The Bombay Stock Exchange (BSE) Sensex also known as Sensex is one of the important reference points of the Indian financial system. Today everyone who wants to invest or just wants to know how the economy is doing needs to know about it.
What is the Sensex?
The sensex, short for sensitive Index is one of the crucial benchmarks wherein it portrays the current status of 30 of the topmost financially stable and more significant companies under BSE. Learned about it in 1986 and has since served as the measure of the Indian economy’s health. Whenever one listens to the so-called news about the top gaining or falling in the Indian stock market, most of the time it is all about the Sensex.
How is the Sensex Determined?
The BSE’s Sensex index is based on the market value of the 30 shares of companies that are under observation. Total market value can just be defined as the market price of a firm’s stock multiplied by the total number of stocks available in the market. The formula applied to arrive at the Sensex includes the free float market capitalization of each of these companies, in other words, it only includes the shares that are available to the public.
Here’s a simplified version of how the Sensex is calculated:
- Market Capitalization: This is obtained by the number of shares available in the market, the free float for each company, and then the value of each company.
- Index Value: The total market capitalization of all these 30 companies is arrived at and divided by some base period value to arrive at the current Sensex value.
Why does it Matter?
The Sensex serves several important functions in the financial markets:
Economic Indicator: As such, it is often considered as a barometer of the Indian economy. When Sensex is up, it means the investors are optimistic about the economic condition in the future and when it is down then there are doubts about the economy.
- Investor Sentiment: It is the barometer of the sentiments of the investors. An increase in the Sensex level indicates positive sentiment of the investor, and on the other hand; a decrease in its figure reveals fear factors in the investors.
- Performance Benchmark: It helps the investors to evaluate their investment portfolio. For instance, if your portfolio is giving better returns than Sensex, then you are on the right track while if it is on the opposite side, then you need to rethink your portfolio.
What Influences the Sensex?
Several factors can influence the movement:
- Economic Data: Specific information such as perspectives on economic growth, inflation rates and employment levels may therefore sway the investors, leading to changes in the Sensex.
- Corporate Earnings: This is again evident from the respective results of various companies especially those falling under the Sensex list since quarterly results can contribute to it index either by climbing up or falling down depending on whether the results are over expectations or under expectations.
- Global Events: The performance of the Indian economy in comparison to the global economy is also another factor that can influence it, such as tensions between two countries, alteration in the oil prices in the international market or even in the operations of global markets.
- Government Policies: Reformations in tax policy, interest rates and any other government regulations basically have significant effects on the stock market and therefore the sensex.
- Market Sentiment: At other times, It can just be pumped up by the so-called speculation or a reaction to some news or rumors or market sentiment.
How can You Monitor it?
Tracking this is easy, and there are several ways to do it:
- Financial News Channels: But new updates can be found on TV channels that are dedicated to the provision of finance related news.
- Stock Market Apps: There is availability of many apps that give live updates regarding it.
- Business Newspapers: The Economic Times or Business Standard which are the dailies highlight on the performance of it.
- Online Platforms: Moneycontrol, NSE India, BSE India are some of the websites that provide real time information with detailed analysis.
What does High or low Sensex imply?
A high Sensex is thus a pointer to the fact that the cumulative value of BSE’s top 30 companies is on the rise and the development is normally perceived to be healthy for the economy. It means that prospects reflect investors’ positive expectations of the company and its willingness to buy shares at a higher price. On the other hand, a low sensex means that investors are offloading their stakes meaning that there may be apprehension towards the state of the economy in the market.
Recent Trends in the Sensex
Looking at the data that marks the Sensex over the years one can clearly see that it has grown in equal proportion due to the growth of Indian economy, advancement in technology, and increased foreign investor participation. In recent years, despite global challenges like the COVID-19 pandemic, It has shown resilience, hitting new all-time highs as of 2024.
Conclusion
It is more than just a number; it’s a key indicator of economic health and investor confidence in India. Whether you’re an experienced investor or a beginner, understanding the Sensex can help you make more informed financial decisions. By keeping an eye on this important index, you can gain insights into the broader market trends and the overall direction of the Indian economy.
