BSE also calculates a dollar-linked version of SENSEX and historical values of this index are available since its inception. (For more details click 'Dollex series of BSE indices')

SENSEX - Scrip Selection Criteria

The general guidelines for selection of constituents in SENSEX are as follows:  

1. Listed History:The scrip should have a listing history of at least 3 months at BSE. Exception may be considered if full market capitalization of a newly listed company ranks among top 10 in the list of BSE universe. In case, a company is listed on account of merger/ demerger/ amalgamation, minimum listing history would not be required.
    
2. Trading Frequency:The scrip should have been traded on each and every trading day in the last three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc.
    
3. Final Rank:The scrip should figure in the top 100 companies listed by final rank. The final rank is arrived at by assigning 75% weightage to the rank on the basis of three-month average full market capitalization and 25% weightage to the liquidity rank based on three-month average daily turnover & three-month average impact cost.
    
4. Market Capitalization Weightage:The weightage of each scrip in SENSEX based on three-month average free-float market capitalization should be at least 0.5% of the Index.
    
5. Industry/Sector Representation:Scrip selection would generally take into account a balanced representation of the listed companies in the universe of BSE.
    
6. Track Record:In the opinion of the BSE Index Committee, the company should have an acceptable track record.
    

Understanding Free-float Methodology

Concept

Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market.

Subsequently all BSE indices with the exception of BSE-PSU index have adopted the free-float methodology.

Major advantages of Free-float Methodology

• A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market.
   
• Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index.
   
• A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis-Ã -vis an investible index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.
   
• Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely-held companies in the index while at the same time preventing their undue influence on the index movement.
   
• Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) - QQQ is based on the Free-float Methodology.  
   

Definition of Free-float

Shareholding of investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. Specifically, the following categories of holding are generally excluded from the definition of Free-float:

• Shares held by founders/directors/ acquirers which has control element
   
• Shares held by persons/ bodies with "Controlling Interest"
   
• Shares held by Government as promoter/acquirer
   
• Holdings through the FDI Route
   
• Strategic stakes by private corporate bodies/ individuals
   
• Equity held by associate/group companies (cross-holdings)
   
• Equity held by Employee Welfare Trusts
   
• Locked-in shares and shares which would not be sold in the open market in normal course.
   

The remaining shareholders fall under the Free-float category.

Determining Free-float Factors of Companies

BSE has designed a Free-float format, which is filled and submitted by all index companies on a quarterly basis. (Format available on www.bseindia.com). BSE determines the Free-float factor for each company based on the detailed information submitted by the companies in the prescribed format. Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float of a company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation.

Free-float Bands:  

% Free-Float	Free-Float Factor	% Free-Float	Free-Float Factor
>0 - 5%	0.05	>50 - 55%	0.55
>5 - 10%	0.10	>55 - 60%	0.60
>10 - 15%	0.15	>60 - 65%	0.65
>15 - 20%	0.20	>65 - 70%	0.70
>20 - 25%	0.25	>70 - 75%	0.75
>25 - 30%	0.30	>75 - 80%	0.80
>30 - 35%	0.35	>80 - 85%	0.85
>35 - 40%	0.40	>85 - 90%	0.90
>40 - 45%	0.45	>90 - 95%	0.95
>45 - 50%	0.50	>95 - 100%	1.00

Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted average of all the trades on SENSEX constituents in the last 30 minutes of trading session. If a SENSEX constituent has not traded in the last 30 minutes, the last traded price is taken for computation of the Index closure. If a SENSEX constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm prevents any intentional manipulation of the closing index value.

Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that replacement of stocks in Index, additional issue of capital and other corporate announcements like 'rights issue' etc. do not destroy the historical value of the index. The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values.

The BSE Index Cell does the day-to-day maintenance of the index within the broad index policy framework set by the BSE Index Committee. The BSE Index Cell ensures that SENSEX and all the other BSE indices maintain their benchmark properties by striking a delicate balance between frequent replacements in index and maintaining its historical continuity. The BSE Index Committee comprises of capital market expert, fund managers, market participants and members of the BSE Governing Board.

On-Line Computation of the Index

During trading hours, value of the Index is calculated and disseminated on real time basis. This is done automatically on the basis of prices at which trades in Index constituents are executed.

Adjustment for Bonus, Rights and Newly Issued Capital

SENSEX calculation needs to be adjusted for issue of Bonus or Rights shares If no adjustments were made, a discontinuity would arise between the current value of the index and its previous value despite the non-occurrence of any economic activity of substance. At the BSE Index Cell , the base value is adjusted, which is used to alter market capitalization of the component stocks to arrive at the SENSEX value.

The BSE Index Cell keeps a close watch on the events that might affect the index on a regular basis and carries out daily maintenance of all the 19 Indices.

