Sensex- A Succinct Look

Sensex is a measure of how the entire economy is performing as a whole. Sensex is the BSE Sensitive Index. It was established in 1875 and oldest stock exchange in Asia. In 1956 it obtained the permanent recognition from Government of India under the Securities Contract (Regulation) Act, 1956.Sensex is made of 30 stocks of different companies belonging to 13 sectors. These stocks are the representatives of the overall stock market performance vibe. These shares are not selected arbitrarily but by the Index Committee applying varied conditions e.g. the stock must have been traded on each & every trading day on stock exchange for past one year. The numbers of stocks are 30 only but they portray about 40 or 50% of market capitalization. Sensex captures price movements on the basis of stock specific information e.g. new product launch, take over made by the company etc. or information regarding the economy as a whole e.g. stability of the govt., budget announcement, taxation policy etc.

There are different methods of calculating Sensex e.g. Market Capitalization method, free- float market capitalization etc. The later one is internationally followed by MSCI, FTSE, Dow Jones, S& P etc.April, 2006 sensex reached its ever highest 12,040. A positive indicative of the fact that the economy as a whole is performing well, especially in the sectors that are under the umbrella of sensex i.e. 30 stocks form 13 sectors. Again for more specification you can refer to the sectoral indices e.g. Bankex, IT Index, Oil & gas Index, FMCG Index etc. Sensex has 1978- 79 as its base year with base value being 100 which is depicted in notational form as 1978- 79= 100. But you must not opine about the economic performance of the country as a whole on the basis of sensex value, with closed eyes. This is because, if a sun rise stock is doing well in the market but is not in the list of 30 stocks, its vibrant performance will not be reflected in the sensex value. On the other hand if there is a south ward movement in Bankex but a spurt in FMCG Index, outweighing the effect of negative impact of ebbing Bankex, sensex will reflect an exquisite buoyancy of the stock market. We must consider the sectoral indices for more specific idea about the economy in totality.