Sensex is the index of BSE Ltd. Nifty is the index of the National Stock Exchange.
The Sensex is essentially an index of all the main companies listed on the Mumbai-based BSE. On the other hand, the Nifty is an index of all the main companies listed on the NSE (National Stock Exchange).
Sensex is an index composed of the top 30 stocks out of about 5000 listed on the BSE. Assumedly, these 30 stocks represent the market.
Mr. Deepak Mohoni, a stock market analyst, coined the word Sensex. Sensex is a combination of the words Sensitive and Index. The Sensex is an index that measures the performance of the Bombay Stock Exchange (BSE).
The Sensex Index consists of 30 BSE equities. These equities are the most actively traded and most valuable on the BSE. The following are the selection criteria for stocks:
Included on the BSE
It should be a stock with a big to mega cap market capitalization.
comparatively liquid shares
Earnings derived from core operations
A sector allocation that is varied and well-balanced by the Indian equities market
The sensex online mirrors the fluctuations of the Indian stock exchange. If the Sensex rises, it indicates that the prices of the 30 underlying equities have risen. If the Sensex has declined, it indicates that the 30 underlying stock prices have decreased.
People regard the Sensex, India’s oldest indicator, to be a reflection of the Indian economy. Market research specialists use Sensex to comprehend the country’s overall growth, industry development, and stock market trend.
Several Important Considerations
The index is comprised of 30 companies chosen based on their free-float market capitalization. Free float market capitalization consists primarily of shares that are freely available for trading and have no lock-up period.
During market hours, the trading system uses the prices of the index scripts to calculate and distribute Sensex every 15 seconds in real-time.
If the Sensex rises, it indicates that the prices of the majority of stocks on the index have increased. This is indicative of a comparable pattern on the BSE. In contrast, a decline in the Sensex indicates that the majority of index companies did poorly on that particular trading day.
How is the Sensex computed?
Sensex is computed using the stock values of 30 diverse BSE-listed firms. Utilizing the “free-float market capitalization” method, it is computed. This is one of the better approaches for calculating an index of the stock market.
Sensex was determined using the weighted market capitalization approach in earlier years. Since September 1, 2003, the free-float market capitalization approach has been utilized.
The top 30 companies that are taken into account are periodically altered. This is done to ensure the accuracy of the Sensex index.
Formula to calculate Sensex
Sensex value = (Total free float market capitalization/Base market capitalization) * index value for the base period.
1978-79 is the basis period (year) for Sensex calculations. The index’s base value is 100. Using the above technique, the value of the BSE Sensex may be determined.
The function of 30 firms about the Sensex
Sensex is supposed to reflect market mood as a whole and consists of 30 stocks that play a significant role. These corporations are substantial, well-established, and financially solid representatives of the major industries.
The 30 firms that comprise the Sensex are chosen and periodically evaluated by an “index committee.”
This “index committee” consists of academics, mutual fund managers, finance journalists, independent governing board members, and other financial market participants. While doing so, the committee follows a list of specific criteria.
Mission of SEBI
To perform inspections, investigations, and audits of stock exchanges such as finding out top loser share, intermediaries, and self-regulatory bodies, as well as to take appropriate corrective action as necessary. This function is performed to ensure the smooth operation of stock exchanges and intermediaries.
A joint venture between BSE and S&P Dow Jones Indices, a worldwide index manager, manages and operates the Sensei. Periodically, the composition of the Sensex is recast or updated to reflect the genuine nature of the market.