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What is the BSE Sensex index?

BSE Sensex index

What is sensex? It's the benchmark index of the Bombay Stock Exchange (BSE). It tracks the movement of 30 of the largest and most actively-traded stocks on the BSE, and is a key indicator of India’s economy as a whole. It's the oldest stock index in the country, created in 1986.

Key takeaways:

  • The BSE Sensex is a stock market index that tracks the performance of the top 30 companies listed on the Bombay Stock Exchange (BSE) in India.

  • The BSE Sensex is calculated based on the market capitalization of its constituent companies, with the weights of individual stocks determined by their free-float market capitalization.

  • The BSE Sensex is considered a benchmark for the Indian stock market and is widely followed by investors, analysts, and financial institutions.

  • The BSE Sensex is an indicator of the overall health of the Indian economy and is often used to assess the performance of the country's corporate sector.

Where have you heard about the BSE Sensex index?

India is one of the world’s fastest growing economies, so analysts and investors keep a close eye on the Sensex to monitor growth in particular industries. As of February 2017, some of the top shares listed on the Sensex include HDFC Bank, Infosys Technologies and Tata Steel.

What you need to know about the BSE Sensex index

The composition of the BSE Sensex is reviewed regularly to reflect changes in volume of trading and volatility. It has seen huge growth in the past 15 years, rising from a close of 3,377 in 2002 to just under 20,287 in 2007. In March 2015 it broke 30,000 for the first time.

The surge in India's economic growth has largely been put down to the rise of the Indian middle class, which is expected to account for 10% of the global middle class by 2020.

How is the sensex calculated?

The BSE Sensex is calculated based on the free-float market capitalization of its constituent companies. Free-float market capitalization is the total market value of a company's outstanding shares, adjusted for shares that are not available for trading, such as those held by promoters, governments, or strategic investors.

To calculate the BSE Sensex, the free-float market capitalization of each of the 30 constituent companies is multiplied by its weight, which is determined based on its free-float market capitalization relative to the total free-float market capitalization of all 30 companies.

The formula for calculating the BSE Sensex is:

BSE Sensex = (Sum of free-float market capitalization of all 30 constituent companies x Base Index Value) / Divisor

The base index value is the value of the index as of January 1, 1979, and the divisor is a number that is used to adjust for changes in the market capitalization of the constituent companies due to factors such as stock splits, mergers, and delistings. The divisor is adjusted periodically to ensure that the BSE Sensex reflects the true market value of its constituent companies.

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