Meaning of Sensex

While most people will be familiar with the term Sensex in relation to Indian stock markets, some may not know the correct answer to the question What is Sensex? The BSE Sensex acronym, which is a reference to the Bombay Stock Exchange Sensitive Index, was created by Deepak Mohanti. It is the oldest stock exchange index in India and was first compiled in 1986. It includes 30 companies that are the most traded on Bombay Stock Exchange. The base year for the calculation was 1978-79. Sometimes it is called the BSE 30. Its composition is reviewed biannually in June and December.

The following criteria must be met in order for a company to be included in the index:

• It must be listed on the Bombay Stock Exchange in India.
• It must be mainly composed of mega-cap stocks.
• It should be liquid.
• The sector must be balanced with the country’s equity market.
• Coactivities are required to generate earnings.

Calculation

The index's value at any given time indicates the free-float market value of all 30 stocks that it is composed by, based on a base period. The original calculation of the index used the full market capitalization method until 2003. Market capitalization is the sum of the stock price and the number of shares that have been issued. This included all outstanding shares of the company, as well as restricted shares that were issued to employees who could not be easily bought or sold.

In response to the question "What is Sensex calculation based on?" The free float capitalization method is used to calculate the index. This method is used by many of the major indices around the globe, including the S&P and Dow Jones. This uses a value known as the free floating factor. It is the ratio between the total outstanding shares and the floated shares issued to a company. Multiplying the market capitalization by this value will give you the free float capitalization of the company. This can be used to measure the company’s influence on the index.

The index divisor, a value that is always comparable across time periods, serves to adjust for events such as corporate actions or scrip substitution. The Sensex is updated every 15 seconds during market hours using index scrips prices based on the most recent trades. The Sensex's end value for the day can be determined using the weighted average trades made on each constituent within the last 15 minute. If there are no trades on any of its constituents within the last 15 minutes, or throughout the day, then the closing price or the closing price of the previous day is taken.

The index's free float capitalization will be adjusted if a company includes in it issues right shares. A proportional offset to the market cap is made. If bonus shares are issued, adjustments to the number taken into the calculator are made without any changes to market capitalization. In the event of mergers, spin-offs or conversion of debentures, adjustments to the base market capitalization may be made.

Adjustments to base year aid are made to ensure that actions such as issuing capital, rights issues or corporate announcements, as well as the replacement and issuance of constituent stocks have no impact on the Sensex's historical value and meaning over long periods of time.

Conclusion

The Sensex's time-varying value can be used to gauge market behavior, benchmark portfolio performance, compare investments, and analyze Index Funds, Index Futures, or Index Options.

It is used by analysts, investors, and traders to assess the economy's behaviour on a daily basis and how it reacts to both domestic and global socio-economic and political events. Nervous eyes are focused on the fluctuations in the sensex during COVID-19. This has already led to the worst crash in its history, with the stock plummeting by 3,935 points.