This is not the question that an Ahmeabad-based magazine is expected to ask, right? But hey, not every Amdavadi is a stock-broker. 🙂 Some are like you and us too. People who keep on hearing about the vagaries of stock exchange every day, without ever having even the slightest of ideas about BSE and its working. This one is for all those people.
Bombay Stock Exchange (BSE), like most traditional stock exchanges across the globe is a corporation which provides facilities for stock brokers and traders, to trade company stocks and other securities.
Oh, by the way, did you know that Ahmedabad Stock Exchange (ASE) is India’s second oldest stock exchange? Well, now you know. 🙂
Anyway, stock exchanges have multiple roles in the economy, this may include – amongst a host of others – raising capital for businesses (the Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public), facilitating company growth (Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion), corporate governance (by having a wide and varied scope of owners, companies generally tend to improve on their management standards, ethics and efficiency), creating investment opportunities for small investors (as opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors, and to enjoy similar rates of return, government capital-raising for various development projects (governments at various levels may decide to borrow money in order to finance infrastructure projects by selling another category of securities, known as bonds, to general public and getting a loan from the public!), barometer of the economy (at the stock exchange, share prices rise and fall depending, largely, on the general state and trend in the economy).
Now, the Bombay Stock Exchange Sensitive Index or SENSEX represents a group of 30 largest and most actively traded stocks (capital raised by a corporation through the issuance and distribution of shares), representative of various sectors, on BSE. These companies account for around one-fifth of the market capitalization (stock price times the number of shares outstanding of a public company) of the BSE.
The base value of the SENSEX is 100 on April 1, 1979 and the base year of BSE-SENSEX is 1978-79.
At random intervals, the BSE authorities review and modify its composition to make sure it reflects current market conditions.
The abbreviated form “Sensex” was coined by Deepak Mohoni around 1990 while writing market analysis columns for some of the business newspapers and magazines. It gained popularity over the next year or two.
The index is widely reported in both domestic and international markets through print as well as electronic media. Due to this wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards).
Right since the first burst of boom in Indian economy in 1991, the SENSEX has captured all the events pertaining to the rise and fall of Indian economy in the most scientific and transparent manner. The booms and busts of the Indian stock market of the period can be gauged through SENSEX.
In short, SENSEX is a group of 30 Companies whose performance gives a broad idea of the Indian economy.