What is Sensex?
Sensex is the short form of the Bombay Stock Exchange Sensitive Index, an Indian stock market index. The Sensex is considered one of the most widely followed equity indices in the country, reflecting the performance of the Indian stock market. It is a market-capitalization-weighted index, meaning that the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The Sensex comprises 30 of the largest and most liquid companies listed on the Bombay Stock Exchange (BSE). It is widely used as a barometer of the Indian economy and the performance of the Indian stock market. The level of the Sensex is updated in real-time during trading hours, and it is widely reported in both the Indian and international financial media.
What is the Bombay Stock Exchange or BSE?
The Bombay Stock Exchange (BSE) is one of the oldest stock exchanges in Asia, established in 1875. It is located in Mumbai, India, and is the first stock exchange in the country. The BSE is a platform that facilitates trading securities such as stocks, bonds, and derivatives between buyers and sellers. The exchange operates a trading system, provides a market for securities, and offers various other services such as index calculation, market data dissemination, and clearing and settlement trades. The BSE has a strong reputation for its market integrity, transparency, and efficient systems and processes, which has made it a popular choice for Indian and foreign investors looking to invest in the Indian capital markets.
How is Sensex calculated?
The Sensex is calculated using the free-float market capitalization-weighted method. This means that the level of the index reflects the total market value of all the stocks in the index relative to a particular base period, adjusted for any corporate actions such as stock splits and bonuses. The market capitalization of a stock is determined by multiplying the price of the stock by the number of its outstanding shares. The level of the Sensex is calculated by summing the market capitalization of all the stocks in the index, adjusted for free float, which is the portion of shares readily available for trading in the market. The free-float market capitalization method considers only those shares readily available for trading and excludes the shares held by the promoters, government, and strategic investors. This method is widely used for calculating stock market indices because it provides a better reflection of the market value of the companies in the index.
The formula to calculate the Sensex is as follows:
Sensex = (Free float market capitalization of 30 companies / Base market capitalization) x Base value of the index.
Here, the market capitalization of each stock is calculated by multiplying the stock’s price by the number of its outstanding shares. The free float factor is used to adjust the market capitalization of each stock to reflect only the portion of shares readily available for trading in the market. The index’s free-float market capitalization is the sum of the free-float market capitalizations of all the stocks in the index.
The level of the Sensex is updated in real-time during trading hours and is widely reported in both the Indian and international financial media.
The list of companies that form SENSEX
The 30 companies that currently form the SENSEX, as of my knowledge cut-off in 2021, are:
- Adani Ports and Special Economic Zone Limited
- Asian Paints Limited
- Axis Bank Limited
- Bajaj Auto Limited
- Bharti Airtel Limited
- Bharat Petroleum Corporation Limited
- HDFC Bank Limited
- Housing Development Finance Corporation Limited
- ITC Limited
- Infosys Limited
- Kotak Mahindra Bank Limited
- Larsen & Toubro Limited
- Maruti Suzuki India Limited
- HDFC Limited
- Hindustan Unilever Limited
- NTPC Limited
- Oil and Natural Gas Corporation Limited
- Power Grid Corporation of India Limited
- Reliance Industries Limited
- State Bank of India
- Tata Consultancy Services Limited
- Tata Motors Limited
- Tata Steel Limited
- Tech Mahindra Limited
- UltraTech Cement Limited
- Bajaj Finserv Limited
- HCL Technologies Limited
- IndusInd Bank Limited
- Mahindra & Mahindra Limited
- Sun Pharmaceutical Industries Limited
What is the difference between Sensex and Nifty?
Sensex and Nifty are two of the most widely followed stock market indices in India. While both indices reflect the performance of the Indian stock market, there are some key differences between the two:
- Composition: The Sensex consists of 30 of the largest and most liquid companies listed on the Bombay Stock Exchange (BSE), while the Nifty consists of 50 of the largest and most liquid companies listed on the National Stock Exchange of India (NSE).
- Method of Calculation: The Sensex is calculated using the free-float market capitalization-weighted method, while the Nifty is computed using a modified market capitalization-weighted method that takes into account the total market capitalization of each company in the index rather than just the portion of shares that are readily available for trading in the market.
- Representation of the Market: The Sensex is considered a barometer of the Indian economy and the performance of the Indian stock market. In contrast, the Nifty is considered a broader representation of the Indian stock market, reflecting the performance of a wider range of companies across different sectors of the economy.
- Exchange: The Sensex is maintained by the Bombay Stock Exchange (BSE), while the Nifty is maintained by the National Stock Exchange of India (NSE).
Sensex and Nifty are widely followed by investors, financial market participants, and the media as indicators of the performance of the Indian stock market and the Indian economy.
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