Index Weighting
The rule determining how much of an index each constituent represents.
Formula
Free-Float Weight = Constituent's Free-Float Market Capitalisation / Sum of All Constituents' Free-Float Market Capitalisations
Unit
%
In depth
Weighting is the most consequential design choice in an index, because it determines what the index actually measures. Free-float capitalisation weighting, used by the Nifty and Sensex, means the largest companies dominate and the index tracks a value-weighted average rather than the typical company — which is why an index can rise while most of its constituents fall. Capitalisation weighting also mechanically increases exposure to whatever has already risen, which is a momentum tilt built into the structure. Equal weighting and fundamental weighting are alternatives that produce different tilts, not superior ones.
Worked example
If the top five constituents carry 38% of an index's weight, a 10% rise in those five lifts the index 3.8% by themselves. The remaining forty-five constituents could fall on average and the index would still be up.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Index Weighting” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.