What is BSE Index? How does the Index function?

The Bombay Stock Exchange (BSE) is an Indian stock exchange body located in Mumbai. It was set up in the year 1875, much before National Stock Exchange was established. BSE is also Asia’s first stock exchange and world’s fastest stock exchange trade and 11th largest in the world.

BSE index, Sensex, is simply an indicator, which gives a fundamental idea when the equity shares or stocks have gone up and down,illustrating the performance of the stock and share market.

These indices are used in economic research by financial analysts to assist better ways to increase the market capitalization and also steady the stock market performance.

In the global economic scenario, indices are chiefly used in risk management.

The prices of the stocks of the most of the major companies on the list of BSE have gone up if the Sensex goes up and the stock price of most of the major stocks on the BSE list have fallen down if the Sensex drops down.

How is the Sensex calculated?

In the first place, the market capitalization of the 30 companies on the BSE list consist of the Sensex is first calculated. This is done by multiplying the price of their respective stocks with the number of shares issued by that particular company of the financial market.

Next, the attained market capitalization is multiplied by the free-float factor. This gives the free-float market capitalization. This is calculated based on the information given by all the companies to the BSE. The value of free float is generally between 0.05 and 1.00.

As a final point, the free float market capitalization of the Sensex is divided by a number, which is known as the Index Divisor. This is the only connection to the original base period value of the index.

This value provides the assessment of the index over the given period of time. For Sensex, the base value period is 1978-79. The Sensex reflects the presence of the Indian stock market. If the Sensex is growing, it reflects that the Indian economy is going to grow in its near future, therefore attracting more investment from diverse sources.