How Sensex and Nifty are built
What an index measures, how free-float weights work, and what the Sensex and Nifty 50 levels can tell you
Index levels as on 31 August 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: the Sensex is near 77,000 and the Nifty 50 is near 24,000. Does that mean the Sensex shares have done three times as well? Take a few answers and park them. The quiz returns to this question.
An index turns the prices of many shares into one number.
The number means little by itself. Its change, from one day or one year to the next, shows how the market value of those shares has moved.
Trainer notes
Stress 'change'. A level of 24,000 says nothing until it is compared with the level on another date. The level depends on the starting value the index maker chose, which is covered on slide 6.
Four words to know first
Market value
Share price × number of shares. Also called market capitalisation. It is what the whole company is priced at.
Free float
The part of a company's shares open to trading. Holdings of promoters and governments are among those left out.
Weight
A company's share of the index. A larger free-float market value gives a larger weight.
Base value
The index level fixed for a starting date. Today's level shows how far market value has moved since then.
Source for what is left out of free float: NSE Indices, Methodology Document for Equity Indices, September 2026 (Investible Weight Factors).
Trainer notes
NSE calls the free-float fraction the Investible Weight Factor (IWF); BSE calls it the Investable Weight Factor. NSE lists 22 categories of holding that are left out, including promoters, government holdings, strategic corporate holdings and shares under lock-in. BSE reviews its factors quarterly; NSE works from the shareholding pattern that companies file quarterly.
Building a three-share index: weights
THREE COMPANIES
Company A: 100 crore shares at ₹200. Free float 45%.
Company B: 40 crore shares at ₹500. Free float 60%.
Company C: 150 crore shares at ₹100. Free float 60%.
- Full market value: A = 100 crore × ₹200 = ₹20,000 crore. B = 40 crore × ₹500 = ₹20,000 crore. C = 150 crore × ₹100 = ₹15,000 crore.
- Free-float value: A = ₹20,000 crore × 45% = ₹9,000 crore. B = ₹20,000 crore × 60% = ₹12,000 crore. C = ₹15,000 crore × 60% = ₹9,000 crore.
- Total free-float value = ₹9,000 crore + ₹12,000 crore + ₹9,000 crore = ₹30,000 crore.
- Weights: A = 9,000 ÷ 30,000 = 30%. B = 12,000 ÷ 30,000 = 40%. C = 9,000 ÷ 30,000 = 30%.
Result: A and B have the same full market value. B gets more weight because more of it is free to trade.
Illustration with three invented companies and assumed figures. They do not refer to any real company.
Trainer notes
Point out that share price plays no direct part. C has the lowest price and A the second lowest, yet A and C carry the same weight. What counts is price × shares × free-float fraction.
From market value to an index level
THE BASE AND A MOVE
On the base day the free-float value of the three companies was ₹20,000 crore. The index was set at 1,000 for that day.
Today their free-float value is ₹30,000 crore.
- Index today = ₹30,000 crore ÷ ₹20,000 crore × 1,000 = 1,500.
- B's price rises 10%, from ₹500 to ₹550. Its free-float value becomes 40 crore × ₹550 × 60% = ₹13,200 crore.
- New total = ₹9,000 crore + ₹13,200 crore + ₹9,000 crore = ₹31,200 crore. Index = 31,200 ÷ 20,000 × 1,000 = 1,560, a rise of 4%.
- Check: B's weight of 40% × its rise of 10% = 4%. Had C risen 10% instead, the index would be 1,545, a rise of 3%.
Result: The index moves by each share's price change multiplied by its weight. Bigger weight, bigger pull.
Illustration with assumed figures, using the formula in the NSE Indices methodology (September 2026).
Trainer notes
The formula is index value = current free-float market value ÷ base free-float market value × base index value. C at ₹110: 150 crore × ₹110 × 60% = ₹9,900 crore; total ₹30,900 crore; index 1,545. In real indices the base market value is adjusted for share issues and constituent changes so that these events alone do not move the level.
