The Hindu Business Line : BSE Sensex

The Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia. Established in 1875, under the Securities Contract Regulation Act, 1956, BSE rose to prominence in the last 133 years. In the1850s, stock brokers met under a banyan tree. Some 25 years later, some of them found a permanent place for their activities and named it “Dalal Street” (Brokers’ Street).

Until 2002, BSE was named “The Stock Exchange, Mumbai”. On August 19, 2005, the exchange changed into a corporate entity from an Association of Persons and was renamed Bombay Stock Exchange Limited.

The Sensex

BSE Sensitive Index or Sensex was first compiled in 1986. It was calculated on a “market capitalisation-weighted” methodology of 30 component stocks represented by large, well-established and financially sound companies across key sectors. The base year of the Sensex was taken as 1978-79.

There are some broad listing parameters. First, the scrip should have a listing history of at least three months at the BSE and should have been traded on each and every trading day in the last three months at the BSE. Second, the scrip should figure in the top 100 companies listed by final rank.

(The final rank is arrived at by assigning 75 per cent weightage to the rank on the basis of three-month average full market capitalidation and 25 per cent weightage to the liquidity rank based on three-month average daily turnover and three-month average impact cost.)

Further, the weightage of each scrip in the Sensex, based on three-month average free-float market capitalisation, should be at least 0.5 per cent of the Index.

The scrip should be a balanced representation of the listed companies in the universe of the BSE and must have a good track record in the opinion of the BSE Index Committee.

Impartial barometer

The Sensex was launched on January 1, 1986. Out of the initial thirty stocks only eleven (such as ACC,Grasim,HLL, RIL, Tata Motors and ITC) have remained in place till date.Being the oldest index in the country, it provides a fair time series data from 1979 onwards. Today, it has become one of the most prominent brands in the country.

The early years witnessed very few sectors captured by the Sensex. It was dominated mainly by capital goods and consumer durable industries. Over two decades, its spectrum has widened; more sectors have been added and the services sector holding greater representation. Starting from banking, IT, auto, power, metals, to the recently added realty, the Sensex has evolved into a comprehensive capital market index. In a sense, it may be considered an impartial barometer of market performance.

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