Full Form of SENSEX – Stock Exchange Sensitive Index
The full form of SENSEX stands for Stock Exchange Sensitive Index. It can be defined as an index which also means indicator and it provides a general idea with respect to the movement of the maximum number of stocks that is, if they have gone up or down or in other words, it can also be understood as the index or indicator of all the companies listed on the Bombay stock exchange.
List of Companies Included in SENSEX
It can be defined as the weighted index of thirty companies. These thirty companies are chosen on the basis of factors like overall financial well being and performance. Following are the names of the thirty companies that are included-
- Tata Steel Limited
- Wipro Limited
- Tata Motors Limited
- State Bank of India
- Sun Pharmaceutical Industry Limited
- Tata Motors- DVR Ordinary
- Tata Consultancy Services Limited
- Kotak Mahindra Bank Limited
- Mahindra and Mahindra Limited
- Maruti Suzuki India Limited
- Larsen and Toubro Limited
- Reliance Industries Limited
- NTPC Limited
- Power Grid Corporation of India Limited
- Oil and Natural Gas Corporation Limited
- ITC Limited
- Infosys Limited
- ICICI Bank Limited
- HDFC Bank Limited
- Hindustan Unilever Limited
- Hero MotorCorp Limited
- Housing Development Finance Corporation Limited
- Asian Paints Limited
- Bajaj Auto Limited
- Axis Bank Limited
- Bharti Airtel Limited
- Adani Ports and Special Economic Zone Limited
- Coal India Limited
- Reddys Laboratories Limited
It offers a wider view of the performance of stocks enlisted on the Bombay Stock Exchange. SENSEX is used for the purpose of measuring the ability of a particular stock to induce movements in an index. It is also used to evaluate and indicate the financial strength of the stock market.
The main purpose is it indicates the movement in the market. Stock Exchange Sensitive Index helps in the measurement of the performances of the trending top thirty stocks in the country on the basis of liquidity and market cap.
How does it Work?
At SENSEX, all differential voting right shares and common stocks that form a part of S&P BSE 100 qualifies for index inclusion. It offers the time series of data over a longer duration of time. The closing figure is calculated with the help of a weighted average with respect to all the trades on the Stock Exchange Sensitive Index constituents in the final fifteen minutes of a trading session.
In case Stock Exchange Sensitive Index constituent is not traded in the final fifteen minutes, then in such a scenario the last price that has been traded is considered for calculation of the closure of index and if the same is not traded for the entire day, then the closing price for the last day is considered for the purpose of calculating the index closure.
How it is Calculated?
- Stock Exchange Sensitive Index can be measured by calculating the performance of the trending 30 stocks. It is now calculated by taking the free-float market capitalization method into use.
- However, the earlier full market capitalization method was used for the purpose of the calculation. From the 1st of September, 2003 the use of the free-float market capitalization method came into existence. The free-float market capitalization method is globally accepted and acknowledged and it is also regarded as the industry’s best practice.
- The free-float market capitalization method, market capitalization weighting scheme method and divisor method are used for the purpose of the calculation of the SENSEX with respect to the top thirty stocks. 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 with the total number of shares that are issued by that particular entity.
- The market capitalization evaluated will be taken into use for further multiplication where it will be multiplied with the free-float factor in order to ascertain the free-float market capitalization. Stock Exchange Sensitive Index can be calculated by taking the free-float market capitalization of the top 30 companies that are ranked in the index and dividing the same using a number known as the index divisor.
- The index divisor helps in keeping the index comparable over a period of time and therefore, it acts as an adjustment point for each and every index adjustment that arises out of scripts replacement, corporate actions, etc..
Following are the benefits-
- Better Visibility– SENSEX provides better visibility and enhances the credibility of a company. This increases the demand for the company’s shares as well as leverage the valuation of the same.
- Enhanced Prestige– It even enhances the prestige of the companies since it incorporates the top best-performing companies which itself is a matter of prestige for them.
- Easy Access to Capital– It allows a company to raise its share capital.
- Encourages SMEs Growth– SENSEX offers opportunities with respect to growth like mergers, acquisitions, and expansions.
- Enhances the Liquidity of Equity Holders– It also enhances the liquidity of the shareholders and even offers them various growth opportunities such as mergers, acquisitions, and expansions.
- It offers various other benefits too such as scope for employee incentives, and efficiency in risk distribution.
Stock Exchange Sensitive Index initially complied in the year 1986 and it is the country’s oldest stock market index. It acts as the pulse of the national stock markets. The calculation is done primarily using the full market capitalization method.
From 1st September 2003, the calculation of SENSEX is done 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 as the best method of all and this method is based on the fact that the level of indexes at all points totally reflects the free-float market values of thirty component stocks that are related to a base period.
Stock Exchange Sensitive Index is widely used in not just national markets but international markets too. Investors all over the world follow the Stock Exchange Sensitive Index closely for the purpose of using it as a base for constructing investment related decisions.
This has been a guide to the Full Form of SENSEX and its definition. Here we learn the purpose, companies included and working of stock exchange sensitive index along with benefits. You may refer to the following articles to learn more about finance –