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About Sensex

Sensex (Sensitivity Index), an index of the BSE, is a collection of the stocks of India’s 30 financially robust companies. Sensex serves as a barometer for gauging the overall economic sentiment and industry-specific advancements. It is a benchmark against which investors can compare their portfolio stocks and take better investment decisions. For instance, when the Sensex goes up, it indicates that stock prices are generally rising. Conversely, if the Sensex goes down, it suggests that there is a general decrease in share prices.

Sensex (also known as BSE 30) was launched on January 1, 1986 and the index was named by stock market expert Deepak Mohini. It initially was a basket of 100 companies but later the number of companies was reduced to 30. Sensex is the oldest index in India. As per BSE, it shares time series data from 1979. It is operated by Standard & Poor's (S&P).

Sensex Calculation

The BSE Sensex calculates its value using the Free Float Market Capitalisation method. Before September 1, 2003, it used the Weighted Market Capitalisation method. Once the 30 stocks for the index are chosen, the Free Float Market Capitalisation method is used to find the index value.

Here's how it works exactly:
  • Determining Free Float Market Capitalisation:
    Free Float Market Capitalisation = Market Capitalisation * Free Float Factor.Free Float Factor is the percentage of a company's total shares available for public trading. It excludes shares held by promoters and government.
  • Calculating Market Capitalisation:
    Market Capitalisation = Share price per piece* number of shares issued by the company.
  • Sensex Value Calculation:
    Value of Sensex = (Total Free Float Market Capitalisation / Base Market Capitalisation) * Base period index value.
The base period for Sensex calculation is 1978-79, with a base value index of 100.

Selection of the 30 stocks:

  • The BSE employs specific criteria when selecting companies for its indices:
  • A stock must be listed on the BSE for at least one year to be considered.
  • The company needs to rank among the Top 100 based on full market capitalisation.
  • Securities should have a trading history on each trading day for the previous year, with exceptions considered for extreme circumstances.
  • Inclusion requires being among the Top 150 companies in terms of the average number of trades and the average value of shares traded per day over the last year.
  • Additionally, the Index Committee evaluates a firm's track record to ensure its acceptability in the index.
The constituents of the Sensex are typically reviewed and adjusted every six months, with reconstitution generally occurring in June and December each year.

Performance of the Sensex and bottomline

The Sensex, mirroring India's stock market, has seen fluctuations in recent decades. While it generally increased, occasional declines occurred due to some factors like economic growth, government policies and global events. As a dependable measure of the overall health of the Indian stock market, it has shown robust long-term growth. Yet, acknowledging the market's short-term volatility is very important and past performance doesn't guarantee future results.In the past decade, the Sensex surged from about 18,000 to surpassing 60,000 levels. BSE Sensex crossed the historic 70,000 mark for the first time on December 11, 2023.
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