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An index divisor is a mathematical number, used in the calculation of a stock index like Sensex & Nifty. This number is calculated by dividing the base year’s index value by base period’s market capitalization of the concerned stock market.
Every stock market’s index (like Nifty) is calculated by making a comparison between current market capitalization of the constituents of an index and base year’s market capitalization of the constituents of that index. This divisor is the only link between original base period value and the current stock market index’s value.
As the base year for a stock market remains unchanged, the value of index divisor also remains the same.
For the calculation of Sensex, base year is 1978 – 1979 and base index (value of Sensex at that point of time) is 100. Let’s suppose at that point of time, market capitalization of the constituents of Sensex was 60,000 then, the
Index divisor is:
5 thoughts on “Definition of index divisor”
what is the actual market capitalization value during 1978-79 ? is it 60000 only ? could you please clarify my doubt?
No, 60,000 is just an imaginary figure taken only to explain the topic.
Very convincing post.