What Is Sensex?
Sensex (Sensitivity Index), Also known as the S&P BSE Sensex index, is the benchmark index of the Bombay Stock Exchange (BSE). It was established in 1986, and it is the oldest stock index of India.
The stocks that comprise Sensex are from Banking sector (40.45%), Information Technology sector (13.09%), Automobiles sector (10.20%), Oil and gas (10.70%), FMCG (9.75%), Metal sector (2.30%), Healthcare (2.58%) and Telecom (1.21%).
Analysts and investors use the Sensex to observe the overall growth, development of particular industries, and booms and busts of the Indian economy.
The Sensex has experienced tremendous growth in the first decade of the 21st century, rising from a close of 3,377.28 in 2002 to one of 35,587.89 in 2018. This is reflective of India's GDP growth. According to IMF estimates, India's GDP grew at an average annual rate of 8.01% between 2002 and 2007. Its GDP faltered to a growth rate of 3.89% in 2008, in stride with the global financial meltdown, but was back on a strong track with a growth rate of 10.26% in 2010. GDP growth in 2016 was expected to be over 7%, significantly higher than the projected growth rates of 2-2.5% in the U.S. and 1-2% in Japan and Europe. This economic miracle is due to the rise of the Indian middle class, which stood at less than 1% of the global middle class in 2000 but is expected to account for 10% by 2020. The middle class is an important driver of consumption demand.
How Is Sensex Calculated?
Sensex index is calculated using a free float market capitalization method. This is done by multiplying all the shares issued by the company with the price of its stock. BSE determines a free float factor that is a multiple of the market capitalization of the company. This helps in determining the free float market capitalization based on the details submitted by the company. Then, Ratio and Proportion are used based on the base index of 100. This helps to determine the Sensex.