The Indian Capital Market and Sensex

It has been over 135 years that the journey of the Indian capital market started with stock broking activities commenced by the BSE (Bombay Stock Exchange). And the BSE Sensex, the value-weighted index comprising of 30 largest and most actively traded stocks started in the New Year of 1986. If you are investing in a BSE stock, you will be required to watch the Sensex index often. There are financial news portals that display the latest Sensex index besides also carrying detailed reports.

The Sensex is today considered the pulse of the Indian capital market not to mention about nifty the other principal index, considered the heart. The calculation of Sensex index involves use of a number called the index divisor. This number is used to divide the free float market capitalization of the 30 companies in the index. Comparing of the Sensex index over time is made possible by this divisor besides also substituting as the adjustment point for all index adjustments arising out of replacement of scrips, corporate actions, and related paraphernalia. The original base period value of the Sensex is linked by this divisor.

What is free float? The phrase may seem a new terminology for the novice investor, though he/she may know how to read the BSE Sensex. It is advisable that as beginners, venture into stock trading only once you are equipped with the basics of the market and once you familiarize yourself with all related terminologies. Well, free float refers to shares that are readily available for trading in the market. Generally, determination of market capitalization of a particular company happens with the multiplication of the price of its stock with the number of shares issued by it. And it is this market capitalization multiplied by a free float factor used to find out the free float market capitalization.

Since the last two decades, the Sensex index has increased by over ten times from June 1990 to the present. There is a governing authority of the BSE to monitor its activities so that the Sensex reflects only current market situations.