What is Sensex?

To make it simpler to understand the concept of Sensex, let’s answer all your doubts one after another! 

What’s the Definition of Sensex? 

Sensex is a combination of two words – “Sensitive” and “Index”. Simply stated, Sensex is a basket of the top 30 stocks in India listed under the Bombay Stock Exchange. For BSE, Sensex denotes the benchmark index for all the stocks in India. Therefore, if any change in the supreme Sensex happens, the stock market also shambles. 

What’s the Origin of Sensex? 

On January 1, 1986, Deepak Mohani, a popular stock market analyst of his time, convinced the idea of Sensex to the Bombay Stock Market. At that time, the initial point value of the BSE Sensex was around 750 points. The oldest stock index in India, Sensex proves to be of great help for exploring stock data from the past as it provides time series data from as early as 1979. 

What’s the Methodology for the Calculation of Sensex? 

As of now, the Bombay Stock Exchange calculates the Sensex based on the Free Float Market Capitalization Method. However, before 2003, a different weighted methodology of market capitalization was used to calculate the Sensex. 

The free float market capitalization method is based on the idea of counting only the “available-for-sale” shares of a company and excluding the outstanding shares for calculating the index. 

Let’s understand the formula:

Free Float Market Capitalization = Market Capitalization X Free Float Factor.

Here, 

• Market capitalization is simply the current market value of the company (Share Price/Share* Number of share endowed by the company)
• The free float factor is the percentage of the total shares that the company has issued for sale and are available in the market to trade. (Note: shares that belong to the government and are not available for the common public to trade don’t get counted in the free float factor)

Now that you know about the Free Float Market formula, here’s how to calculate the Sensex –

Sensex Value = (Total free-float market capitalization/ Base market capitalization) * Base period index value 

Note: The base year for Sensex is 1978-79.

Composition of Sensex India

The Sensex index is composed of 30 top Indian stocks and the composition varies a lot:  

What is the importance and relevance of the Sensex?

From stock market investors to Indian economy analysts, they all highly rely on the Sensex to understand the fluctuation in the Indian Stock Market as well as in the Indian economy. As the Sensex compromises the top 30 companies in the Bombay Stock Exchange, any change in the Sensex also influences the stock market and the Indian economy. Therefore, Sensex is considered a highly crucial tool for investors to make informed investments. 

Sensex and NIFTY are probably the top two names on the tongue of every stock investor! However, many people still face a hard time distinguishing the two. While they both are two of the biggest indices in India, there’s a lot that differentiates them. The differences between these two vary from the number of stocks to the authorities holding these indices.  

This blog will help you significantly in understanding both the Indian indices and learning what makes them different from each other! All in all, In this blog, we’ll discuss everything you need to know about these two indices. 

Read on if you want to know about:

• What is Sensex
• What is NIFTY
• Difference between Sensex and NIFTY
• Similarities between Sensex and NIFTY

So, without any further ado, let’s get started!