Sensex is the shortened form of Sensitive Index. Sensex is the stock market index of the BSE or Bombay Stock Exchange. It is also called BSE Sensex or S&P BSE Sensex. BSE is the oldest stock exchange in India, with its establishment of 1986.
It is the market-weighted stock index of 30 companies. S&P BSE Index Committee selects these companies. The criteria for their selection is based on below given 5-points:
- It is listed in India on BSE,
- The company should be a Mega to Large-Cap Company,
- It should be relatively Liquid,
- It should be generating its revenues from Core Activities,
- The company should keep the sector balanced broadly in line with the Indian equity market.
Currently, the Sensex comprises of the stocks from Banking sector (40.45%), Information Technology sector (13.09%), Automobiles sector (10.20%), Oil and gas (10.70%), FMCG (9.75%), Metal sector (2.30%), Healthcare (2.58%) and Telecom (1.21%).
The base value considered of the Sensex is 100, with the base year being 1978-79.
|Kotak Mahindra Bank||1460.70||46.85(3.31%)||1414.00||1469.90||1413.95|
|Larsen & Toubro||1361.90||25.00(1.87%)||1338.00||1371.00||1333.20|
|M & M||621.25||14.45(2.38%)||609.00||623.00||607.75|
|Power Grid Corporation||182.10||0.25(0.14%)||181.85||183.50||180.60|
|State Bank of India||318.95||3.75(1.19%)||315.05||321.60||313.30|
|Sun Pharma Industry||408.00||-3.05(-0.74%)||410.55||415.70||401.85|
**The Data is based on information of 31 December 2018. Visit WealthBucket to get updated information.**
Sensex is of use to those investors and researchers who need to know the overall growth & development of particular industries. Or the ups and downs of the Indian economy.
The BSE Sensex has been experiencing visible enormous growth since the beginning of the 21st century. This growth has been a result of opening up the economy in 1991.
The Index has risen from 3,377.28 in 2002, to 20,286.99 in 2007. During this duration, the growth rate was 8.01%. It slumped to a growth rate of 3.89% in 2008. It reached 38896.63 in August 2018. Its growth in 2019-20 is expected to be over 7%. This is much higher than the expected growth of the U.S., Europe or Japan.
This growth has occurred mainly due to an increase in India’s Gross Domestic Product (GDP) growth. As per IMF (International Monetary Fund), India’s GDP grew rapidly between 2002 to 2007, and faltered a bit in 2008, keeping with the global financial crisis that year. However, it has been back with the strong growth rate since 2010. The credit goes to the rise of the Indian middle class. It stood at less than 1% of the global middle class in 2000 but is expected to rise to a whopping 10% by 2020. The GDP rises with the increase in consumption and the middle class has proven to be the driving force.
Calculating with Example
The Sensex Index is calculated using the Free Float Market Capitalization method. In this method, the index reflects the free-float market value of the stocks of the 30 companies as related to the base period.
Free Flow: Free Float means those shares that are open for trading. All shares are not considered free-floating. Those that have been pledged, or are government holdings, or maybe in possession of individuals (promoters, etc.) or entities with controlling interests. Such locked-in or pledged shares are not considered as free-floating.
Market Capitalization: It is the combined worth of all the stocks of 30 selected companies within the stock exchange. The market capitalization of a company is derived by multiplying the price of its stock and the number of shares issued by the company.
Free Float Market Capitalization: The figure derived at, in the above step, is, then, multiplied by the free-float factor to determine the free-float market capitalization. The free float factor is arrived at by studying the information that each company submits about its free-floating shares. Every company has to submit the information, quarterly, in the format given by BSE.
The free-float market capitalization of all companies is added up. This total is divided by an index divisor to get the Sensex value. This divisor is adjusted for changes in stocks and other corporate actions. The divisor is the value of the Sensex Index in the base year.
Example of Calculating Sensex:
For ease of understanding let’s take the index to contain two companies – A & B.
Company A has 1000 shares. Out of these 700 are free-floating, i.e. available for the general public to buy and sell. The price of each share is Rs.50.
Company B has 2000 shares. Out of which 1500 are free-floating. The price is Rs. 100 per share.
Market capital of Company A = 50,000 (1,000 shares x Rs. 50 share price)
Market capital of Company B = 2,00,000 (2,000 shares x Rs. 100 share price)
Free-float factor for Company A = 0.70 (i.e. free-floating shares divided by total shares)
Free-float factor for Company B = 0.75 (i.e. free-floating shares divided by total shares)
Total free float market capital of the index = (50,000 x 0.70) + (2,00,000 x 0.75) = 1,85,000
Let us now assume the base year index was 5000.
Value of Index = (1,85,000 x 100)/5000 = 3700
So the Value of the Sensex is 3700.
This is how NIFTY is calculated as well.
How to use Sensex for Mutual Fund Investments
A thorough study of the Sensex would help you in selecting between different Mutual Funds. This is how:
Make Mutual Funds investments, based on the Sensex index, to take advantage of the rising value.
The Stocks of the Companies in Sensex are BlueChip Stocks and financially sound ones. you can select the Equity Mutual Funds that invest the corpus, or part of it, in these shares.
Sensex serves as an indicator of how the economy and the market are performing, how the stocks of various companies are performing. This, generally, gives know-how about how the industries and sectors are performing. Equipped with this knowledge you can make a prudent decision to select the best mutual fund.
Or you can get yourself registered with WealthBucket. We are a platform dealing with all mutual fund investments. You can take the benefit of our assistance in all investment plans. Be it equity fund investment, Debt mutual fund, Large Cap mutual fund or Multi-Cap mutual fund, to name just a few.
Call us at +91 8750005655. You can also email at email@example.com.
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