Of the 22 stock exchanges in the country, Mumbai's (earlier known as Bombay) the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of the total trading volume in the country. Established in 1875, the exchange is also the oldest in Asia. Approximately 70,000 deals are executed on a daily basis, giving it one of the highest per hour rates of trading in the world. There are around 3,500 companies in the country which are listed and have a serious trading volume. The market capitalization of the BSE is Rs.5 trillion. The BSE `Sensex' is a widely used market index for the BSE.
The BSE Sensex is a value-weighted index composed of 30 companies with the base April 1979 = 100. The set of companies in the index is essentially fixed. These companies account for around one-fifth of the market capitalization of the BSE.
The BSE Sensex portfolio has grown by more than four times from January 1990 to today. We can use information from April 1979 onwards in estimating the long-run rate of return on the BSE Sensex and that comes to 0.52% per week (continuously compounded) with a standard deviation of 3.67%. This translates to 27% per annum, which translates to roughly 18% per annum after compensating for inflation.
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