The Indian stock market is an intriguing world of financial activities, prominently featuring indices like the Sensex and India VIX. The Sensex now, or Sensitive Index, is a benchmark index of the Bombay Stock Exchange (BSE) in India, reflecting the performance of 30 significant stocks listed on the BSE. It provides a gauge for overall market sentiment and trends in the Indian stock market. On the other hand, the India VIX, short for Volatility Index, measures the market’s expectation of volatility over the near term. It is often referred to as the “fear gauge” of the Indian stock market. Understanding these two indices is crucial for investors and market enthusiasts to grasp the dynamics of the Indian financial markets.
- The Evolution of Sensex: Launched in 1986, the Sensex has a long history, marking its position as one of the oldest stock indices in India. Its base year was set to 1978-79 with a base value of 100 points. Over the years, the Sensex has undergone numerous modifications and expansions to better reflect the changing Indian economy. The stocks comprising the Sensex are selected based on market capitalization, liquidity, and representation of the listed universe. This dynamic index is continually revised to include or exclude stocks in accordance with the set criteria, ensuring that it accurately mirrors the current state of the Indian economy.
- India VIX – Understanding Market Volatility: The India VIX, introduced by the National Stock Exchange (NSE) in 2008, is a volatility index based on the NIFTY Index Option prices. It measures the market’s expectation of volatility over the next 30 calendar days. Higher values of India VIX indicate higher expected volatility, translating to greater uncertainty in the market. Conversely, lower VIX values suggest stability. The index is an essential tool for traders and investors to understand market sentiment, especially during turbulent times. It is calculated using the best bid and ask prices of NIFTY options contracts and is expressed in percentage terms.
- Sensex Calculation Methodology: The Sensex is calculated using the “Free-Float Market Capitalization” methodology, which considers only the free-float market cap of companies, i.e., shares that are readily available for trading in the market. It does not include shares held by promoters, government, etc., as they are not usually traded in the open market. The free-float methodology makes the Sensex a more accurate reflection of market movements and ensures that it represents the active market performance. The index value is calculated in real-time, updating every few seconds during market hours, reflecting the instantaneous market conditions.
The Sensex and India VIX share price are essential tools for anyone involved in the Indian stock market. The Sensex serves as a mirror to the Indian economy, reflecting its health and investor sentiment, while the India VIX measures market volatility, offering insights into market uncertainty and risk. Together, they provide a comprehensive view of the market dynamics, guiding investors, traders, and policymakers. As the Indian economy continues to evolve and integrate with the global financial system, the relevance and importance of the Sensex and India VIX are likely to grow, making them indispensable components of the financial landscape in India.
