Sense and Sensex
By: will smithston | Posted: 16th June 2007
Sensex is the name coined for the Bombay stock exchange sensitive
index. Sensitive index abbreviated as Sensex, is the yardstick index for
stock markets in India. The sensex is designed scientifically based on a
particular universally accepted methodology. It was first put together
in the year 1986 and with 30 ingredient stocks. These 30 stocks
symbolized gigantic and rich organisations.1978-1979 was taken as the base year
and the base value was taken as 100. The same method continues till
date. It is in face, very popular globally.
Whenever we express the state of the market, we look for the sensex
reading. It is the most comprehensive indicator of the market. The Sensex
echoes the price movements of various stocks and also indicates market
soundness. Sensex rises and falls in a market. In case the sensex rises
the investors or traders in the market can look forward to booking
profits. While a sensex on the downside may lead to a loss for investors.
Therefore if the corporations listed on the stock market are financially
and managerially sound.
Sensex- Ingredient companies.
The sensex in India is made up of 30 companies which have a direct
bearing on the economy. These 30 companies are selected by a group of
academicians, fund managers, financial journalists and many other stock
market participants. They form the index committee.
Parameters for selection of the 30 companies.
-The stock of a company must be traded all through out the financial
year to be amongst the 30.
-The particular stock must be amongst 10 top companies whose stocks
have been traded every day in the financial year on the BSE.
-On the Bombay stock exchange listings the particular stock must have
its listing since a year.
- The company must have a good and sound record in the eyes of the
committee.
SENSEX calculation strategy and method.
"Free-float Market Capitalization" method is used to calculate the
sensitive index. According to this method, the sensex valuation mirrors the
free float market value of the 30 stock ingredients relative to the
(1978-79) base year. When we multiply the number of shares the company has
issued by the price value of the stock of the same company we arrive at
the Market Capitalization of the particular company. Later on we
multiply it further with free float factor to come up with free-float market
capitalization. The Free float market capitalization of the 30 key
corporations is further divided by the Index Divisor, a number. The index
number is the sole link to the first and base price of the sensitive
index.
The sensex journey
The sensex has been on the increase ever since early history. From 1000
points on July 25thg, 1990 to historic 10000 mark on February 7 th,
2006 after which it rose to 14000+ on December 5th 2006.However it has
been fluctuating between 13000 to 14000 since then.
But there have been several downfalls due to high volatility. In such
cases the government adapts policies that are friendly to investors and
curbs down panic.
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Tags: bearing, parameters, stock market, profits, methodology, downside, corporations, stocks, fund managers, stock markets, echoes, soundness, yardstick, market capitalization, bombay stock exchange, market participants