SENSEX

We all must have come across this term- “SENSEX” very often and in a way we pretty much know the gist of what is a SENSEX. Here, I am writing this article to deepen the knowledge that we already possess about the SENSEX.

Bombay Exchange Sensitive Index, widely known as SENSEX or BSE 30 is the benchmark index of Bombay Stock Exchange, a.k.a. BSE. It is the accumulation of the top 30 financially sound and well established companies wherein the companies are representative of different sectors of the economy. The stocks of these companies are the most actively traded stocks on BSE.

SENSEX, being compiled on January 1, 1986, is the oldest stock index of the country. It is a reflector of the overall market sentiments of the economy.

In Layman’s terms, an index is simply an indicator. An indicator of an exchange that gives an overall view of the direction of movement of the stocks listed on the exchange, that is, it gives a general conception as to whether most of the stocks on the exchange has gone up or gone down. Specifying the explanation for SENSEX, we can say that, if SENSEX goes up, that is it has a green signal, then we can conclude that prices of the stocks of most of the companies on BSE has gone up. Similarly, if SENSEX goes down, that is it has a red signal, then we can conclude that prices of the stocks of most of the companies on BSE has gone down.

Now there must be a question as to how these top 30 companies are selected. So there are certain criterias- quantitative and qualitative, on the basis of which stocks are selected to be a part of the exchange. Some of them are- market capitalization; frequency and volume of trading of the stocks; volatility of the stocks and so on. Also that, each of the companies belonging to the SENSEX is assigned a weightage on the index which is directly linked to its market capitalization.

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