Sensex
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The Bombay Stock Exchange

The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks started in April, 1984. 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 company insiders¹.

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

Sensex milestones

Here is a timeline on the rise and rise of the Sensex through Indian stock market history.

• 1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.

• 2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.

• 3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.

• 4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.

• 5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.

• 6000, February 11, 2000 - On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.

• 7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time.

• 8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.

• 9000, December 9, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.

• 10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.

• 11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched a peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.

• 12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time.

May 2006

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 ($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.

The Sensex eventually recovered from the volatility, and on October 16, 2006, the Sensex closed at an all-time high of 12,928.18 with an intra-day high of 12,953.76. This was a result of increased confidence in the economy and reports that India's manufacturing sector grew by 11.1% in August 2006.

• 13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 and still riding high at the Bombay Stock Exchange for the first time. It took 135 days to reach 13,000 from 12,000. And 124 days to reach 13,000 from 12,500. On October 30, 2006 it touched a peak of 13,039.36 & closed at 13,024.26.

• 14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000 and touched a peak of 14028 at 9.58AM(IST) while opening for the day December 5, 2006.

• 15,000, July 6, 2007- The Sensex on July 6, 2007 crossed another milestone and reached a magic figure of 15,000. it took almost 7 month and 1 day to touch such a historic milestone. Coincidentally Sachin Tendulkar achieved the same mark (15000 runs in international cricket) around the same time! (The usual refrain of the time was, "Sachin, make runs so Sensex rises!")

Effects of the subprime crisis in the U.S

On July 23, 2007, the Sensex touched a new high of 15,733 points. On July 27, 2007 the Sensex witnessed a huge correction because of selling by Foreign Institutional Investors and global cues to come back to 15,160 points by noon. Following global cues and heavy selling in the international markets, the BSE Sensex fell by 615 points in a single day on August 1, 2007.

• 16,000, September 19, 2007- The Sensex on September 19, 2007 crossed the 16,000 mark and reached a historic peak of 16322 while closing. The bull hits because of the rate cut of 50 bit/s in the discount rate by the Fed chief Ben Bernanke in US.

• 17,000, September 26, 2007- The Sensex on September 26, 2007 crossed the 17,000 mark for the first time, creating a record for the second fastest 1000 point gain in just 5 trading sessions. It failed however to sustain the momentum and closed below 17000. The Sensex closed above 17000 for the first time on the following day. Reliance group has been the main contributor in this bull run, contributing 256 points. This also helped Mukesh Ambani's net worth to grow to over $50 billion or Rs.2 trillion. It was also during this record bull run that the Sensex for the first time zoomed ahead of the Nikkei of Japan.

• 18,000, October 9, 2007- The Sensex crossed the 18k mark for the first time on October 9, 2007. The journey from 17k to 18k took just 8 trading sessions which is the third fastest 1000 point rise in the history of the sensex. The sensex closed at 18,280 at the end of day. This 788 point gain on October 9 was the second biggest single day absolute gains.

• 19,000, October 15, 2007- The Sensex crossed the 19k mark for the first time on October 15, 2007. It took just 4 days to reach from 18k to 19k. This is the fastest 1000 points rally ever and also the 640 point rally was the second highest single day rally in absolute terms. This made it a record 3000 point rally in 17 trading sessions overall.

Participatory notes issue

On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not happy with P-notes because it was not possible to know who owned the underlying securities, and hedge funds acting through P-notes might therefore cause volatility in the Indian markets.

However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock markets in absolute terms till then. This led to automatic suspension of trade for 1 hour. Finance Minister P. Chidambaram issued clarifications, in the meantime, that the government was not against FIIs and was not immediately banning PNs. After the market opened at 10:55 AM, the index staged a comeback and ended the day at 18715.82, down 336.04 from the last day's close.

This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex tumbled by 717.43 points — 3.83 per cent — to 17998.39. The slide continued the next day when the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the lowest level of that week at 17226.18 during the day.

After detailed clarifications from the SEBI chief M. Damodaran regarding the new rules, the market made a 879-point gain on October 23, thus signalling the end of the PN crisis.

• 20,000, October 29, 2007- The Sensex crossed the 20k mark for the first time with a massive 734.5 point gain but closed below the 20k mark. It took 11 days to reach from 19k to 20k. The journey of the last 10,000 points was covered in just 869 sessions as against 7,297 sessions taken to touch the 10,000 mark from 1,000 levels. In 2007 alone, there were six 1,000-point rallies for the Sensex.

• 21,000, January 8, 2008 Business Standard

January 2008

In the third week of January 2008, the Sensex experienced huge falls along with other markets around the world. On January 21, 2008, the Sensex saw its highest ever loss of 1,408 points at the end of the session. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of a recession in the US.

