What is Sensex- Complete Insights

 

We continually come across in the news that Sensex has risen or the market has fallen, causing panic among the share market investors. But what exactly does Sensex mean? Why is it measured in terms of points?

In this article, we have covered what Sensex is. How Sensex is calculated and what is its significance. One of the popular terms associated with the share market, Sensex, is often misinterpreted. To all the beginners, here is an article where we will discuss what is Sensex- in detail.

BSE

BSE is previously known as the Bombay Stock Exchange. It was founded in the year 1875 and is located on Dalal Street in Mumbai, India. It is Asia’s original and most active stock exchange with a speed of 6 microseconds. Furthermore, BSE is the first stock exchange to be registered in India.

BSE promotes trading with competence and transparency in equity, mutual funds, derivatives, debt instruments, and currencies.

In extension to trading, it presents other services like risk management, clearing and settlement, and investor education.

BSE Sensex is the famous equity index of BSE. It is one of the most extensively used and followed indexes. Also, BSE Sensex exchanges internationally on EUREX and on the exchanges of Brazil, Russia, China and South Africa (BRCS nations).

What do you mean by Stock Market Index?

A stock market index traces the developments in the stock market. A stock index is formulated by selecting the securities listed on the stock exchange. The standards for choosing stocks for the stock market index can be market capitalization or the industry. Even though the stocks picked for the index are restricted, they symbolise the entire Indian stock market.

Any variation in the price of these stocks affects the entire stock market index. The action of the stock index represents the emotion of the overall market and the price shifts of other financial products, including commodities. Examples of popular stock market indices in India are BSE Sensex Index and the Nifty 50 Index.

Sensex- definition

A famous stock market analyst Mr Deepak Mohoni founded the term Sensex. The term Sensex is a combination of Sensitive and Index. The Sensex is an index that exhibits the Bombay Stock Exchange (BSE).

Understanding Sensex- origin

The Sensex was started on Jan. 1, 1986. It is both a bellwether and an investable index utilised to trace the performance of India’s 30 biggest and most financially stable companies. These companies are registered on the BSE (earlier acknowledged as the Bombay Stock Exchange) and describe some of the largest and most important sectors of the Indian economy. As such, it is India’s most-traded index.

The Sensex is measured in Indian rupees (INR) and U.S. dollars. As of Aug. 31, 2021, the mean total market cap of the index was 3.71 trillion rupees.

Criteria for the stocks to be on BSE

The Sensex Index incorporates 30 stocks on BSE. These stocks are the biggest and most actively traded stocks on the BSE. The criteria for selecting stocks is as follows:

  • It should be registered on BSE
  • It must be a large to mega-cap stock.
  • Comparatively liquid stocks in nature
  • Revenue produced from core activities
  • A diversified and balanced sector involvement in line with the Indian equity market

The Sensex displays the movements in the Indian stock market. If Sensex rises, it means the prices of the underlying 30 stocks have grown. If the Sensex has reduced, it means the prices of the underlying 30 stocks have declined.

The Sensex is the oldest index in India, and people think it to be a representation of the Indian economy. Market research analysts attribute to the Sensex to know the overall growth, development in industry, country’s stock market course.

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What are the companies listed in BSE Sensex?

BSE Sensex index constitutes of the following stocks as of August 2020:

  1. Reliance Industries Ltd.
  2. HDFC Bank Ltd.
  3. Infosys Limited
  4. Housing Development Fin. Corp. Ltd.
  5. Tata Consultancy Services Ltd.
  6. ICICI Bank Ltd.
  7. Hindustan Unilever Ltd.
  8. Kotak Mahindra Bank Limited
  9. ITC Ltd.
  10. Bharti Airtel Ltd.
  11. Larsen and Toubro Ltd.
  12. Axis Bank Ltd.
  13. Maruti Suzuki India Limited
  14. Bajaj Finance Ltd.
  15. Asian Paints Limited
  16. HCL Technologies Ltd.
  17. State Bank of India
  18. Nestle India Ltd.
  19. Mahindra & Mahindra Ltd.
  20. Sun Pharmaceutical Industries Ltd.
  21. UltraTech Cement Limited
  22. Titan Company Ltd.
  23. Power Grid Corporation of India Ltd.
  24. Tech Mahindra Ltd.
  25. Bajaj Auto Limited
  26. Bajaj Finserv Ltd.
  27. NTPC Limited
  28. Indusind Bank Ltd.
  29. Tata Steel Ltd.
  30. Oil & Natural Gas Corporation Ltd.

How does Sensex Work?

The S&P BSE Sensex index, colloquially known as the Sensex or Sensex Index, is a benchmark index of 30 of India’s largest and most liquid public companies. The firms that make up the Sensex are extracted from the Bombay Stock Exchange. It is the biggest in India and one of the greatest stock exchanges in the world. Many investors around the world use the Sensex as a gauge of the entire state of the Indian economy. Not to forget, the Indian economy has grown considerably in recent decades.

How Is the Sensex Determined?

The Sensex is determined using a free-float capitalization approach. This approach is similar to the market-capitalization weighting method. In that method, the companies are weighted according to their share of the total market capitalization of the index.

Being such, Sensex provides more power to the largest companies within its index. But unlike the market-capitalization method, the free-float capitalization method only takes into the record the shares that are easily obtainable to be exchanged, as opposed to restricted shares or those held by company insiders.

How Has the Sensex Done in Recent Decades?

The Sensex has increased at a compounded charge of approximately 14% per year between 1986 and 2021. This growth shows the strong growth of the Indian economy during that time frame. In particular, this shows the development of that nation’s middle class. The Sensex decreased by nearly 40% in March 2020 amid the coronavirus health emergency but regained heavily over the rest of the year. The Sensex went on to set a new all-time high as of February 2021.

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This was all about Sensex. Did we miss anything? Would you like to know more about something else? Let us know that in the comment section below. There are many online stock trading courses for beginners, to learn more about it. Also, have a stock market-related query? Comment below and ask! We are happy to help!

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