BSE SENSEX

BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks that started January 1, 1986. It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around one-fifth of the market capitalization 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 irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions. The index is calculated based on a free-float capitalization method; a variation of the market cap method. Instead of using a company's outstanding shares it uses its float, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by promoters, government and institutional investors.[1].

The index has increased by over ten times from June 1990 to the present. Using information from April 1979 onwards, the long-run rate of return on the BSE Sensex works out to be 18.6% per annum, which translates to roughly 9% per annum after compensating for inflation.[2]

On May 22, 2006, the Sensex plunged by 1100 points during intra-day trading, leading to the suspension of trading for the first time since May 17, 2004. The volatility of the Sensex had caused investors to lose Rs 6 lakh crore (US$131 billion) within seven trading sessions. The Finance Minister of India, P. Chidambaram, made an unscheduled press statement when trading was suspended to assure investors that nothing was wrong with the fundamentals of the economy, and advised retail investors to stay invested. When trading resumed after the reassurances of the Reserve Bank of India and the Securities and Exchange Board of India (SEBI), the Sensex managed to move up 700 points, still 450 points in the red.