Explanation: The Bombay Stock Exchange (BSE) is a significant financial institution in India, established in 1875, making it the oldest stock exchange in Asia. The BSE is a key player in the Indian financial market, providing a platform for trading various securities, including equities, debt instruments, and derivatives.
One of the most important indices of the BSE is the Sensitive Index, commonly known as the Sensex. The Sensex is a market-capitalization-weighted index that reflects the performance of the 30 largest and most actively traded stocks on the BSE. It serves as a benchmark for the overall performance of the Indian stock market.
The Sensex was introduced in 1986, but its base year is set to 1978-79. This means that the index value for the year 1978-79 is fixed at 100, and all subsequent index values are calculated relative to this base year. The base year is a crucial concept in the construction of stock market indices. It provides a reference point that allows investors and analysts to measure the performance of the index over time.
The choice of 1978-79 as the base year is not arbitrary. It reflects a period when the Indian economy was undergoing significant changes, including the liberalization of the financial sector. By setting the base year to 1978-79, the BSE provides a consistent and meaningful way to track the performance of the Indian stock market over the years.
Understanding the base year concept is essential for interpreting the Sensex values correctly. For instance, if the current Sensex value is 40,000, it means that the market has grown 400 times since the base year of 1978-79. This information is valuable for investors, analysts, and policymakers who use the Sensex to gauge the health of the Indian economy and make informed decisions.
In summary, the base year of the Sensex is 1978-79, which is a critical piece of information for anyone studying or working with the Indian stock market. It provides a consistent reference point for measuring the performance of the BSE and the broader Indian economy over time.