What is Sensex?: The stock market is one of the most popular investment avenues in India. Many people park their savings in the Indian stock market in the hope of generating manifold returns and create wealth for them. Over the years, the stock market has given tremendous returns to investors. This makes it one of the favorite choice of people to invest their savings here. When we talk about the Indian stock market, Sensex and Nifty are the most commonly used words. In this article, we will learn about the term Sensex and its concept.
Firstly, let us understand the meaning of the term Sensex.
What is Sensex? | Meaning of Sensex
Sensex or Sensitive Index represents the free float of the market-weighted stock market index of the top 30 stocks that are well established and listed on the Bombay Stock Exchange (BSE). Sensex acts as a barometer of Bombay Stock Exchange which drives the market sentiment. It gives a general idea of the majority of stocks that have either gone up or down. Like for example, if the Sensex is up, there are good chances that the majority of stocks part of BSE will be up.
History of Bombay Stock Exchange (BSE)
Bombay Stock Exchange or BSE is located at the Dalal Street in Mumbai. It is the oldest stock exchange of Asia and it was established in 1875. With the median trade speed of just 6 microseconds, it is the fastest stock exchange in the world. With a market cap of more than $1.40 trillion, BSE is one of the largest exchanges in the world. There are more than 5,500 companies publicly listed on the BSE.
Now let us have a look at the 30 stocks that form the part of BSE Index
BSE 30 Stock List
|Housing Development Finance Corporation
|Kotak Mahindra Bank
|Larsen & Toubro
|Mahindra & Mahindra
|Oil and Natural Gas Corporation
|Power Grid Corporation of India
|State Bank of India
|Tata Consultancy Services
|Tata Motors DVR
The above list has 31 stocks which include two stocks of Tata Motors. Therefore, if we consider Tata Motors to be as one stock the list would be of 30 stocks in total. The list of 30 stocks keep on changing, the below list represent the stocks that were part of BSE 30 but later dropped from the list.
List of Stocks Part of BSE 30 Earlier
|Bharat Heavy Electricals
|Dr. Reddy’s Laboratories
|Adani Ports & SEZ
Let us now learn about the role and importance of Sensex and understand why it is required.
Importance of Sensex :
⇒ Helps In Differentiating And Stock Picking
There are many companies listed on the stock exchange. Picking a few of the companies for investment is a very difficult task. Sorting companies into different classes become a difficult task. Overcome this problem, Sensex is an instant differentiator between stocks. Since the Sensex comprises of stocks based on their characteristics like type of company, industry, sector and so on. Picking up a company for investment becomes relatively easier.
⇒ Represent The Market Trend
Sensex consists of stocks that belong to different sectors of the economy. Therefore, if the Sensex is going up, then you can believe that the majority of shares belonging to different sectors are also moving up. Similarly, if the Sensex is going down then the companies operating in different sectors may also be going down. This represents the market trend in the most appropriate way.
⇒ Determines Investor Sentiment
Sensex determines the investor sentiment by showing an upward or downward movement. When the investors are selling the stocks in the market, Sensex will go down. Similarly, when the investors are purchasing stocks in the market, Sensex will move up. Therefore, Sensex is the most correct tool for determining the investor’s sentiment towards the stock market.
⇒ Helps in Decision Making
Sensex represent the trend of the market. The long term investors can take their decision by looking at the trend of the Sensex. If the Sensex is falling down continuously, the investors might sell their holdings in the current market and repurchase them at a lower price. Similarly, if the market is going up, the investor might purchase more stocks and sell them at a higher price. Thus, the trend of Sensex helps investors in decision making.
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