What are the Different Factors to Choose Stocks on the Sensex?
Choosing stocks on the Sensex needs proper knowledge and understanding about Sensex. The Sensex is an index used to track the top 30 most financially stable Indian companies’ performance on the Bombay Stock Exchange (BSE). Both Indian rupees and U. S. Dollars are used to calculate the Sensex. The BSE Index Committee manages the index. The committee comprises fund managers, academicians, market participants, and finance journalists.
BSE Index Committee selects the parts of Sensex on five bases:
1. The companies must be listed on BSE in India.
2. The companies must have a market capitalization above 200 billion U.S. dollars.
3. The stocks are supposed to be relatively liquid.
4. The companies’ core activities must be the primary revenue generator.
5. Broadly balanced sectors must be kept in line with the equity market of India.
There are multiple factors for choosing stocks on the Sensex. These are:
- Capitalization of Market: Market Capitalization is the total dollar market value of a company’s outstanding stock shares. There are three types of companies based on market capitalization.
2. Mid-cap, and
Large-cap companies’ market capitalization is 10 billion dollars or more. Mid-cap companies range between 2 billion and 10 billion dollars. Small-cap companies have market capitalization from 300 million to 2 billion dollars. To choose a stock on the Sensex, the company should be among the top on the index based on market capitalization. The company’s market cap should be more than 0.5% of the index’s total market cap.
- Trading Frequency: Frequency of trading is the number of transactions performed at a particular time interval. For high-frequency trading, retention periods are generally concise, ranging from milliseconds to minutes. Trading at such frequencies is called High-Frequency Trading (HFT). At medium frequencies, retention times are longer in the range of a few minutes to a day than HFT. Similarly, it ranges from one day to several weeks for infrequent transactions. Trading frequency is directly related to the costs of transactions. Choosing stocks on the Sensex needs the company to live for at least one year on the exchange.
- Average daily trade: The average number of traded shares in stock in a day is the average daily trade. The average daily trade should be among the top 150 to choose stocks on the Sensex.
- Representation of Industries: Only the heavyweight industries represent their sector
- Average daily turnover: The average income made in a day by selling shares in a financial year is called the average daily turnover. For choosing stocks on the Sensex, the average daily turnover should rank in the top 150.
IIFL Securities is one of the largest brokerage firms in India. They provide all the information related to the Stock Market on their website. You will learn about all the Sensex listed companies along with their current, highest, and lowest market prices. For better understanding, there are graphs as well. IIFL Securities can be your best choice for finding information related to Sensex.