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N.K.Assumi (Advocate)     25 May 2009

What is sensex?

Dear Esteem Members, Can some of you give me a rseume of Sens*x? What are the main functions of Sens*x and how does it help the citizen? What are the differences between Sens*x and Stock market. I hve no ideas about these matters and would like to learn from the mmbers. Thank you all in advance.



 2 Replies

M. PIRAVI PERUMAL (Advocate & Consumer Rights)     25 May 2009

An abbreviation of the Bombay Exchange Sensitive Index (Sens*x) - the benchmark index of the Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most actively-traded stocks on the BSE. Initially compiled in 1986, the Sens*x is the oldest stock index in India.

Investopedia Says:
The index is calculated based on a free-float capitalization method when weighting 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, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by company insiders that can't be readily sold.

To find the free-float capitalization of a company, first find its market cap (number of outstanding shares x share price) then multiply its free-float factor. The free-float factor is determined by the percentage of floated shares to outstanding. For example, if a company has a float of 10 million shares and outstanding shares of 12 million, the percent of float to outstanding is 83%. A company with an 83% free float falls in the 80-85% free-float factor, or 0.85, which is then multiplied by its market cap (e.g., $120 million (12 million shares x .$10/share) x 0.85 = $102 million free-float capitalization).

M. PIRAVI PERUMAL (Advocate & Consumer Rights)     25 May 2009

At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions. The index is calculated based on a free-float capitalization method; a variation of the market cap method. Instead of using a company's outstanding shares it uses its float, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by company insiders. The index has increased by over ten times from June 1990 to the present. Using information from April 1979 onwards, the long-run rate of return on the BSE Sens*x works out to be 18.6% per annum, which translates to roughly 9% per annum after compensating for inflation Companies when they need funds for business often float shares, which are bought by retail ( ordinary people) and Institutions, now so that these people can sell or buy those shares you have the stock market. The term SENSEX is used as an indicator for Bombay Stock Exchange, it gives a general idea though. It consists of top 30 companies, top in the sense of Market Capitalization. Market Capitalization is the Number of shares of a Company X the price of stock of that Company on a given day. For instance if a company has 1 crore shares and its trading at Rs 5 then its market cap is 5 crores. These 30 companies are assigned weightage according to market capitalizationn in the sens*x, so when the prices of these companies fall the sens*x is down when the rise the sens*x rises too. However its a general indicator, sometimes when the sens*x is down some shares still might be going up, and some times when its going up there still could be lot of shares which might be going down.

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