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 1875 before the National Stock Exchange was established. BSE is also Asia’s first stock exchange, the world’s fastest stock exchange trade, and the 11th largest globally.

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

Financial analysts use these indices in economic research to assist better ways to increase the market capitalization and steady the stock market performance.

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

The prices of most of the major companies on the list 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 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 consisting of the Sensex is first calculated. This is done by multiplying the price of their stocks by the number of shares issued by that particular company in the financial market.

Next, the market capitalization is multiplied by the free-float factor. This gives the free-float market capitalization. The value of free float is between 0.05 and 1.00.

As a final point, the free-float market capitalization of 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. For Sensex, the base value period is 1978-79. The Sensex reflects the presence of the Indian stock market. If the Sensex grows, the Indian economy will grow shortly, attracting more investment from diverse sources.