The Sensex has a very important function. The Sensex is supposed to be an indicator of the stocks in the BSE. It is supposed to show whether the stocks are generally going up, or generally going down.
To show this accurately, the Sensex is calculated taking into consideration stock prices of 30 different BSE listed companies. It is calculated using the free-float market capitalization method. This is a world wide accepted method as one of the best methods for calculating a stock market index.
Please note: The method used for calculating the Sensex and the 30 companies that are taken into consideration are changed from time to time. This is done to make the Sensex an accurate index and so that it represents the BSE stocks properly.
To really understand how the Sensex is calculated, you simply need to understand what the term free-float market capitalization means. (As we said earlier, the Sensex is calculated on basis of the free-float market capitalization method) But, before