What is Sensex?

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Sensex, otherwise known as the S&P BSE Sensex index, is the benchmark index of the Bombay Stock Exchange (BSE) in India. Sensex is composed of 30 of the largest and most actively-traded stocks on the BSE, providing an accurate gauge of India's economy.

Initially compiled in 1986, the Sensex is the oldest stock index in India. Analysts and investors use the Sensex to observe the overall growth, development of particular industries, and booms and busts of the Indian economy.

Sensex experienced enormous growth in the first decade of the 21st century, rising from a close of 3,377.28 in 2002 to one of 20,286.99 in 2007.

This reflects India's gross domestic product (GDP) growth since the turn of the century, which ranks as one of the fastest in the world. According to International Monetary

Fund (IMF) estimates, India's GDP grew rapidly between 2002 and 2007, and then stunted a bit in 2008, in stride with the global financial crisis of that year, but was back on a strong growth rate in 2010.

India’s growing GDP owes much credit to the rise of the Indian middle class, which stood at less than 1 percent of the global middle class in 2000 but is expected to account for 10 percent by 2020. The middle class is an important driver of consumption demand.

The Sensex is calculated based on a free-float capitalization method, which provides a weighting for the effect of a company on the index.

This is a variation of the market cap method, but instead of using a company's outstanding shares, it uses its float, which is the number of shares that are readily available for trading.

The free-float method, therefore, does not include restricted stocks, such as those held by company insiders, which can't be readily sold.

To find the free-float capitalization of a company, first find its market cap, which is the number of outstanding shares multiplied by share price, then multiply its free-float factor

The free-float factor is determined by the percentage of floated shares to outstanding. For example, if a company has a float of 10 million shares and outstanding shares of 12 million, the percent of float to outstanding is 83 percent.

A company with an 83-percent free float falls in the 80 to 85 percent free-float factor, or 0.85, which is then multiplied by its market cap. Twelve million shares multiplied by $10 a share, then multiplied by 0.85 equals $102 million in free-float capitalization.

You may not believe what I am going to share – you may think advisors know what is Sensex and Nifty but based on my interaction with top Mutual Fund advisor when I was in Job – most of them don’t have much clue. But I can assure you, after reading this post you will not have any doubt – I have covered

Full Form of Sensex is Sensitive Index. People are happy when the Sensex goes up and upset when it goes down. Sensex is the stock market index of the Bombay Stock Exchange or BSE – it is also called BSE Sensex.

It is the market weighted stock index of 30 companies that are selected on the basis of financial soundness and performance. Usually, large and well-established companies that are are representatives of the various industrial sectors are chosen.

The Sensex is calculated using the Free-float Market Capitalization’ method. In this method, the index reflects the free-float market value of the 30 constituent stocks relative to a base period.

Free float stands for the shares that are open for trading. All shares may not be free floating. Some may be pledged, some may be in the hands of the persons or bodies having controlling interest/promoters, some shares may be government holdings etc. Such locked-in shares are not considered free floating.

The free float market capitalisation is then divided by an index divisor to get the Sensex value. This divisor adjusts for changes in stocks and other corporate actions. The divisor is the value of the Sensex Index in the base year.

You can invest in Sensex based funds to take advantage of the rising value.

The stocks in the SENSEX are financially sound. Most of them are blue chip companies. You can invest in equity funds that invest in these shares.

If the markets are volatile, the Sensex is swinging across different values, then it is better to wait for the volatility in the index to get less. (You were expecting this – better invest through SIP)

It serves as an indicator of how the economy is doing and how the companies are performing. This will help in prudent decision-making in your finances.

Bombay Stock Exchange (BSE) in India has the highest number of listed companies in the world with an estimated 5689 companies. National Stock Exchange (NSE) of India has around 1750 companies.

The most expensive stock in world is the Warren Buffet’s Hathaway, Class A, which is priced at USD 2,13,330 per share. The reason for such a high price is that the company doesn’t splits the shares.