SENSEX
Established in 1875, the Bombay Stock Exchange (BSE) is Asia’s oldest and the world’s 10th largest
stock exchange. With a trade speed of 6 microseconds, it is also the world’s fastest exchange.
The exchange trades in over 5500 stocks, and like other exchanges around the world, needs an index
to act as a representative of its daily performance and market conditions. For this purpose, the BSE
has a list of 30 companies which are used to calculate its index. This group of 30 companies are
called the BSE30, also known as the Sensex. The term “sensex” was coined from the words “sensitive
index”. Although the Bombay Stock Exchange was established much earlier, the base year for the
Sensex is considered as 1978-79 – over a century later. The base value of the Sensex stock was
assumed to be 100 at the time.
As with any representative index, the BSE30 companies are selected across industry sectors. These
include industries such as Automobile, Software, FMCG, Banking, Finance, Pharmaceuticals, etc. The
basic criteria for a company to be selected in the Sensex is that it should be a well-established and
financially sound company.
Since the Sensex represents the overall market condition, the performance of these 30 listed stocks
directly affects the value of the stock exchange. For example, if a majority of the BSE30 stocks have
performed well and have increased in value, the Sensex is said to have risen. Conversely, if the
BSE30 stocks have lost value, the Sensex is deemed to be falling. The Sensex companies are revised
semi-annually, and companies may be added or dropped from the list depending on their health.
Obviously, the Sensex stocks are some of the most actively traded stocks listed on the exchange.
From the base value of 100 points in 1979, the Sensex is presently valued over 37,000 points (31 July
2020). This translates to a long run rate of return of roughly 18.6% per annum. In January 2020, the
Sensex closed at a record high of 41,952 points. This, of course was before the world was struck by
the Covid-19 pandemic, which caused stock markets across the world to crash. The Sensex hit a lot
of 25,981 points in March 2020, when the Government of India announced a nationwide lockdown
to combat the spread of the virus.
Since the latest downturn, however, the Sensex has rallied well and continues to do so purely on the
optimism that investors have expressed in the economy. Although the highs of January 2020 may
seem out of reach for the near future, there is hope that the damage done will be negated over