Sensex companies are selected very judiciously by experts. All companies are not included in Sensex. As on date sensex has only 30 companies. These 30 companies represent complete Indian stock market. The weightage each company has on Sensex is an essential information for investors. Company having highest weightage in Sensex is often the most loved company.
At that time the stocks that was included was on basis of their full market capitalization. Stocks with high market capitalization weighed more than others. This process included 30 heavyweight stocks in SENSEX. All these heavyweight stocks represented their sectors performance. The stocks that gets included in SENSEX are fundamentally strong, well established and sector leaders.
These selected companies are reviewed regularly. Idea is to include those stocks/scripts whose performance can represent overall performance of their respective sectors. After August 2003, Index (S&P BSE SENSEX) calculation methodology was changed to free float methodology. Due to this change in Index calculation methodology, index weightage of many stocks saw dramatic change.
The difference between full market capitalization and free float capitalization method was in ‘numbers of stocks’ that was considered for calculation of index. In full market capitalization method stocks held by even promoters, government etc were included.
But in free float method only those stocks which are available for public trading is used for index calculation. So those companies which had large promoters holdings lost considerably in weightage. Only those stocks were included which was readily available for trading in the stock market. Stocks which were not included are as follows:
– Stocks held by promoters
– Stocks helld by any one with interest to control company.
– Stocks help by Government of India
– Stocks held by agency through Foreign Holding Route.
– Stocks holding with strategic focus
– Stocks holding by group companies
– Stocks held by Employee Welfare Trusts
How Companies are included in Sensex?
Sensex is calculated using free-float market cap concept of included companies. There are 30 companies included in sensex. When we say that sensex is 18,000, it means free-float market value these 30 companies is Rs 18,000 crore. What is the difference beweeen market capitalization and free-float market capitalization?
- Market cap = Market Price x no. of shares issued by company.
- Free-float market cap = Market cap x free float factor.
Another important information we must remember is base year for Sensex calculation is 1978-79. In year 1978-70 Sensex was assumed to be 100. It means from year 1979 till 2015, Sensex has appreciated from 100 to 27,000 level.
There is no partiality in selection of Sensex companies. All companies which are listed in Bombay Stock Exchange (BSE) can be included in Sensex. As on date more than 5,000 companies are listed in Sensex. But there are few screening criterias. All 5,000 companies cannot be eligibel for inclusion in Sensex. All 5,000 odd companies of BSE are categorized into 4 groups. The grouping are: A Group, B Group, T Group & Z Group. The Z group of companies are those companies which has not comlied with BSE regulations. Hence in calculation of Sensex, Z group of companies are excluded. IPO cannot be included in Sensex. To be eligible for Sensex, companies must be listed in BSE for minimum 3 months. Moreover, in all of these 3 months, the companies stock must have traded on every day. To be included in Sensex, companies must report sales turnover (total income) of last 4 quarters. All companies which satisfies the above preconditions are listed in order of average three month float market capitalization. Only top 75 ranked companies are considered for further screening.
All 5,000 companies are again ranked based on their total market capitalization. But this total capitalization is considers as average of last 3 months trading. This way, again 75 stocks are ranked.
All companies ranked based on float-market cap and total market cap are included in one list. So this way we will have more than 75 selected companies. These >75 comoanies are ranked once again based on average 3 month of traded value. Companies whose cumulated value traded is >98% are excluded from the list. Balace companies are again ranked based on float-market capitalization. Companies which had calculated weight of less than 0.5% are again exluded.
Balance stocks are then categorized based on their sector of business. Based on float market capitalization, these stocks are ranked again. Top 30 stocks are included in Sensex.
There is one big advantage of tracking thirty (30) stock with high weightage in Sensex. As these 30 stocks that are included in index calculation are established, fundamentally strong stocks. Hence we can afford to cut short our analysis of identifying quality stocks. As we have a ready list of stocks which even drives the SENSEX can be blindly tracked and bought if available at good price valuations.
List of Sensex Companies with Weightage
(Updated on January’16)
|SL||Company||Market Price (Rs.)||52W high||52W low||P/E||Weightage|
|7||O N G C||229.25||374||208||10.89||4.41%|
|9||H D F C||1,175.20||1,400||1,094||29.79||4.23%|
|11||St Bk of India||208.95||336||209||11.44||3.70%|
|17||Larsen & Toubro||1,179.85||1,893||1,200||25.5||2.55%|
|22||M & M||1,196.70||1,441||1,095||24.84||1.69%|
|25||Dr Reddys Labs||3,010.60||4,383||2,951||28.89||1.16%|
|29||B H E L||153.70||300||153||40.49||0.86%|
|35||Tata Power Co.||68.65||92||56||18.49||0.41%|
The best is to invest in those stocks which has high weightage in SENSEX. These stocks can be considered as best blue chip stocks available in the country. In order to invest in such stocks better option is to invest in index funds. Index funds tracks BSE SENSEX. They invest only those stocks which are listed as Sensex scripts. If one does not want to go into the effort of identifying quality stocks, investing in index funds is the best option. Index funds will invest in the above listed 30 stocks. The proportion of above 30 stocks will be the same as they are distributed in the SENSEX.
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