Full-Form of Sensex is the Sensitive Index. The stock market is one of the most popular investment avenues in India. S&P BSE Sensex index, which is the benchmark index of the Bombay Stock Exchange (BSE) in India. Many people park their savings in the Indian stock market in the hope of generating manifold returns and create wealth for them. Sensex is mainly representing the top 30 stocks that are listed on the Bombay Stock Exchange. These stocks are selected based on its providing an accurate gauge of India’s economy.

The Sensitive Index is the benchmark record of the Indian Capital Markets with wide acknowledgment among individual Investors, foreign investors, and fund chiefs. The destinations of Sensex are the following:

  1.  To measure market movements
  2. Benchmark for funds performance
  3. For index-based derivative products

How is sensex calculated :

Sensex is calculated using the “Free-float Market Capitalization” method. The level of index at any point of time reflects the free-float market value of 30 constituents stocks relative to a base period. Sensex is Calculated

What is the Free-float market capitalization?

Free float stands for the shares that are open for trading. All shares may not be Free-floating. The Free-floating market capitalization is calculated by taking the equities price and multiplying it by the number of shares readily available in the market.

What is Market Capitalization?

Market capitalization refers to the total dollar market value of a company’s outstanding shares. It is the combined worth of all the stocks of different companies within stock exchanges. This market capitalization is again multiplied by the free float factor to determine the free-float market capitalization. Market capitalization is one of the most important characteristics. That helps the investor determine the returns and the risk in the share. It also helps the Investor choose the stock. That can meet their risk and diversification criterion. Sensex is Calculated

How Sensex Works Example :

Suppose the index has two companies – A & B.

Company A has 1000 shares out of which 700 are free-floating or available for the general public to buy and sell. The price of each share is Rs.70.

Company B has 500 shares out of which 300 are free-floating. The price of each share is Rs.90

Market capital of Company A = 70000

Market capital of company B = 45000

Free-float factor for company A = 0.70

Free-float factor for company B = 0.60

Total free-float market capital of the index =

(Market capital of Company A*Free-float factor company A) + (Market capital of company B*Free-float factor company B)

(70000*0.70) + (45000*0.60) = 76000

Let us assume the base year index was 5000.

Value of Index = (Total free-float market capital of the index * 100) /Base year index

76000*100/5000 =1520

So the Value of the Index is 1520.

History of sensex :

Bombay Stock Exchange or BSE is located at Dalal Street in Mumbai. Established in 1875, BSE(Formerly known as Bombay Stock Exchange Ltd), is Asia’s first and fastest Stock Exchange in the world with the speed of 6 microseconds and one of India’s leading exchange groups. With a market cap of more than $1.40 trillion.BSE is one of the largest exchanges in the world. Over the past 143 years, BSE has facilitated the growth of the Indian corporate sector by providing an efficient capital-raising platform. Almost two decades later, this small group moved to the Dalal Street in 1875, and later, in the following year, it was recognized as an official organization by the name “The Native Share & Stock Brokers Association”.In 2017 BSE become the First listed stock Exchange of India.

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