[Updated: 05-Apr-2020] We’ve heard the names of two biggest indices of Indian stock market “Sensex 30 and Nifty 50”.
What means by the numbers indicated beside the index (30 and 50)? It represents the number of stocks included in the index.
Study of “weightage of stocks” in present times is particularly more important because in these days the index has crashed.
Both Nifty and Sensex has fallen by almost -25% in last 30 days. In backdrop of this fall, those stocks which has maximum weight in index will also be most effected.
Sensex 30 means there are 30 companies in the Sensex index. Nifty 50 means there are 50 companies in the Nifty index. Moreover, each stock has a different weightage in the index. Let’s know more about it…
Sensex 30 Companies Weightage is here…
|SL||Name||Mcap Full (Cr.)||M.Cap FF (Cr.)||Weight|
Which are the Top 10 Companies in terms of Weightage?
In terms of weightage, the top companies of Sensex 30 are these:
On what basis the stocks are weighed?
They are weighed in terms of their “Free Float Market Capitalization” [See Table: M.Cap – FF].
Free Float market cap is not same as full market cap.
Free Float vs Full Market Cap
Visit the bseindia website and search for your stock.
In the stock page you will find two market capitalisation mentioned for each stock.
The first will be Full Market Capitalisation, and send will be Free Float Market Cap.
What is the difference?
- Free Float Market Cap: represent those shares of the company which are readily available for trading. Out of total numbers of stocks issued by the company, only a part of it is actively traded in the market. Know more about free float market cap.
- Full Market Cap: represents all shares issued by the company. Needless to shay that free float market cap will always be less than or equal to full market cap.
Free Float Market </= Full Market Cap
Calculation of Free Float Market Cap
If you check your stock’s shareholding in moneycontrol, you will find them categorized into following two types:
The stocks held by promoters are not used in the calculation of free float market capitalisation.
Only public shareholdings are considered for free float calculation.
But there are more filters (within public shareholdings as well).
Like “Public Locked-in Shares” are not considered to calculate free float market cap.
Check this example for free float market cap calculation:
Stocks which were not included in free float method are as below:
- Promoters held stocks
- Any one holding stocks who has interest to control company.
- Government of India held stocks
- Stocks held by agency through Foreign Holding Route.
- Anyone holding stocks with strategic focus
- Group companies held stocks
- Employee Welfare Trusts held stocks
How weightage of stocks are calculated in Sensex 30?
First list down all 30 stocks of Sensex.
Then note down Free Float Market Cap against each of the 30 stocks. You will get the values from bseindia.com (stock page).
Once this is done, add market cap of all 30 stocks.
The individual weight of stocks can then be calculated as shown below:
The higher is the market cap (free float) of a company, higher will be its weightage in Sensex.
A simplistic representation of how weightage is calculated is shown below:
When we say Sensex is 38,000 – what does it mean?
Sensex is calculated using free-float market capitalization of individual stocks.
There are 31 companies (including Tata Motors DVR) included in Sensex.
When we say that Sensex is 38,000, it means, sum of free-float market capitalization of these 31 companies divided by an Index divisor is 38,000.
What is the base year of Sensex
Another important information we must remember is – the Base Year for Sensex calculation is 1978-79.
In year 1978-70 Sensex was assumed to be 100.
It means from year 1979 till 2019, Sensex has appreciated from 100 to 38,000 points (at rate of 16% p.a. in 40 years).
Which companies are selected for Sensex?
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 BSE.
The stock exchange follows a screening criterial to shortlist stocks for Sensex.
How it is done?
All 5,000+ companies of BSE are categorized into 4 groups. The grouping are:
- A Group,
- B Group,
- T Group &
- Z Group.
- Z-Group companies are excluded: These are companies which has not complied with BSE regulations.
- IPO’s: cannot be included in Sensex. To be eligible for Sensex, companies must be listed in BSE for minimum 3 months.
- Daily Trading: In its past 3 month cycle, the company’s stock must have been traded on every day.
- 4Q Reporting: The company must have reported its sales turnover (total income) of last 4 quarters.
Once the above preconditions are satisfied, the company is allowed to go through the following screening process:
- Screening 1 (Free Float): The shortlisted companies are listed in order of their “average three month float market capitalization”. Only top 75 ranked companies are considered for further screening.
- Screening 2 (Full Market Cap): All 5,000+ companies are ranked based on their full market capitalization (3 months average). Again, top 75 ranked companies are selected.
- The companies shortlisted in 1 & 2 above (75+75) are combined to form one list.
- Screening 3 (Trading Volume): The list of combined companies are then ranked once again based on their average traded volume (of last 3 months). Companies whose cumulated value traded is <98% are excluded from the list.
- Screening 4 (Weigh): Balance companies are again ranked based on float-market capitalization. Companies which had calculated weight of less than 0.5% are again excluded.
The balance what remains (Top 30) – gives the final list of the Sensex 30 companies.
Why to Know Stock’s Weightage?
As an investor, why we should worry about stock’s weightage in Sensex?
Frankly speaking, we should not care about it.
Our target should be “to locate any stock which is fundamentally strong and is also undervalued”.
How to know about it?
- Fundamental Strength: of a stock can be determined by studying its financial reports. These reports will tell us if the company is making enough sales, profit etc. Read: about fundamental analysis.
- Undervaluation: The best measure of undervaluation is through intrinsic value. Comparing intrinsic value with current price gives an idea of valuation. Read: about stock analysis in excel.
For some, the task of stock analysis might look like too much effort.
Such a person can look towards Sensex. Why?
Because it will help in getting one answer – which are the fundamentally super strong stocks of Indian market…
Stocks with high weightage in Sensex are necessarily one’s with strong business fundamentals.
In fact all stocks which gets included in the index are strong.
Tracking these stocks is a good way to start the process of stock investing. Read: About Google Finance portfolio tracker.
Another interpretation is possible when we know weightage of companies in Sensex.
When Sensex is bullish, we often interpret it as the whole stock market is going up.
A better interpretation can be like this:
- Stocks: Sensex is going up – Good. It means, stocks with high weightage in Sensex is moving up.
- Sector: Sensex is going up – Good. It means, sector with high weightage in Sensex is moving up.
Which are the sectors having high weightage in Sensex?
It is good 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 these 31 stocks, another easier option is to invest in index funds.
One can buy units of such index funds.
Index funds which tracks BSE SENSEX are available in the market.
These funds invest only in those stocks which are listed as Sensex scripts.
Another way of investing in Sensex is through an ETF of Sensex.