The Bombay Stock Exchange SENSEX (portmanteau of sensitive and index) also referred to as BSE 30 is a free-float market capitalization-weighted index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. The 30 component companies which are some of the largest and most actively traded stocks are representative of various industrial sectors of the Indian economy.
The SENSEX is regarded as the pulse of the domestic stock markets in India. As of 21 April 2011, the market capitalization of SENSEX was about 29,733 billion (42.34% of market capitalization of BSE), while its free-float market capitalization was 15,690 billion.
For the premier Bombay Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called The Stock Exchange, Mumbai by paying a princely amount of Re 1. Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai in 1986 came out with a stock index (SENSEX) that subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.
The Bombay Stock Exchange (BSE) regularly reviews and modifies its composition to be sure that it reflects current market conditions. The index is calculated based on a free float capitalization method—a variation of the market capitalization method. Instead of using a company's outstanding shares it uses its float, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by promoters, government and strategic investors.
Initially, the index was calculated based on the ‘full market capitalization’ method. However this was shifted to the free float method with effect from September 1, 2003. Globally, the free float market capitalization is regarded as the industry best practice.
The calculation of SENSEX involves dividing the free float market capitalization of 30 companies in the index by a number called index divisor. The divisor is the only link to original base period value of the SENSEX. It keeps the index comparable over time and is the adjustment point for all index adjustments arising out of corporate actions, replacement of scrips, etc.
The index has increased by over ten times from June 1990 to present. Using information from April 1979 onwards, the long-run rate of return on the BSE SENSEX works out to be 18.6% per annum, which translates to roughly 9% per annum after compensating for inflation.
SENSEX is influenced by a large no. of factors including Company Earnings, Global Cues, Investor sentiments, Sector Slowdowns, Country's economy, Industrial policy changes, demand and supply, liquidity with banks and many more.
The SENSEX has touched many milestones in its 128 years of experience. On July 25, 1990, the SENSEX touched the four-digit figure for the first time and closed at 1,001. On February 29, 1992, the SENSEX surged past the 3000 mark in the wake of the market-friendly Budget announced by Manmohan Singh. The information technology boom helped the SENSEX to cross the 6,000-mark and hit and all time high of 6,006 on February 11, 2000.
The biggest milestone was surpassed by SENSEX on January 8, 2008 by touching all time peak of 21078 before closing at 20873. Investors are full of hope and confidence that SENSEX would achieve many more milestones in the future.
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