To properly understand the concept of Sensex it is very much important for the people to have a clear-cut understanding of the Indian stock exchanges in the very beginning. The Bombay Stock Exchange is the Indian stock exchange which is located in Dalal Street Mumbai Maharashtra. It was established in the year 1875 and is the oldest stock exchange in Asia. This is the world’s fastest stock exchange with a median trade speed of 6 microseconds and more than 5500 companies are publicly listed on this particular stock exchange. Thousands of companies are listed on the stock exchange and hence it becomes very much hard to track every single stock to evaluate the market performance at a single point of time which is the main reason that the companies need to depend upon a market index and index is always calculated from the prices of selected stocks.
Following are the very basic points highlighting the importance of market indexes:
- The market indexes are the barometer for the market behaviour and they will always provide the people with a very general idea about whether most of the stocks have gone up or down.
- The market index is also utilised as a benchmark portfolio performance and as a reflector of investor sentiments.
- The market indexes are utilised for sorting and comparison of different kinds of companies because such indices will act as an underlying for index funds, options, index features and several other kinds of things.
- It will be used in passive fund management by the index funds and the index will also give a proper comparison of return on investment in the stock markets in comparison to the asset classes like gold or debt.
Sensex is also referred to as the BSE 30 and this is the market index consisting of 30 well established and financially sound companies listed on the Bombay Stock Exchange. These 30 companies are selected based on free-float market capitalization and these are the different companies from different sectors that will represent a sample of large, liquid and representative companies. The base year of the Sensex is 1978-79 and the base value is a hundred. The Sensex is an indicator of the market movement and if the Sensex will go down then this will tell you that the stock price of most of the stocks on the BSE has gone down and vice versa. The value of Sensex is calculated from the following formula:
Value of Sensex = Total free float market capitalisation / base market capitalisation * base period index value.
Hence, the Sensex in simple words can be combined value of stocks of 30 specific companies which are listed on the Bombay Stock Exchange so that people can make the right kind of decisions in the whole process. So, depending upon the professional companies in this particular area like 5paisa is a very necessary point for the people so that they can always indulge in adequate decision making that will provide them with great returns in the long run.