How does the BSE Sensex work?

You all might have seen people discussing the rise and fall in the Sensex today points. Do you think the points of Sensex affect the working of the stock market? The answer to this question is yes, the rise and fall in the points state the actual working of the Indian stock market. You might be thinking what is Sensex? So, Sensex is the benchmark index of the Bombay Stock Exchange that is used by the different people involved in this like investors, traders, etc. to analyze the overall situation of the Indian economy.

How does the BSE Sensex work?

Initially, the BSE was established in 1875 and is one of the oldest stock exchanges in Asia. After a century of establishment, a renowned stock market analyst Mr. Deepak Mohoni introduced the concept of Sensex. It is one of the oldest indexes of India and is also known as the true reflection of the Indian economy. It comprises the most actively traded stocks of the top 30 companies on BSE. There are criteria followed for the selection of these stocks. Let’s have a look at them.

  • The stock must be registered on the list of BSE.
  • It should have high liquid stocks.
  • The company should be generating high revenue.
  • It should have a large mega-cap stock.
  • There should be balanced and diversified involvement of the sector with the Indian equity market.

To understand how the Sensex points are calculated, here is the list of terms you should know:

  • Free Float factor: It refers to the quantum of shares that are available to the public for trading. For example, a company named ABC limited has issued 10,000 shares in total. Out of which the shares held by promoters and government are 3,000 shares. So the shares left for the trading of the public are 7,000 shares. So the free float factor will be 70%.
  • Market capitalization: It means the actual market value of the total outstanding shares of the company. It is calculated by multiplying the price per share into the number of shares issued by the company.
  • Like this, the value of all the 30 companies is calculated and is added to form the total.

So to calculate the Sensex points formula is followed i.e.

(Totally free float market capitalization/ Base market capitalization) * Base index value

Mostly the base index value is 100.

The basic working of the Sensex states that if the aggregate process of the stocks of the 30 companies increases, ultimately the Sensex points will increase. On the other hand, if the prices fall, the Sensex points will fall as well. So every investor needs to keep an eye on the Sensex table. So that the appropriate decisions are taken regarding the investment. For this, the person can visit the 5paisa website, where they will find the most accurate information and the things to be done to get the best outcome. The experts of this platform empower the person with useful information and help them to invest their precious money carefully so that the returns are maximized and risk is decreased.

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