• Adjustments for Rights Issues
  When a company, included in the compilation of the index, issues right shares, the free-float market capitalization of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price. An offsetting or proportionate adjustment is then made to the Base Market capitalization (see 'Base Market capitalization Adjustment' below).
   
• Adjustments for Bonus Issue
  When a company, included in the compilation of the index, issues bonus shares, the market capitalization of that company does not undergo any change. Therefore, there is no change in the Base Market capitalization, only the 'number of shares' in the formula is updated.
   
• Other Issues
  Base Market capitalization adjustment is required when new shares are issued by way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back of shares, corporate restructuring etc.
   
• Base Market capitalization Adjustment

The formula for adjusting the Base Market capitalization is as follows:

                                                                                                   New Market capitalization
New Base Market capitalization = Old Base Market capitalization x --------------------------------------- 
                                                                                                   Old Market capitalization 

To illustrate, suppose a company issues right shares which increases the market capitalization of the shares of that company by say, Rs.100 crores. The existing Base Market capitalization (Old Base Market capitalization), say, is Rs.2450 crores and the aggregate market capitalization of all the shares included in the index before the right issue is made is, say Rs.4781 crore. The "New Base Market capitalization " will then be:

2450 x (4781+100)  
-------------------------- = Rs.2501.24 crores
         4781 

This figure of Rs. 2501.24 crore will be used as the Base Market capitalization for calculating the index number from then onwards till the next base change becomes necessary.

Index Review Frequency

The BSE Index Committee meets every quarter to discuss index related issues. In case of a revision in the Index constituents, the announcement of the incoming and outgoing scrips is made six weeks in advance of the actual implementation of the revision of the Index.
 

History of Replacement of Scrips in SENSEX

Date	Scrips Included	Scrips Excluded
29.06.2009	Hero Honda Motors Ltd.	Ranbaxy Laboratories Ltd.
12.01.2009	Sun Pharmaceutical Industries Ltd.	Satyam Computers Ltd.
28.07.2008	Sterlite Industries Ltd.	Ambuja Cements Ltd.
	Tata Power Co. Ltd.	Cipla Ltd.
14.03.2008	Jaiprakash Associates Ltd.	Bajaj Auto Ltd.
19.11.2007	DLF Ltd.	Dr. Reddy's Laboratories Ltd.
09.07.2007	Mahindra & Mahindra Ltd.	Hero Honda Motors Ltd.
12.06.2006	Reliance Communiation Ventures Ltd.	Tata Power Ltd.
06.06.2005	National Thermal Power Corpn. Ltd.	Hindustan Petroleum Corp Ltd.
	Tata Consultancy Services Ltd.	Zee Telefilms Ltd.
27.09.2004	Larsen & Toubro Ltd.	Mahanagar Telephone Nigam Ltd.
19.05.2004	Maruti Udyog Ltd.	Larsen & Toubro Ltd.
10.11.2003	Bharti-Tele-Ventures Ltd.	Castrol India Ltd.
	HDFC Bank Ltd.	Colgate Palomive ( India ) Ltd.
	ONGC Ltd.	Glaxo Smithkline Pharma. Ltd.
	Tata Power Company Ltd.	HCL Technologies Ltd.
	Wipro Ltd.	Nestle ( India ) Ltd.
10.10.2002	HDFC Ltd.	Reliance Petroleum Ltd.
31.05.2002	ICICI Bank Ltd.	ICICI Ltd.
07.01.2002	HCL Technologies	NIIT Ltd.
	Hero Honda Motors Ltd.	Mahindra & Mahindra
08.01.2001	Cipla Ltd.	Novartis
10.04.2000	Dr. Reddy's Laboratories	I.D.B.I
	Reliance Petroleum	Indian Hotels
	Satyam Computers	Tata Chem
	Zee Telefilms	Tata Power
16.11.1998	Castrol	Arvind Mills
	Infosys Technologies	G. E. Shipping
	NIIT Ltd.	IPCL
	Novartis	Steel Authority of India
19.08.1996	Arvind Mills	Ballarpur Inds.
	Bajaj Auto	Bharat Forge
	BHEL	Bombay Dyeing
	BSES	Ceat Tyres
	Colgate	Century Text.
	Guj. Amb. Cement	GSFC
	HPCL	Hind. Motors
	ICICI	Indian Organic
	IDBI	Indian Rayon
	IPCL	Kirloskar Cummins
	MTNL	Mukand Iron
	Ranbaxy Lab.	Phlips
	State Bank of India	Premier Auto
	Steel Authority of India	Siemens
	Tata Chem	Voltas
03.08.1992	Bharat Forge	Zenith Ltd.
01.01.1986	Voltas	Bombay Burmah
	Peico	Asian Cables
	Premier Auto.	Crompton Greaves
	G.E.Shipping	Scinda