. It then provides the specific formulas for calculating the Sensex and Nifty 50, which involve factors like free float, market capitalization, and investible weight factor. The key difference between the two indices is that the Sensex includes the top 30 companies, while the Nifty 50 tracks the top 50 companies listed on the National Stock Exchange.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    31 views11 pages

    How Stock Market Index Is Calculated and It's Methodology

    Uploaded by

    SRAVAN
    This document discusses how stock market indices like the Sensex and Nifty 50 are calculated. It explains that the indices are a measure of the performance and pricing of stocks. It then provides the specific formulas for calculating the Sensex and Nifty 50, which involve factors like free float, market capitalization, and investible weight factor. The key difference between the two indices is that the Sensex includes the top 30 companies, while the Nifty 50 tracks the top 50 companies listed on the National Stock Exchange.

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    Published December 29, 2021

    How Stock Market Index Is Calculated

    Has the numbers or what is known as the stock


    market index always fascinated you? Do you
    understand the relevance of the stock market
    indices to everyday investors? Or, how stock market
    index is calculated?

    In the Indian stock market, there are two


    exchanges or stock market indices namely, the
    Sensex and NIFTY. And for each of these indices, the
    calculation will remain independent and never
    constant.

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    Very rarely do even experienced investors and
    traders know anything about how index is
    calculated in stock market. So it would give
    beginner-level investors a one-up if they
    understand the science behind the stock market
    index.

    Stock Market Index Meaning

    The meaning of the stock market index is the


    metric of the stock market that assists investors
    and traders in the pricing and performance of
    individual stocks as well as the overall market.
    Remember, the stock market index is an arithmetic
    value.

    After this basic definition, let us now understand


    one by one the concepts of the Sensex (Sensitive
    Index) and Nifty 50 index.

    But keep in mind to invest in Stock Market, one


    must have a basic understanding of key concepts
    such as the Stock Market Index.

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    Sensex Meaning

    The BSE Sensex index is a list of 30 companies that


    are chosen based on performance as a measure
    of free-float market capitalization.

    To better understand the procedure of how is


    Sensex calculated, take a look at the following
    Sensex stock market index calculation formula :

    Sensex Index Value= (total free-float market


    capitalization/ Base market capitalization) x Base
    index value

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    In the above formula, some terms have been used.
    We will define each of these terms so that you can
    comprehend the calculation better.

    Free Float: Free float refers to the number of


    shares of a company that are available for
    trading.
    Market capitalization: This refers to the total
    worth of a company's stocks in the stock market.
    Total Free Float Market Capitalization: The
    multiplication of the free float factor with market
    capitalization gives the total free-float market
    capitalization.
    Base Market Capitalisation & Base Index Value:
    The base year for market capitalization
    calculation is 1978-79 and the base index value
    is 100 index points.

    So this formula is how stock market index is


    calculated for BSE Sensex. Now, we will move
    towards NIFTY 50.

    NIFTY Calculation

    To calculate the NIFTY 50 Index, we need to apply a


    formula somewhat similar to that of the Sensex.
    Here’s the formula for how NIFTY is calculated:

    NIFTY Index Value = (Current Market Value/Base


    Market Capital) * 1000
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    This straightforward formula has a terminology
    namely the Current Market Value. The current
    market value is calculated by multiplying the
    market capitalization of a company with the IWF
    factor.
    Now, what is this IWF?
    IWF or Investible Weight Factor is just like the free
    float factor, which means that it is determined by
    the portion of shares of a company that are
    available for trading in the stock market.

    So higher the IWF factor, the more shares are


    available for the public investment market.

    The above calculation makes the Sensex and NIFTY


    index seem quite similar, but the fundamental
    difference is that NIFTY is an index of the top 50
    companies, unlike Sensex.

    It’s a fact that those who understand the index


    calculation have a better understanding of how the
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    stock market works.

    Conclusion

    Now, you know exactly how stock market index is


    calculated. Subsequently, this calculation is utilized
    by BSE and NSE in deciding on the inclusion of the
    companies into the Sensex and NIFTY index
    respectively.

    These indices indirectly form a basket of stocks on


    which new investors can reliably invest. To gain
    more knowledge on such intriguing concepts, keep
    reading these blogs regularly.

    FAQ

    what is index meaning in Indian stock market?

    Index refers to a measurement that shows how a


    group of stocks is performing. It helps investors
    track the overall performance of specific stocks or
    a segment of the market. This information is
    valuable for making investment decisions and
    understanding market trends.

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