Sensex and Stock Market

Sensex is the benchmark index of the BSE in India. It was launched on January 1, 1986 as a basket of 30 stocks representing the country’s largest, financially-sound companies listed on the BSE.

The term ‘Sensex’ is a blend of words ‘Sensitive’ and ‘Index’ and was coined by stock market expert Deepak Mohini. The Sensex reflects the movements in the Indian stock market. It is considered the benchmark index of the Indian stock market. It is the oldest index in India and provides time series data from 1979, BSE, which was previously known as Bombay Stock Exchange, says on its website.

The bellwether index reflects the sentiment of the market and serves as a benchmark for fund managers to compare the performance of their funds. For investors, Sensex acts as a proxy for the Indian stock markets.

How is the Sensex calculated?

Sensex, which is also referred to as BSE 30, was calculated based on the market capitalisation or “Full Market Capitalisation” when it was launched but shifted to a “Free-float Market Capitalisation” methodology from September 1, 2003. This method is used by all major index providers including MSCI and FTSE.

Free-float is that proportion of total shares issued by the company that is readily available for trading to the general public. It does not take into account promoters’ holding, government holding, and other shares that will not be available in the market for trading in the ordinary course of events.

Free-Float Market Capitalisation = Market Capitalisation x Free Float Factor

To give an example, let’s assume that Firm A has 100 shares. Out of these 100, 70 are available to the general public and 30 are owned by the government. This means that 70 are ‘free-floating’ shares and thus the free float factor will be 70%.

‘Market capitalisation’ is the valuation of the company. It can be determined by multiplying the price of a share with the number of shares issued.

To calculate Sensex:

– The market capitalisations of all 30 companies in the index are determined.

– The Free Float market capitalisation of all 30 companies is calculated.

– Free Float market capitalisations of all the firms are added to get a total.

– Formula of Sensex is applied; Sensex = (total free float market capitalisation/ base market capitalisation) * Base index value.

– The base year to calculate Sensex is 1978-79 and the base value is static but it has to be changed. According to BSE, Rs. 2501.24 crore is to be used as the base market capitalisation.

– The base index value is 100.

So, Sensex = free float market capitalisation of 30 firms /25041.24 crores*100

The Sensex is a major stock market index in India, tracking the performance of the country’s leading companies. It is likely that the performance of the Sensex in 2022 will be influenced by a combination of these factors, and analysts will be closely monitoring the stock market for updates on its performance. It’s also worth noting that predicting stock market performance can be challenging, and past performance is not necessarily indicative of future results.

The Indian stock market had a strong performance in 2022, driven by a combination of strong economic growth and a stable political environment. The Sensex and Nifty indices reached record highs, driven by gains in the banking, IT, and FMCG sectors. However, the market also saw some volatility due to concerns about rising inflation and monetary policy tightening by the Reserve Bank of India.