The next day, the BSE Sensex index went into a free fall. The index hit the lower circuit breaker in barely a minute after the markets opened at 10 AM. Trading was suspended for an hour. On reopening at 10.55 AM IST, the market saw its biggest intra-day fall when it hit a low of 15,332, down 2,273 points. However, after reassurance from the Finance Minister of India, the market bounced back to close at 16,730 with a loss of 875 points.³

Over the course of two days, the BSE Sensex in India dropped from 19,013 on Monday morning to 16,730 by Tuesday evening or a two day fall of 13.9%.³

• 9,975, October 17, 2008 - Sensex crashes below the psychological 5 figure mark of 10K, following extremely negative global financial indications in US and other countries. Exactly one year back in October 2007, Sensex had gone past the 20K mark.

• 8701.07, October 24, 2008 lost 10.96% of its value on the intra day trade, the 3rd highest loss for a one day period in its history

Major crashes since 2000

May 2006

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 ($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.

The Sensex eventually recovered from the volatility, and on October 16, 2006, the Sensex closed at an all-time high of 12,928.18 with an intra-day high of 12,953.76. This was a result of increased confidence in the economy and reports that India's manufacturing sector grew by 11.1% in August 2006.

Effects of the subprime crisis in the U.S

On July 23, 2007, the Sensex touched a new high of 15,733 points. On July 27, 2007 the Sensex witnessed a huge correction because of selling by Foreign Institutional Investors and global cues to come back to 15,160 points by noon. Following global cues and heavy selling in the international markets, the BSE Sensex fell by 615 points in a single day on August 1, 2007.

Participatory notes issue

On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not happy with P-notes because it was not possible to know who owned the underlying securities, and hedge funds acting through P-notes might therefore cause volatility in the Indian markets.

However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock markets in absolute terms till then. This led to automatic suspension of trade for 1 hour. Finance Minister P. Chidambaram issued clarifications, in the meantime, that the government was not against FIIs and was not immediately banning PNs. After the market opened at 10:55 AM, the index staged a comeback and ended the day at 18715.82, down 336.04 from the last day's close.

This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex tumbled by 717.43 points — 3.83 per cent — to 17998.39. The slide continued the next day when the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the lowest level of that week at 17226.18 during the day.

After detailed clarifications from the SEBI chief M. Damodaran regarding the new rules, the market made a 879-point gain on October 23, thus signalling the end of the PN crisis.

January 2008

In the third week of January 2008, the Sensex experienced huge falls along with other markets around the world. On January 21, 2008, the Sensex saw its highest ever loss of 1,408 points at the end of the session. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of a recession in the US.

The next day, the BSE Sensex index went into a free fall. The index hit the lower circuit breaker in barely a minute after the markets opened at 10 AM. Trading was suspended for an hour. On reopening at 10.55 AM IST, the market saw its biggest intra-day fall when it hit a low of 15,332, down 2,273 points. However, after reassurance from the Finance Minister of India, the market bounced back to close at 16,730 with a loss of 875 points.³

Over the course of two days, the BSE Sensex in India dropped from 19,013 on Monday morning to 16,730 by Tuesday evening or a two day fall of 13.9%.³

Companies in the Sensex

List of BSE Sensex companies provides the full list of companies that have been part of the BSE Sensex since its inception in 1986 (baselined to 1979).

(as of September 22, 2008)⁴

• DLF replaced Dr. Reddy's Lab on November 19, 2007.
• Sterlite Industries replaced Ambuja Cements on July 28, 2008.
• Tata Power Company replaced Cipla Ltd. on July 28, 2008.

Sensex falls

The top ten single-day falls of the Sensex have occurred on the following dates [2]:

1. January 21, 2008 --- 1,408.35 points
2. Oct 24, 2008---1070.63 points
3. March 17, 2008 --- 951.03 points
4. January 22, 2008 --- 857 points
5. February 11, 2008 --- 833.98 points
6. May 18, 2006 --- 826 points
7. October 10,2008 --- 800.10 points
8. March 13, 2008 --- 770.63 points
9. December 17, 2007 --- 769.48 points
10. March 31, 2007 --- 726.85 points
11. October 06, 2008 --- 724.62 points
12. October 17, 2007 --- 717.43 points
13. September 15, 2008 --- 710.00 points
14. January 18, 2007 --- 687.82 points
15. November 21, 2007 --- 678.18 points
16. August 16, 2007 --- 642.70 points
17. June 27, 2008 --- 600.00 points

References

See also

BSE Sensex profile at Wikinvest