4.9 Sensex

Hanumant Dhokle

Very often all of you must have heard the word Sensex. The Bombay Stock Exchange operated without an index till 1986. In 1986, for the first time in India, the BSE compiled an index called ‘Sensitive Index’. The BSE Sensitive Index became ‘Sensex’ in the early 90s which was coined by one of the equity analysts. The Sensex is calculated taking into consideration stock prices of 30 different BSE listed companies. It is calculated using the ‘free-float market capitalisation’ method. The market capitalisation of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalisation is further multiplied by the free-float factor to determine the free-float market capitalisation.

In addition to Sensex, the BSE has other indices i.e BSE 500, Mid Cap and Small Cap. The general guidelines for selection of constituents in Sensex are as follows:

  • Debt Capital
    The scrip should have a listing history of at least three months at BSE.
  • Trading Frequency:
    The scrip should have been traded on each and every trading day in the last three months at BSE.
  • Final Rank:
    The scrip should figure in the top 100 companies listed by final rankings.
  • Market Capitalisation on Weightage:
    The weightage of each of the scrips in Sensex, based on a three-month average free-float market capitalisation, should be at least 0.5 percent of the index.
  • Industry/Sector Representation:
    Scrip selection would generally take into account a balanced representation of the listed companies in the universe of the BSE.
  • Track Record:
    It should have a good track record.
    A recent example of removal of a company from the index is of Satyam Computers. After the fraud the BSE decided to remove Satyam from the sensex 30 companies.
  • BSE 500:
    The BSE constructed this index, christened BSE 500, and it consists of 500 scrips w.e.f. August 9, 1999. The BSE 500 index represents nearly 93 per cent of the total market capitalisation on the BSE. BSE 500 covers all the 20 major industries of the economy.
  • BSE Mid Cap And BSE Small Cap Indices:
    These indices are constituted to track the performance of companies with relatively smaller market capitalisation under the BSE.
  • Group Classification Of BSE Shares:
    What is the A, S, Z, B and T group classification of the BSE? The Bombay Stock Exchange has classified equity scrips into categories A, S, Z, B and T to provide guidance to the investors. In many journals and newspapers you would come across these classifications. The classification is on the basis of several factors like market capitalisation, trading volumes and numbers, track records, profits, dividends, shareholding patterns and some qualitative aspects.

    As on February 2008, the following criterion is used for classifying stocks into various categories by the BSE:
  • Group A:
    Group A is the most tracked class of scrips consisting of about 200 scrips. Market capitalisation is one key factor in deciding which scrip should be classified in Group A.
  • Group S:
    The BSE has a segment named BSE Indonext w.e.f. January 7, 2005. Group S represents scrips forming part of the BSE Indonext segment. It consists of scrips from Group B on the BSE and the companies exclusively listed on the regional stock exchanges having capital of Rs 3 crore to Rs 30 crore. All trades in this segment are done through the BOLT system under Group S.
  • Group Z:
    Group Z was introduced by the BSE in July 1999 and includes the companies which have failed to comply with the listing requirements of the exchange and/or have failed to resolve investor complaints or have not made the required arrangements with both the depositories, viz. Central Depository Services (CDSL) and the National Securities Depository (NSDL) for dematerialisation of their securities.
  • Group B:
    All companies not included in Group A, S or Z are clubbed under Group B.
  • Group T:
    Group T consists of scrips which are traded on a trade-to-trade basis.

Besides these equity groups there are two other groups i.e fixed income securities (Group F) and government securities (Group G).

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