Sensex Indian Stock Market

Readers Question: What is Sensex and impact on economy?

The Sensex is the leading measure for the Indian Stock Market. It is based on the 30 Largest trading companies on the Bombay Stock Exchange BSE (India’s primary financial market)

Like other indexes, the Sensex is recalculated at various times to change the 30 largest trading companies. It was started on 01 Jan 1986 and uses a base year of 1978-79 and a base value of 100.

Since it’s introduction in the mid 1980s it has achieved above inflationary increase, benefiting from India’s improved economic performance.

As of 2009, the Indian stock market has averaged a yearly increase of 18.6% per annum or 9% a year in real terms.

However, after its peak of 20,873 in Jan 2008, the index has been hit by the global credit crunch and economic slowdown, which saw the index fall to 12,000 by May 2009.

Outlook for Sensex and Indian Economy

The Indian economy appears to have weathered the global economic downturn better than many of the other developed countries. Economic growth has remained positive and India continues to achieve one of the highest growth rates in the world after China. There is still tremendous potential in the Indian economy; however, it is hard to know how much future expected growth is already priced into the Sensex.

How is Sensex Measured?

The Sensex is an aggregate of the value of the leading 30 companies. If these companies share prices rise, the Sensex will rise. However, the different companies will have a different weighting. In other words those companies with the biggest market capitalisation will have the largest weighting and impact on the Sensex.