The term SENSEX is a blend of words ‘Sensitive’ and ‘Index’. Sensex refers to the benchmark index of the BSE in India. The Sensex is comprised of 30 of the largest and most actively traded stocks on the BSE and provides a gauge of India’s economy.
It is the oldest index in India and provides time series data from 1979 (Sensex was 100 points), BSE, which was previously known as Bombay Stock Exchange.
The index is calculated based on a free float capitalization method. Instead of using a company’s outstanding shares it uses its float, or shares that are readily available for trading. Free Floating capital implies total capitalization less director’s shareholding. As per this method the level of index at any point of time reflects the free float market value of 30 constituent stocks relative to a base period.
To give an example, let’s assume that Firm ABC has 100 shares. Out of these 100, 70 are available to the general public and 30 are owned by the government. This means that 70 are free-floating shares and thus the free float factor will be 70%.
Market capitalization is the valuation of the company. It can be determined by multiplying the price of a share with the number of shares issued.
So, how are these 30 companies selected?
The BSE’s criteria for selecting these companies are as followed,
- The stock should have a listing history of at least one year on BSE to be considered.
- The company should be in the Top 100 companies listed by full market capitalization.
- The Security should have been traded on each and every trading day for the last one year, BSE says. Exceptions to this can be made in case of extreme reasons.
- The Security should be in the Top 150 firms listed by average number of trades per day and by average value of shares traded per day for the last one year.
- In the opinion of the Index Committee, the firm should have an acceptable track record, BSE says on its website.
How is Sensex different from Nifty?
| NIFTY | SENSEX | |
| Full Form | Nifty Full Form- National Fifty | Sensex Full Form- Sensitive Index |
| Incorporation | 1996 | 1986 |
| Number of Companies | Nifty is constituted by 50 of the largest and most liquid companies. | Sensex is constructed by 30 of the largest and most actively traded companies. |
| Base Year | 1978-1979 | 1995 |
| Base Value | 1000 | 100 |
| Volume & Liquidity | High | Low |
| Former Names | CNX Fifty | S&P BSE SENSEX |
| Number of Sectors | Nifty cover 24 industrial sectors | Sensex covers 13 industrial sectors |
| Index Calculations | Free Float Market Capitalization | Free Float Market Capitalization |
| Operated by | India Index Services and Products (Subsidiary of National Stock Exchange) | BSE (Bombay Stock Exchange)
|
