Why Certain Companies Are Only Considered for the SENSEX

The SP BSE SP SENSEX is a renowned stock market index that reflects the broader market trends and movements. However, not every company is eligible for inclusion in this prestigious index. There are specific criteria that the companies must meet to be considered for the SP BSE SP SENSEX. Let's delve into why certain companies are only selected for the SP BSE SP SENSEX.

Criteria for Selection of Companies in the SP BSE SP SENSEX

There are generally around half a dozen criteria that are used to select the companies for the SP BSE SP SENSEX. These criteria ensure that the companies included are among the best in their respective fields and have a significant impact on the overall market performance.

Market Capitalization

The company should be among the top 100 companies in terms of market capitalization. This metric is a combination of the number of shares issued and the price per share during the last 6 months. The company's shares should also be well-traded with a daily turnover that is substantial. Indices like the SP BSE SP SENSEX focus on large-cap companies, which typically have a higher market capitalization. Many of these companies are leaders in their respective industries, such as automobiles, technology, consumer goods, and pharmaceuticals.

Liquidity and Share Trading

The company's contribution to the liquidity of the stock market should not be less than 0.5. This means that the company's stock should be highly traded and widely followed. A company with low liquidity may not be considered as it would not have a significant impact on the overall market movement. High liquidity ensures that the index is representative of the broader market trends and that investors can easily buy and sell the company's shares.

Track Record and Leadership

The company's track record plays a crucial role in its selection for the SP BSE SP SENSEX. Companies like Satyam, which was once a part of the index, had a long history before the scandal. This underscores the need for companies to maintain a good reputation and a consistent history of growth and stability. The SP BSE SP SENSEX includes companies that are not only leading in their respective fields but also have a positive reputation in the public eye.

New Companies and Listing Duration

For a new company, the selection process is slightly different. A company is only considered valid for inclusion in the SP BSE SP SENSEX after it has been listed on the stock market for at least 3 months. This ensures that the company has had sufficient time to prove its worth and stand the test of time. It also allows the market to assess the company's performance and potential before it is included in the index.

Comprise of the SP BSE SP SENSEX

The SP BSE SP SENSEX is made up of 30 large-cap companies, which together represent the overall impact of market sentiments. These companies are known for their large capitalization, good growth potential, and significant contribution to the overall market. By including these companies, the SP BSE SP SENSEX provides a snapshot of the broader market trends and is widely used as a benchmark for investors and financial analysts alike.

Reasons for Limited Companies in the SP BSE SP SENSEX

The SP BSE SP SENSEX includes only 30 companies because these companies represent the pinnacle of success and stability in the Indian stock market. They have the largest market capitalization, leading market positions, and a proven track record. Companies that make it to the SP BSE SP SENSEX are not just big and have large capital; they are also well-regarded for their growth and potential for future success.

These companies are a part of a select group that is highly traded and widely followed, making them a benchmark for the overall market. Their inclusion in the SP BSE SP SENSEX ensures that the index accurately reflects the bigger picture of the market's movements and performance.

Conclusion

The SP BSE SP SENSEX is a testament to the financial success and stability of certain companies. By adhering to strict criteria, the index ensures that it includes only the largest and most reputable companies in India. The SP BSE SP SENSEX is a valuable tool for investors, analysts, and the general public to gauge the health and future potential of the Indian stock market.