Sensex Calculation

Types of Shares

Before going to how you could calculate sensex, it is important to know about different types of shares -

• Restricted Shares - restricted to its own employees, or insiders, cannot be issued to public without special permission
• Float Shares - freely bought of sold in public (consider as floating in public market)
• Outstanding Shares - represents all the shares the company actually issued, either to the public or to its own employees (meaning, restricted shares + float shares)
• Authorized Shares - maximum share that a company can issue. Shareholder's Vote is necessary to increase or decrease it. 

Now clear this types with a suitable example -

Suppose company X has 1,000 Authorized shares. But, it issued 300 shares to public (Float Shares), 200 shares to own employees/executives (Restricted Shares), and retained remaining 500 shares in its treasury. 

Therefor, Outstanding shares makes to 300 + 200 = 500 shares

Sensex Calculation - free-float capitalization method

Step 1 - Find Market Capitalization (no. of outstanding shares x price per share)

Step 2 - Multiply with free-float factor (which is determined by percentage of floated shares to outstanding shares)

Now, think do a public investor need to know about the shares that are kept in the treasury of the company, while investing? Answer is no. What shares are in the public market (floating share) is important instead.

From the above example, 

Percentage of floating shares to outstanding shares = (floating / outstanding) x 100 %

= (300 / 500) x 100 %  =  60 %

This percentage makes free-float factor = 0.6

Now, suppose the price of each share of the company X is Rs. 150. Then market capitalization of the company is = outstanding shares x price per share

= 500 x Rs. 150  =  Rs. 75,000

Therefore, the free-float market capitalization becomes = market cap x free-float factor

= Rs. 75,000 x 0.6  =  Rs. 45,000

Note - This is a demonstrative example, not actual figure, just for learning purpose.

Nifty

While Sensex is the name of the share index of 30 companies in S&P BSE, CNX Nifty is the name of the share index of 50 companies of S&P National Stock Exchange (NSE)

S&P - Standard & Poors, an international financial services company

CNX - CRISIL NSE Index