A stock market is a physical place, where brokers gather to buy and sell stocks and other securities. It is also known as a stock exchange. A stock market enables the trading - buying and selling - of stocks. In some places, stock markets (Not Stock Exchange) still have a fixed location, but in the modern internet and technological world which we now live in, it can be a network of computers enabling buying and selling of stocks at agreed prices.
Stock is generally considered to be a part ownership in a company. These companies are 'listed' or 'quoted' in the stock exchange which means that they are publicly traded and anyone can purchase a part ownership in that. In recent years, the role of some stock exchanges has changed to include derivatives - futures and options to you and me. These are part of a highly complex world which will not be explained here, but they are an enormous economy unseen by the population at large. In India we have two major stock exchanges; they are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). Sensex is the Index of BSE and NIFTY is the index of NSE. In this article we will discuss about Sensex, such as history, working, objective, etc.
It was a complete red bath on Dalal Street - especially on 16th November 2010. All sectoral indices closed in red on the back of outflow of foreign investors’ money.
The 30 share BSE Sensex was down 417 points on 16th November 2010 it was trading at 19892, and the 50 share NSE Nifty was down 129 points it was trading at 5992. The BSE Midcap Index was down 2% and Small cap down 3%.
Indian market came down to an eight-months low with the rest of the quality program across the globe, as investors were going to cover from the next stage of monetary tightening by China and a looming credit crisis in Ireland.
China threatening to raise rates and impose lending control to cool inflation that is at more than a 25-month high with asset prices across the globe has been down for a week
If that happens, global recovery may stop, as the West is still under pressure to force demand and the question is how to bail out Ireland, which is facing a superior default, is also forcing investors to take their money off the table.
In China many newspapers were reported price control in commodities. Potential government measures are very much needed to control inflation including price controls which could harm the earnings of property developers and commodity companies.
But foreign funds, which is the support of the rally in Indian market, they are not screening any symbol of fear yet. Rs 200 crore worth of shares are sold by foreign institutional investors on Tuesday, it is showing in Provisional data. They have bought more than $28 billion of shares this year.
For Diwali Muhurat trading Benchmark Sensex is down 5% from its peak, belying opportunity that it was balanced for new highs with renewed fund flow from Quantitative Easing-II, or printing of more US dollars.
Indian Market and global markets were doing well till end of August. When US Federal Reserve chairman Ben Bernanke indicated Quantitative Easing-II was round the corner and looked ripe for a change.
The strong earnings growth of Indian companies could stab because of rising commodity prices, higher cost of funds and slowing industrial output.
See Also: Buying The First Stock
The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted" index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in India and has gained a unique place in the collective awareness of investors. The index is widely used to measure the performance of the Indian stock markets. SENSEX is considered to be the pulse of the Indian stock markets. As the oldest index of the Indian Stock market, it offers time series data over a fairly long period of time (since 1978-79).
The Sensex is the benchmark index of the Indian Capital Markets with wide acceptance among individual investors, institutional investors, foreign investors and fund managers. The objectives of Sensex are following:
To measure market movements
Benchmark for funds performance
Given its long history and its wide acceptance, no other index matches the SENSEX in reflecting market movements and sentiments. SENSEX is widely used to depict the mood in the Indian Stock markets.
The inclusion of blue chip companies and the broad and balanced industry representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds.
Institutional investors, money managers and small investors all refer to the Sensex for their specific purposes The Sensex is in effect the substitute for the Indian stock markets. The country's first derivative product i.e. Index-Futures was launched on SENSEX.
Base Index Value
Date of Launch
Method of calculation
Launched on full market capitalization method and effective September 01, 2003, calculation method shifted to free-float market capitalization.
Number of Scrips
Index calculation frequency
The general guidelines for selection of components (Scrips) in SENSEX are as follows:
SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is again multiplied by the free-float factor to determine the free-float market capitalization.
The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments occuring out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds. The value of SENSEX is circulated in real time.
See Also: Milestones of the sensex
Beta of SENSEX Scrips
Graph showing the Performance of Sensex
It was bloodbath at the Indian stock markets on May 22 like never before. The Sensex the benchmark 30-share sensitive index of the Bombay Stock Exchange plummetted by a nerve-rattling 1,111.71 points in intra-day trading. This is the largest fall in a single day ever witnessed in the history of the Indian stock markets.
The bloodbath at the markets ended with the Sensex losing 457 points to close at 10,482.The Nifty lost 166 points to close at 3,081.
Jan 21, 2008: The Sensex saw it’s highest ever loss of 1,408 points. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of the US recession.
Jan 22, 2008: The Sensex saw its biggest intra-day fall on Tuesday when it hit a low of 15,332, down 2,273 points. However, it recovered losses and closed at a loss of 875 points at 16,730.
May 18, 2006: The Sensex registered a fall of 826 points (6.76 per cent) to close at 11,391, following heavy selling by FIIs, retail investors and a weakness in global markets.
December 17, 2007: A heavy session of selling in the late noon deals saw the index sink to a low of 19,177 - down 856 points from the day's open.
October 18, 2007: The intensity of selling increased towards the closing bell, and the index tumbled all the way to a low of 17,771 - down 1,428 points from the day's high. The Sensex finally ended with a heavy loss of 717 points (3.8%) at 17,998.
January 18, 2008: Unabated selling in the last one hour of trade saw the index tumble to a low of 18,930 - down 786 points from the day's high. The Sensex finally ended with a heavy loss of 687 points (3.5%) at 19,014.
November 21, 2007: Mirroring weakness in other Asian markets, the Sensex saw relentless selling. The index tumbled to a low of 18,515 - down 766 points from the previous close. The Sensex finally ended with a loss of 678 points at 18,603. The Nifty lost 220 points to close at 5,561.
August 16, 2007: The Sensex, after languishing over 500 points lower for most of the trading sesion, slipped again towards the close to a low of 14,345. The index finally ended with a hefty loss of 643 points at 14,358.
April 02, 2007: The Sensex opened with a huge negative gap of 260 points at 12,812 following the Reserve Bank of India decision to hike the cash reserve ratio and repo rate. Unabated selling, mainly in auto and banking stocks, saw the index drift to lower levels as the day progressed.
August 01, 2007: The Sensex opened with a negative gap of 207 points at 15,344 amid weak trends in the global market and slipped deeper into the red. The Sensex finally ended with a hefty loss of 615 points at 14,936.
The closing SENSEX is calculated taking the weighted average of all the trades on Sensex constituents in the last 15 minutes of trading session. If a SENSEX Scrip has not traded in the last 15 minutes, the last traded price is taken for computation of the Index closure. If a Sensex constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm avoids any intentional manipulation of the closing index value.
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