How are adjustments for Bonus, Rights and newly issued Capital carried out in SENSEX?
The arithmetic calculation involved in calculating SENSEX is
simple, but problem arises when one of the component stocks pays a bonus or
issues rights shares. If no adjustments were made, a discontinuity would arise
between the current value of the index and its previous value. The Index Cell of
the Exchange periodically adjusts the base value to take care of such corporate
announcements.
Adjustments for Rights Issues:
When a company, included in the compilation of the index, issues right shares,
the market capitalisation 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
Capitalisation (see ' Base Market Capitalisation Adjustment' below).
Adjustments for Bonus Issue:
When a company, included in the compilation of the index, issues bonus shares,
the market capitalisation of that company does not undergo any change.
Therefore, there is no change in the Base Market Capitalisation, only the
'number of shares' in the formula is updated.
Other Issues: Base Market Capitalisation 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 Capitalisation Adjustment: The formula for adjusting the Base Market
Capitalisation is as follows:
New Base Market Capitalisation = Old Base Market Capitalisation X (New Market
Capitalisation/Old Market Capitalisation)
To illustrate, suppose a company issues right shares which increases the market
capitalisation of the shares of that company by say, Rs.100 crores. The existing
Base Market Capitalisation (Old Base Market Capitalisation), say, is Rs.2450
crores and the aggregate market capitalisation of all the shares included in the
index before the right issue is made is, say Rs.4781 crores. The "New Base
Market Capitalisation " will then be: Rs.2501.24 crores = 2450 X (4781+100)/4781
This figure of 2501.24 will be used as the Base Market Capitalisation for
calculating the index number from then onwards till the next base change becomes
necessary.
All About Sensex, Launch of BSE Sensex
What is Sensex in the stock market?
What
are the objectives of SENSEX?
How to
calculate BSE SENSEX?
What is the beta of SENSEX scrips?
SENSEX - Scrip selection criteria
Maintenance of SENSEX
How is the closing Index calculated?
What are the criteria for selection and review of scrips for the SENSEX?
Who selects these 30 stocks & How do they select these 30 stocks?
Dollex series of BSE indices
Book Building - About Book Building
Definition of Free-float & Determining Free-float factors of companies
Understanding Free-float Methodology & Its Major advantages
Book Building - Glossary
Companies that form the NSE Nifty Index
BSE 100 Index
BSE 200 Index
BSE 500 Index
BSE TECk INDEX
BSE BANKEX