Introduction
Sensex: An abbreviation for Sensitive Index.
Importance: It is a benchmark index of the Bombay Stock Exchange (BSE),
representing the performance of the top 30 companies listed on the BSE.
Meaning of Sensex
Definition: Sensex is a stock market index that tracks the share prices of 30 financially
stable and significant companies listed on the BSE.
Purpose: Provides a gauge of the overall health and trend of the Indian equity market.
History and Background
Inception: Launched on January 1, 1986.
Developer: Created by the Bombay Stock Exchange (BSE).
Base Year: The base year for Sensex is 1978-79, with a base value of 100.
Methodology of Sensex Calculation
Free-Float Market Capitalization Method:
o Market Capitalization: The total market value of a company's outstanding
shares.
o Free-Float Factor: The proportion of shares available for trading by the public.
Criteria for Inclusion in Sensex
Market Capitalization: Companies with high market capitalization are considered.
Liquidity: Companies with high trading volumes and liquidity.
Sector Representation: Includes companies from diverse sectors to ensure broad market
representation.
Track Record: Companies with consistent financial performance and good corporate
governance.
Impact on Stock Prices
Investor Sentiment: A rising Sensex typically indicates positive investor sentiment,
while a falling Sensex indicates negative sentiment.
Economic Indicator: It serves as a barometer for the Indian economy.
Influence: The performance of companies in the Sensex can affect their stock prices and
the prices of other stocks in the market.
Factors Affecting Sensex
Economic Policies: Government policies like fiscal and monetary policies can impact
Sensex.
Global Events: International incidents, such as geopolitical tensions, can influence the
index.
Company Performance: Earnings reports, mergers, and acquisitions can affect the
index.
Investor Behavior: Market sentiments, rumors, and speculative activities can also impact
Sensex.
Regulations and Oversight
SEBI (Securities and Exchange Board of India):
o Regulates the stock market to ensure transparency and fair practices.
o Implements rules to protect investors.
BSE's Role:
o Monitors the composition of the Sensex and makes necessary adjustments.
o Ensures that the index remains a true reflection of the market.
Role of Sensex in the Indian Economy
Barometer: Acts as a barometer for the performance of the Indian stock market.
Benchmark: Used by mutual funds, hedge funds, and portfolio managers as a benchmark
for performance comparison.
Investor Confidence: Builds confidence among domestic and foreign investors by
reflecting market stability and growth potential.
Conclusion
Summary: Sensex is a vital indicator of the performance of the Indian stock market and
the economy. It helps investors make informed decisions by providing a snapshot of the
market trends.
Future Prospects: As the Indian economy grows and evolves, Sensex will play a crucial
role in reflecting market dynamics and investor sentiment.
