Bombay stock exchange index explained

Bombay stock exchange index explained

It is the investors’ world and many industry honchos, be it in India or at the global level, are more or less dependent on shares. The ultimate source of information on the money market, stock trading, market upbeat, downslide and related regalia, is the sensex.

The absence of an index of equity prices reflecting the general trend of the market at the end of the day’s session was felt from long time by share brokers and investors. With this point in the consideration, the stock exchange of Mumbai compiled and published the sensitive index of equity prices in January 1986.

Sensex India has mixed results to offer with thousands of stocks losing and hundreds gaining. The absence of an index of equity prices reflecting the general trend of the market at the end of the day’s session. The brokers and investors felt that there is requirement of end of day’s session.

In those days the Sensex was referred to as “the Stock Exchange Sensitive Index for Equity Prices” and it took into account the “the daily official list” of the stock exchange.

The financial year 1978-79 witnessed stability of prices and that is why it was chosen as the base year for the calculations. The compilation of the data was done by the same method as used by Standard & Poor, USA, in the construction of their share price indices.

After the advent of SENSEX many similar indices came into existence like BSE 100 Index, BSE-200, DOLLEX, BSE-500, S & P CNX 50 and NIFTY. But the SENSEX is still the flagship index of Indian stock market and it is considered equivalent of its international counterparts like NASDAQ, Nikkei, FTSE 100, Hang Seng and Dow Jones.

Many similar index came into existence after the advent of sensex like DOLLEX, S & P CNX 50 and NIFTY, BSE-500, BSE-100 Index, BSE-200. Of Indian stock market, sensex has still the flagship. It is considered equivalent of its international counterparts like NASDAQ, Nikkei, Hang Seng, Dow Jones and FTSE 100.

The free-float method, therefore, does not include restricted stocks, such as those held by promoters, government and strategic investors. The BSEindia.com describes that to find the free-float capitalization we have to multiply the number of outstanding share to the free float factor.

BSE changed its method of computing the Sensitive Index, in 2003, from ‘capitalisation method’ to free floating capitalisation’. The basic difference in this method is that it does not take into account the outstanding shares of a company but the floats or the shares which are readily available for trading. The new free float method does not consider the restricted stocks, that is, the ones held by government, strategic investors and promoters.

This divisor is the sole link to the original base period value of the SENSEX in the formula. This factor in the computation method keeps the index comparable over a course of time and thus makes the index more relevant when various analyses are to be made. The SENSEX has increased to about 10 times from its value in 1990 to the present.

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