What is Sensex & How It Is Calculated? BSE Meaning, Full Form, Objectives

Sensex: Sensex is a word which most of the people had heard somewhere whether it is on news channel or in the stock market. Initially, it was compiled in 1986 in the country and now it has been used not only in National markets but International markets too. Sensex is the most talked topic among investors and traders, however some of them don’t have complete knowledge about Sensex. The word “Sensex” is quite common and often used word in the Indian Stock Market. Are you wondering what Sensex is, what is its objective and how to calculate it? Then go through the article, it will surely help you to understand in-depth details about Sensex.

The Hindu Editorial Vocabulary Capsule- August 2020

What is full form of Sensex and what does it mean?

SENSEX stands for Stock Exchange Sensitive Index, which is a combination of two words Sensitive & Index. The analyst Deepak Mohoni coined the term Sensex for stock market. Basically, Sensex is an official index that showcase the performance of different companies that are listed in BSE (Bombay Stock Exchange) and analyse the performace of Indian market. The valuse of Sensex described the movement of market and any investor can easily identify the ups & downs of their shares as follows:

• Low value of Sensex: Share price is decreasing
• High value of Sensex:Share price is increasing

There are 30 companies listed under the stock exchange market and are chosen on the basis of overall financial well being & performances.

Objectives of Sensex

The major objectives of SENSEX has been listed below;

1. Sensex act as a benchmark: Its acts a benchmark for fund managers and investors to compare the growth of their funds in BSE as Sensex provides a complete and balanced data of all the sectors
2. Sensex is used for measuring the Indian Market Movement: BSE has been a good indicator that reflects the Indian market movements along with sentiments of traders, investors, and speculators since long time.
3. Sensex for an index-based derivative products: Mostly all investors and traders in India refers to S&P BSE Sensex for investing and trading as the accurate data and representation about the companies of Sensex. The term Sensex is also called with another name Liquid Contract in the Indian Market.

Also read; The Hindu Review August 2020: Download Monthly Hindu Review PDF

How Sensex is calculated?

Initially, Sensex used the weighted market capitalisation methodology and later on shifted to ‘Free Float market capitalization‘ methodology on September 1, 2003. Free-float is that percentage of total shares that is issued by the company that are readily available for trading in the market. It excludes shares held by promoters, government etc. Market capitalisation represents the valuation of a company. It is determined by multiplying the price of their stocks with the number of shares issued by that company. Market capitalisation = price * quantity

Free-float market capitalisation = market capitalisation * free float factor

Steps to calculate SENSEX

1. Firstly, the 30 companies are selected on the basis of various quantitative and qualitative criteria including total market capitalisation, free float market capitalisation, sectoral representation etc. These companies will be from all major sectors including Banking, IT, FMCG.
2. Then the market capitalisation and free-float market capitalisation of each of the 30 companies is calculated
3. After multiplying the market capitalization with the free-float factor, we get free-float market capitalization.
4. The free-float market capitalisation of the 30 companies is added all together and that is the total free-float market capitalisation.
5. The formulae for calculating Sensex: Sensex = (total free-float market capitalisation/ Base market capitalisation) * Base index value.

Which companies are included in SENSEX

The thirty companies that are included in the Bombay Stock Exchange:

1. Lupin
2. Tata Steel Limited
3. Wipro Limited
4. Sun Pharmaceutical Industry
5. State Bank of India
6. Kotak Mahindra Bank Limited
7. Tata Motors Limited
8. Tata Motors-DVR Ordinary
9. Tata Consultancy Services Limited
10. Mahindra & Mahindra Limited
11. Maruti Suzuki India Limited
12. Larsen & Turbo Limited
13. Power Grid Corporation of India Limited
14. Oil & Natural Gas Corporation Limited
15. Viola
16. NTPC Limited
17. ITC Limited
18. Infosys Limited
19. Hindustan Unilever Limited
20. HDFC Bank Limited
21. Hero Motor Corp Limited
22. Asian Paints Limited
23. Bajaj Auto Limited
24. Coal India Limited
25. Reddys Laboratories Limited
26. Adani Ports & Special Economic Zone Limited
27. Bharti Airtel Limited
28. Housing Development Finance Corporation Limited
29. ICICI Bank Limited
30. Reliance Industries Limited

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