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The benchmark index of the Bombay Stock Exchange in India is known as the Sensex. The Sensex Index comprises 30 of the BSE’s largest and most actively traded stocks, and it serves as a barometer for the Indian economy. It is market capitalization-weighted and float-adjusted. The Sensex is re-evaluated two times a year, one in June and the next in December. It is the oldest stock index, established in 1986 by one of the leading index producers, Standard & Poor’s (S&P) in India. The Sensex was used by analysts and investors to track India’s economic cycles as well as the growth and decline of specific sectors.
Table Of Contents
- What is Sensex?
- History of Sensex
- What is the Sensex Index?
- Working Of Sensex?
- How To Calculate Sensex?
What Is Sensex?
The BSE’s benchmark index in India is the Sensex. In the beginning, Sensex was only a basket of thirty stocks that represented the largest financially sold products in India. These thirty equities were listed on the BSE on January 1, 1986.
According to BSE, which was originally known as Bombay Stock Exchange, it is India’s oldest index and includes time-series data dating back to 1979.
The Sensex index serves as a barometer for the Indian stock markets for investors.
In layman’s terms, an increase in the Sensex value indicates a general increase in the price of shares. On the other hand, if the Sensex falls, it indicates that stock prices are generally falling.
History Of Sensex
After the scam, in which a famous broker extracted a large sum of money into his stock from public banks, the BSE Sensex plummeted 12.7 per cent, its worst-ever drop, on April 18, 1992.
After India’s economic growth in 1992, the index has risen exponentially. The greatest increments occurred during the twenty-first century, which increased from around 5,500 in the early 2000 to over 62,000 in March 2022. The sole reason for this increase is due to India’s emerging economy. The Indian economy is growing at the quickest rates at the global level.
The rise of India’s middle class owes to the country’s increasing economy and vice versa. According to one analysis, by 2030, about 80% of the country’s families will come under the radar of middle-income, up from around 52% in 2019. Consumer demand is largely driven by middle-class requirements.
However, in recent years, India’s economic growth has slowed, reaching its lowest level in a decade in 2019. The global coronavirus epidemic, which began in early 2020, has slowed the economy even further, casting doubt on future improvements.
What is the Sensex Index?
The changes in the stock market are tracked by a stock market index. A sensex index is made up of securities that are traded on a stock market. Market capitalization or industry can be used to choose stocks for the sensex index. Despite the fact that the index’s components are limited, they represent the whole Indian stock market.
Any change in these stocks’ prices has an impact on the overall stock market index. The sensex index change reflects market sentiment and the price movements of other financial products, such as commodities. The BSE Sensex Index and the Nifty 50 Index are two major stock market indices in India.
Working Of Sensex
The Sensex Index is a benchmark index that is responsible for measuring the performance of all those thirty organisations of India. The Bombay Stock Exchange plays a vital role in providing stock exchanges to all the companies that are capable of making up the Sensex.
Many investors use the Sensex across the world as a parameter to judge the general status of the Indian economy, which has boomed exponentially in recent years.
How To Calculate Sensex?
When the Sensex, previously known as the BSE 30, was first introduced, it was computed using market capitalisation, or “Full Market Capitalisation,” but on September 1, 2003, it switched to a “Free-float Market Capitalisation” approach. All major sensex index providers, including MSCI and FTSE, have adopted this strategy.
The free float is the percentage of a company’s total shares that are easily available for trade by the general public. It excludes promoters’ holdings, government holdings, and other shares that will not be accessible for trading in the normal course of events on the market.
Free-Float Market Capitalisation = Market Capitalisation x Free Float Factor
Let’s say Firm A has 100 shares to use as an example. Out of these 100, 70 are open to the general public and 30 are government-owned. This indicates that 70 of the shares are ‘free-floating,’ and the free float factor will be 70%.
The company’s value is determined by its market capitalisation. It is calculated by multiplying the share price by the number of shares issued.
Conclusion
In order to purchase and sell equities on the BSE and NSE, Sensex and Nifty are required. There are numerous indices that summarise stock performance depending on the industry, business size, and other factors. The Sensex Index can help you discover investor attitudes, pick stocks faster, and make passive trading more convenient. Sensex Today is the actual measurement of the sensex index on a particular date. Sensex Today value is a variable that is dynamic in nature.