Sensex and Nifty 50 side by side
| Sensex | Nifty 50 | |
|---|---|---|
| Maintained by | BSE Index Services Pvt. Ltd., a 100% subsidiary of BSE | NSE Indices Ltd. It is NSE's flagship index |
| Companies | 30, chosen from the BSE 100 index | 50, chosen from the Nifty 100 index |
| Starting point | Base year 1978-79, base value 100. Launched on 2 January 1986 | Base date 3 November 1995, base value 1,000 |
| Weights | Free-float market capitalisation | Free-float market capitalisation, since 26 June 2009 |
| Scheduled review | Twice a year. Changes take effect on the Monday after the third Friday of June and December | Twice a year. Changes take effect from the last trading day of March and September |
Sources: BSE Index Services, BSE Indices Methodology, September 2026; NSE Indices, Methodology Document for Equity Indices, September 2026.
Trainer notes
The BSE document gives the Sensex 'first value date' as 3 April 1979 and the base as 1978-79. The Sensex also moved from full to free-float market capitalisation in the 2000s; the current BSE document does not give that date, so it is not on the slide. The two levels cannot be compared with each other because the base values and base dates differ.
How shares enter and leave
A fixed timetable
Both indices are reviewed twice a year: the Sensex for June and December, the Nifty 50 for March and September.
An eligible pool
The Sensex picks from the BSE 100 and the Nifty 50 from the Nifty 100. A share must also have derivatives traded on it.
Size and trading tests
Six months of data are used. Companies are ranked on free-float market value and tested on how regularly and easily they trade.
No jump in the level
When one share replaces another, the calculation is adjusted so that the swap alone does not move the index.
Take-away: Entry follows published size and trading rules, applied by an index committee. It is not a view on a share's worth.
Sources: BSE Indices Methodology, September 2026; NSE Indices, Methodology Document for Equity Indices, September 2026.
Trainer notes
Exceptions: changes can also be made outside the timetable, for example after a merger, delisting or trading suspension. For the Nifty 50, four weeks' notice is given of a replacement, and at most five companies may be added in a calendar year through the scheduled reviews. The Nifty 50 review uses data for the six months ending January and July; the Sensex reference dates are the last trading days of April and October.
Price index and total return index
The level quoted in the news is the price index. Each index also has a total return version.
Price index
- Moves with share prices only.
- Ordinary dividends paid by the companies are not counted.
- This is the Sensex or Nifty 50 level seen in headlines.
Total return index (TRI)
- Share prices plus dividends, assumed reinvested in the index.
- Its return is higher by roughly the dividends paid.
- SEBI: schemes must compare performance with the TRI, from 1 February 2018.
Take-away: A fund receives dividends on its shares. Comparing it with a price index would leave them out.
Sources: SEBI circular SEBI/HO/IMD/DF3/CIR/P/2018/04, 4 January 2018; NSE Indices methodology, September 2026 (total return index).
Trainer notes
SEBI's reasoning in the circular: a price return index captures only capital gains, while the total return variant also takes in dividends, so it is the more appropriate benchmark. Exception on dividends: NSE adjusts special dividends in the price index itself. The requirement continues in SEBI's Master Circular for Mutual Funds of 20 March 2026.
Where the two indices stand
Closing levels on 31 August 2026. Levels change daily; state the date when quoting one.
- NIFTY 50 CLOSE
- 24,080Close: 24,080.40. About 24.1 times its base value of 1,000.
- SENSEX CLOSE
- 76,957Close: 76,957.27. About 770 times its base value of 100.
- NIFTY 50 DIVIDEND YIELD
- 1.17%The yield NSE publishes for the index: dividends as a share of price.
- NIFTY 50 SHARE OF NSE
- 66%About 66% of NSE's free-float market value, as the index document states.
Sources: NSE Indices daily index close file, 31 Aug 2026; NSE Indices methodology, September 2026; Sensex close as reported in the press (secondary source).
Trainer notes
Refresh these at each month-end, using market figures that are at least 30 days old. The Sensex close was checked against two secondary sources; confirm it on the BSE website. The dividend yield is the figure NSE publishes for the index. Do not comment on whether the market is high or low, or on where it may go. Market figures are shown with a lag of at least 30 days, in line with SEBI's norms on price data used for education.
