Sensex is the benchmark index of BSE (Bombay Stock Exchange) in India. It provides a gauge of the Indian economy. It consists of the 30 largest and most actively traded stocks on the Bombay Stock Exchange. ‘Sensex’ is float-adjusted and market capitalization-weighted as well. The sensex gets reviewed semi-annually every year in June and December. It is the oldest stock index in India which was created in 1986. Sensex is operated by Standard and Poor’s (S&P). It is used by analysts and investors for observing the cycle of India’s economy and for tracking the development and decline of certain industries.
Launched on Jan 1, 1986, sensex is a bellwether and an investable index which is used for tracking the performance of India’s 30 largest and most financially sound companies. These companies which are decisive sectors of the Indian economy are listed on the BSE. In short, it is India’s most-tracked index.
Sensex is calculated in INR and USD.
The methodology of sensex evolved over the years with the growth of the Indian economy. Earlier sensex was calculated based on the market cap, later on it was shifted to a free-float capitalization method. It helped in providing a weighting for the effect of a company on the index. The index makes use of the company’s float rather than its outstanding shares. The index doesn’t include restricted stocks which can’t be sold. This includes those held by the company insiders.
The objectives of the index are framed by S&P BSE index committee.
- It should be listed in India on BSE.
- They have to be a large-to mega-cap company.
- The stocks have to be relatively liquid.
- Companies should be able to produce revenue from core activities.
- The sector should be balanced, it should be in line with the Indian equity market.
The BSE Sensex witnessed its worst ever fall on April 18, 1992. It plunged by 12.7 percent. This was the aftereffect of the revelation of a scam involving prominent broker who siphoned money from the public banking sector inorder to pump money into stock.
Eversince India opened up its economy in 1991, the index experienced tremendous growth. The biggest gain was witnessed in the 21st century when it increased from 5,000 in early 2000 to more than 42,000 in January 2020. This has been a result of India’s rising economy, which is growing at one of the fastest paces in the globe.
However post pandemic, India’s economic growth has slowed down considerably. The outbreak of the novel coronavirus has cast shadows over future gains.
How does sensex work?
Sensex is basically a benchmark index of India’s 30 largest and most liquid public companies. These companies are drawn from the Bombay stock exchange. It is the largest in India and one of the largest stock exchanges in the world. Investors across the world use sensex as a barometer of the Indian economy.
Sensex is calculated with the help of free-float capitalization method. It is pretty similar to the market-capitalization weighting method. Sensex tends to give more weightage to the largest companies within its index. But it should be noted that in the free-float capitalization method, account shares which are freely available to be traded are only taken into consideration, it does not include restricted shares or those held by company insiders.
Between 1986 and 2021, the sensex has grown at a compounded rate 14 percent per year. This is a proof for the outstanding economic growth achieved by our country during the time period. It indicates the expansion of the nation’s middle class as well. The sensex witnessed a slump during the corona days, but seems to have regained its momentum over the past few months!
Indian Stock Market Timings
Stock market trading can be done only during a particular time interval in India. Retail customers will have to perform such transactions via a brokerage agency between 9.15 a.m. to 3.30 p.m. on weekdays. During this period, investors undertake purchase/sale of securities listed on the main stock exchanges in India- Bombay Stock Exchange and National Stock Exchange. The stock market timings are the same for both the stock exchanges.
Read more:World Bank