BSE Sensex Case Study
BSE Sensex:
S&P BSE Sensex or BSE Sensex or simply Sensex is a market index that covers the stocks of 30 companies listed in Bombay Stock Exchange (BSE). This is also called BSE 30. The companies are selected according to their liquidity and financial strength. Among the selected 30 companies, some are most actively traded stocks that represent various industry sectors. The base year of BSE Sensex is 1978-79 with a base value of 100.
BSE Sensex was published in 1st January 1986 and is considered as the pulse of the domestic stock market. BSE has also launched another dollar linked index called Dollex-30.
Meaning of Index:
Stock exchanges have hundreds of listed companies and they need to keep a sharp eye on every single stock of those companies.
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The calculation is done during market hours. The computation is done every 15 seconds at every workstation connected to the BSE trading computers in real-time. A day’s opening and high/low prices are given by the computer itself. However, closing prices are calculated by suing spreadsheets to maintain theoretical consistency.
BSE Index Maintenance:
Big stock exchanges such as BSE have multiple indices such as S&P BSE Sensex, S&P BSE MIDCAP, S&P BSE SMALLCAP, S&P BSE 100, S&P BSE 200, S&P BSE 500, S&P BSE AUTO, etc. Insuch situations maintaining the continuity with the past is a hefty but necessary job. Updating the base year average is one of the important tasks. An efficient index management system ensures that adjustments for corporate actions in the Index should not affect the index values.
Objectives of BSE Sensex:
BSE Sensex is a benchmark index that is equally accepted among individual investors, institutional investors, foreign investors, and fund managers. The three main objectives of BSE
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A detailed view of the selection criteria is given here.
• Index Review Frequency: The index committee holds a meeting every quarter for reviewing all BSE indices. The purpose of the meeting is to review the constituents of every index. This does not specifically mean that every meeting will result in changes in the constituents. In the case of any such changes, an announcement is made 6 months prior to the replacements. The procedure if executed as per Securities and Exchange Board of India (SEBI).
General guidelines for the selection of securities come under two following categories. Both these criteria
• Quantitative Criteria: The quantitative criteria contain a few divisions that make the selection process easy and fair.
1. Market Capitalisation: The security (company) must figure in the top 100 companies listed by full market capitalisation. The market capitalisation is averaged for a minimum of last 6 months. And the weight of each security (based on free float) should be minimum 0.5% of the
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