If you learnt this from older material
The arithmetic has not changed. Several names and one rule have.
What older decks say
- Asia Index Pvt. Ltd. maintains the Sensex.
- IISL owns and manages the Nifty.
- Fund returns are compared with the price index.
- Nifty futures abroad trade in Singapore (SGX Nifty).
What holds now
- It is now BSE Index Services Pvt. Ltd., owned by BSE.
- IISL is now NSE Indices Ltd.
- Since 1 February 2018: with the total return index.
- They trade on NSE IX at GIFT City (GIFT Nifty).
Sources: BSE Indices Methodology, Sept 2026; NSE Indices methodology, Nov 2022 and Sept 2026; NSE news item on GIFT Nifty; SEBI circular, 4 Jan 2018.
Trainer notes
IISL stands for India Index Services & Products Ltd.; NSE IX is NSE International Exchange. The November 2022 NSE methodology still said Nifty 50 derivatives were traded at Singapore Exchange; the September 2026 edition names NSE International Exchange IFSC Limited (NSE IX). 'GIFT Nifty' is the brand name NSE IX uses for these contracts.
Four things people get wrong
Misconception'The Sensex is an average of 30 prices.'
What is trueIt is not a price average. It sets the free-float market value of the 30 companies today against their value in the base period.
Misconception'A ₹5,000 share moves it the most.'
What is trueWeight comes from free-float market value, not one share's price. A ₹100 share can carry more weight than a ₹5,000 share.
Misconception'Nifty up 1%, so my fund is up 1%.'
What is trueOnly a portfolio holding the same shares in the same weights moves with the index. Most portfolios differ from it.
Misconception'The Nifty level includes dividends.'
What is trueThe quoted level is a price index. Dividends are counted only in the total return version.
Trainer notes
On the third point: an index fund or ETF aims to match its index but shows a small gap, called tracking difference, because of costs and cash holdings. On the fourth: special dividends are an exception and are adjusted in the price index.
Check yourself
Question 1: An index has two companies. X has a free-float market value of ₹6,000 crore and Y ₹4,000 crore. X's price rises 5% and Y's does not move. By how much does the index rise?
Answer: 3%. X's weight is 6,000 ÷ 10,000 = 60%, and 60% × 5% = 3%. Check: the total goes from ₹10,000 crore to ₹10,300 crore.Question 2: A factsheet compares a scheme's return with the 'Nifty 50 TRI'. What does the TRI add to the Nifty 50 level seen in the news, and why is it used?
Answer: The TRI adds the dividends paid by the 50 companies, assumed reinvested, to the price movement. SEBI requires schemes to benchmark against the total return variant from 1 February 2018, because a scheme also receives dividends on the shares it holds.Question 3: A client says: 'The Sensex is near 77,000 and the Nifty is near 24,000, so the Sensex has done three times as well.' What is wrong with this?
Answer: The levels cannot be compared. The Sensex started at 100 for 1978-79 with 30 companies; the Nifty 50 started at 1,000 on 3 November 1995 with 50 companies. Only percentage changes over the same period can be compared.
Sources and disclaimer
Sources for the figures in this explainer
- Sensex: 30 companies, base 1978-79 = 100, launch 2 Jan 1986, selection from BSE 100, review dates: BSE Index Services Pvt. Ltd., BSE Indices Methodology, September 2026.
- Nifty 50: 50 companies, base 3 Nov 1995 = 1,000, free float from 26 June 2009, review rules, formula, 66% coverage: NSE Indices Ltd., Methodology Document for Equity Indices, September 2026.
- Total return benchmarking from 1 Feb 2018: SEBI circular SEBI/HO/IMD/DF3/CIR/P/2018/04, 4 January 2018; continued in SEBI Master Circular for Mutual Funds, 20 March 2026.
- Nifty 50 close 24,080.40 and dividend yield 1.17% on 31 Aug 2026: NSE Indices daily index close file for that date.
- Sensex close 76,957.27 on 31 Aug 2026: Kotak Neo market update, 1 Sept 2026, and Navia monthly wrap for August 2026 (secondary sources).
- Companies A, B, C, X and Y and their figures are invented for illustration. They do not refer to any real company.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).