Sense And Sensex

By Charles Smithston 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.

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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