The Bombay Stock Exchange Sensitive Index or SENSEX to give its abbreviated and better known name is one of the oldest stock exchange indices in India. It has been in operation since the year 1986.
It’s an indicator
Like any other index, the SENSEX is an indicator. When it climbs, it indicates that the prices of most of the stocks on the exchange have increased. Correspondingly, when it declines, it would mean that the prices of most of the shares traded in the market have reduced. This does not necessarily mean that the price of any share that you are holding has increased or decreased since the price of every company’s share is decided by its own demand and supply, market sentiments, etc.
Constituents of the SENSEX
The SENSEX is calculated by taking into account the share prices of 30 large actively traded companies. The technique that is adopted is the free float capitalization method (this accounts for only those shares that are available for buying and selling). The constituents of this index are dynamic and change from time to time.
Uses
- to act as a barometer of the performance of the stock market;
- as a benchmark for Fund Managers of index linked funds;
- for researchers and regulatory authorities to study the market and suggest ways and means to make the functioning of the market more efficient
