It’s 25 and shares its Silver Jubilee with the Afternoon. Coined with a combination of two words” Sensitive and Index” resulting in “Sensex”, it gyrates like a belly dancer and, may we say, has great sex appeal. Market punters drink in joy when it rises and drink in sorrow when it falls. It is considered the barometer of the Indian economy.
Composed of the 30 largest and most actively traded stocks, representing various sectors, it accounts for around fifty per cent of the market capitalization on the BSE. The base value of the Sensex is 100, and the base year is 1978-79. At regular intervals, the exchange reviews and modifies 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 promoters, government and strategic investors.
The index has increased by over ten times from June 1990 to the present. Using information from April 1979 onwards, the long term rate of return on the Sensex works out to be 18.6% per annum, which translates to roughly 9% per annum after compensating for inflation.