Full Form of SENSEX – Stock Exchange Sensitive Index

List of Companies Included in SENSEX

We can define it as the weighted index of thirty chosen companies based on overall financial well-being and performance. The following are the names of the thirty companies that include: –

  • LupinTata Steel LimitedWipro LimitedTata Motors LimitedState Bank of IndiaSun Pharmaceutical Industry LimitedTata Motors- DVR OrdinaryTata Consultancy Services LimitedKotak Mahindra Bank LimitedMahindra and Mahindra LimitedMaruti Suzuki India LimitedLarsen and Toubro LimitedReliance Industries LimitedNTPC LimitedPower Grid Corporation of India LimitedOil and Natural Gas Corporation LimitedViolaITC LimitedInfosys LimitedICICI Bank LimitedHDFC Bank LimitedHindustan Unilever LimitedHero MotorCorp LimitedHousing Development Finance Corporation LimitedAsian Paints LimitedBajaj Auto LimitedAxis Bank LimitedBharti Airtel LimitedAdani Ports and Special Economic Zone LimitedCoal India LimitedReddys Laboratories Limited

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Purpose

It offers a broader view of the performance of stocks enlisted on the Bombay Stock Exchange. One may use SENSEX to measure the ability of a particular stock to induce movements in an index. Also, one may use it to evaluate and indicate the financial strength of the stock marketStock MarketStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more.

The primary purpose is it indicates the movement in the market. Stock Exchange Sensitive Index helps measure the performances of the trending top thirty stocks in the country based on liquidity and market cap.

How Does it Work?

At SENSEX, all differential voting right sharesVoting Right SharesVoting Shares are the shares that authorize the shareholder to vote on Company issues like modifying its corporate policies or selecting Board of Directors etc. read more and common stocks that form a part of S&P BSE 100 qualify for index inclusion. It offers a time series of data over a longer duration of time. One may calculate the closing figure with the help of a weighted average concerning all the trades on the Stock Exchange Sensitive Index constituents in the final fifteen minutes of a trading session.

If the Stock Exchange Sensitive Index constituent is untraded in the final fifteen minutes, then the last price dealt is considered for the calculation of the closure of the index. And, if the same is untraded for the entire day, then the closing price for the last day is considered for calculating the index closure.

How is it Calculated?

  • One can measure Stock Exchange Sensitive Index by calculating the performance of the trending 30 stocks. Now, one may calculate it using the free-float  market capitalizationMarket CapitalizationMarket capitalization is the market value of a company’s outstanding shares. It is computed as the product of the total number of outstanding shares and the price of each share.read more method.However, earlier people used the full market capitalization method to calculate. On 1st September 2003, the free-float market capitalization Free-float Market CapitalizationFree Float Market Capitalization is a method by which the market cap of an index’s underlying are calculated. It is calculated by multiplying the price with the number of outstanding shares available for investors and traders.read more method came into existence. The free-float market capitalization method is globally accepted and acknowledged and is regarded as the industry’s best practice.One may use the free-float market capitalization method, market capitalization weighting scheme method, and the divisor method to calculate the SENSEX concerning the top thirty stocks. One may use the market capitalization weighting method is used to evaluate the market capitalization of an entity by taking the price of its stock and multiplying the same by the total number of shares issuedShares That Are IssuedShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner’s equity on the Company’s balance sheet.read more by that particular entity.The market capitalization evaluated will be used for further multiplication, where it will be multiplied with the free-float factor to ascertain the free-float market capitalization. One may calculate the Stock Exchange Sensitive Index by taking the free-float market capitalization of the top 30 companies ranked in the index and dividing the same using a number known as the index divisor.The index divisor helps keep the index comparable over some time. Therefore, it acts as an adjustment point for every index adjustment arising from script replacement, corporate actions, etc.

Benefits

The following are the benefits: –

  • Better Visibility – SENSEX provides better visibility and enhances a company’s credibility. As a result, it increases the demand for its shares and leverages the same valuation.Enhanced Prestige – It even enhances the prestige of the companies since it incorporates the top best-performing companies, which is a matter of reputation for them.Easy Access to Capital – It allows a company to raise its share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company’s initial public offerings, common shares or preference stocks to the public. It appears as the owner’s or shareholders’ equity on the corporate balance sheet’s liability side.read more.Encourages SMEs Growth – SENSEX offers opportunities concerning growth like mergers, acquisitions, and expansions.Enhances the Liquidity of Equity Holders – It also enhances the shareholders’ liquidity. It offers them various growth opportunities such as mergersMergersMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.read more, acquisitionsAcquisitionsAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion.read more, and expansions.It provides various other benefits, too, such as scope for employee incentives and efficiency in risk distribution.

Conclusion

The Stock Exchange Sensitive Index was compiled in 1986 and is the country’s oldest stock market index. It acts as the pulse of the national stock markets. The calculation happens primarily by using the full market capitalization method.

From 1st September 2003, they calculated SENSEX with the help of the free-float market capitalization method instead of the full market capitalization method. The free-float market capitalization method is considered the best method of all. However, this method depends on the fact that the level of indexes at all points reflects the free-float market values of thirty component stocks related to a base period.

Stock Exchange Sensitive Index is used widely in national markets and international markets. Investors worldwide follow the Stock Exchange Sensitive Index closely to use it as a base for constructing investment-related decisions.

This article is a guide to the Full Form of SENSEX. Here we learn the purpose, companies included and working of Stock Exchange Sensitive Index. You may refer to the following articles to learn more about finance: –

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