SENSEX

SENSEX

Subject: Economics

Context : Launched on January 2, 1986 (base year:1978-79 = 100), the country’s first equity index has risen from 124 in April 1979 to 50,000 today, a compounded annual growth rate of 15.9% over 42 years.

Concept :

• Sensex, otherwise known as the S&P BSE Sensex index, is the benchmark index of India’s BSE, formerly known as the Bombay Stock Exchange.)
• The Sensex is comprised of 30 of the largest and most actively-traded stocks on the BSE, providing a gauge of India’s economy.
• The index’s composition is reviewed in June and December each year. Created in 1986, the Sensex is the oldest stock index in India.
• Analysts and investors use it to observe the cycles of India’s economy and the development and decline of particular industries.

Free-Float vs Market Capitalization Method

• When it was launched in 1986, the Sensex was calculated based on a market-capitalization weighted methodology.
• Since September 2003, the Sensex has been calculated based on a free-float capitalization method, which provides a weighting for the effect of a company on the index.
• This is a variation of the market cap method, but instead of using a company’s outstanding shares, it uses its float, which is the number of shares that are readily available for trading.
• The free-float method, therefore, does not include restricted stocks, such as those held by company insiders, which can’t be readily sold.

NIFTY

• Nifty is derived from the term National Stock Exchange Fifty and it comprises of 50 companies that are traded on NSE. It is the benchmark index of NSE and was introduced in 1996.