What-Is-Sensex-and-Its-Importance-in-the-Indian-Stock-Market

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December 17, 2009

Sensex is basically an indicator of the health of the stock markets in India. It is the most popular stock market index in India. It is just a number and the value of Sensex is closely followed by a number of investors, promoters, market experts, brokers and several other stakeholders not only in India but across the world. One can know the relative strength or weakness of the Indian stock market by the movement of Sensex on the Bombay Stock Exchange, popularly known as BSE. Sensex is an acronym for ‘Sensitive Index’ of the BSE, the country’s wellknown stock exchange with its existence dating back to 1875. With a history of 134 years, it is Asia’s oldest stock exchange. It started as “The Native Share and Stock Brokers’ Association.” It is situated at Dalal Street in the Fort area of Bombay. Sensex is an index of equity shares of India’s top 30 companies representing 12 major sectors in India. It was first launched on January 1, 1986. The Sensex started with a base value of 100 in 1978-79. The Sensex is closed at 16,913 points on December 16, 2009; which means the value of Sensex has gone up by about 170 times (16,913 divided by the base value 100) in the last 30 years or so. One year back, the Sensex was at 9,715 points – which means the value of Sensex has gone up by 1.74 times in the last one year. The composition of Sensex changes dynamically – existing companies are excluded and new companies are added on a regular basis. However, the total number of companies in the Sensex is always kept at thirty. For example, Ranbaxy Laboratories was excluded from Sensex on June 29, 2009 and simultaneously Hero Honda Motors Limited was included on the same date in the Sensex. Other latest inclusions are stocks of Sun Pharma, Sterlite Industries, Tata Power and Jaiprakash Associates; while simultaneously excluding Satyam Computers, Ambuja Cements, Cipla and Bajaj Auto respectively. Moreover, a company may be excluded on a particular date but the same company may be included in Sensex at a later date. For example, Hero Honda Motors, which was excluded from Sensex in July 2007, was again re-included in Sensex in June 2009 due to its stellar profits. The exclusion and inclusion is a dynamic process.

Rama Krishna Vadlamudi, BOMBAY

www.scribd.com/vrk100

December 17, 2009 Page 1 of 5

Major Milestones In The History Of Sensex

Jul. 25, 1990 Jan. 15, 1992 Feb. 29, 1992 Mar. 30, 1992 Oct. 11, 1999 Feb. 11, 2000 Jun. 21, 2005 Feb. 7, 2006 Jul. 6, 2007 Oct. 29, 2007 Jan. 8, 2008 Oct. 27, 2008

Sensex touched four-digit figure for the first time and closed at 1,001 Sensex touched 2,000 points for the first time Sensex touched 3,000 points for the first time Sensex touched 4,000 points for the first time Sensex touched 5,000 points for the first time Sensex touched 6,000 points for the first time Sensex touched 7,000 points for the first time Sensex touched 10,000 for the first time Sensex crossed 15,000-mark for the first time Sensex crossed 20,000 for the first time Sensex touched all-time peak of 21,078 points before closing at 20,873 Sensex crashed to 7,697 points intra-day, a massive fall of 63.5 per cent from its Jan.2008-peak of 21,078 points

Often, Sensex is seen, though wrongly, as a leading indicator of India’s economic strength. There are many investors who believe that the rise or fall of Sensex on the BSE is directly related to the strength or weakness of India’s economy. Stock markets, by nature, go up and down in unpredictable ways. Likewise, Sensex also moves in different directions – depending on factors, like, corporate performance, availability of money at cheaper rates, sentiments of the investors’ community, the growth of India’s national income and several other factors – including global factors. The movement of Sensex usually reflects the investors’ perception of the company’s future profits. So, it is not necessary that the rise in Sensex is directly related to the growth of...
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