BSE SENSEX

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.

Ever since first published on 1st January 1989, the BSE Sensex, also known as S&P Bombay Stock Exchange Sensitive Index has been regarded as one of the core indices of the Indian Stock market. The term Sensex is a combination of two words Sensitive and Index and was coined by Deepak Mohoni in 1989. 

As per Sensex’s historical data, in 1989, the BSE Sensitive index was at around 750 points. A year later, in 1990 the index touched the four-digit mark of 1000 points, for the first time. Then by February 2006, it touched 10,000 points and unlocked another milestone. It continued to grow, till 2020, however, the index fell due to the unprecedented pandemic. Sensex in the year 2021, finally recovered and achieved a record high of 50,181 points. The base year for Sensex is considered as 1978-79 and the base value is taken as 100.

Breaking Down

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?

The BSE Sensex value is calculated after selecting the 30 stocks for the index. BSE Sensex also uses the Free-float market capitalization methodology, the same as NSE Nifty.

The steps are:
1.    Determine the free-float market capitalization value of the 30 selected companies using the formula:
Free-Float Market Capitalization = Market Capitalization × Free-Float Factor. 
Here, the free-float factor is the percentage of total shares of company issues that are readily available for the common public to trade. Whereas, market capitalization is the market value of the company. The market capitalization value is the product of share price per share and the number of shares issued by the company. 
2.    After determining the free-float market capitalization value, the BSE Sensex value can be calculated:
Value of Sensex = (Free float market capitalization/ Base market capitalization) × Base period index value.
 

Scrip Selection Criteria

The general criteria for scrip selection are:

1. The scrip is required to have a listing history of at least 3 months at BSE. This requirement is reduced to 1 month if the newly listed company has a full-market capitalization ranking in the top 10 of the list of BSE Universe. 
2. The scrip should have traded every day for the last 3 months. 
3. The scrip should be in the top 100 companies listed by the final rank.
4. The weightage of each scrip based on the three-month average free-float market capitalization should be at 0.5% of the index.
5. A balanced representation of the company in the Universe of BSE
6. The company should have an acceptable track record.