SENSEX

 In news:

• The benchmark Sensex on Monday witnessed its biggest single day fall in absolute terms amid a global sell off in equities.

About Sensex

• Sensex, otherwise known as the S&P BSE Sensex index, is the benchmark index of the Bombay Stock Exchange (BSE) in India.
• Sensex comprises 30 of the largest and most actively-traded stocks on the BSE, providing an accurate gauge of India's economy.
• The index's composition is reviewed in June and December each year.
• Initially compiled in 1986, the Sensex is the oldest stock index in India.
• Analysts and investors use the Sensex to observe the overall growth, development of particular industries, and booms and busts of the Indian economy.

Free-Float Capitalization Method

• When it was launched in 1986, the Sensex was calculated based on a market capitalization weighted methodology.
• Since September 2003, the Sensex is calculated based on a free-float capitalization method, which provides a weighting for the effect of a company on the index.
• This is a variation of the market cap method, but instead of using a company's outstanding shares, it uses its float, which is the number of shares that are readily available for trading.
• The free-float method, therefore, does not include restricted stocks, such as those held by company insiders, which can't be readily sold.

PRELIMS QUESTION:

Q. Regarding BSE Sensex, which of the following statements is/are incorrect?

1. Sensex comprises 30 of the largest and most actively-traded stocks on the BSE

2. Sensex is calculated based on market capitalization weighted methodology

Select the correct answer using the code given below:

a. 1 only

b. 2 only

c. Both 1 and 2

d. Neither 1 nor 2

Answer to Prelims question