It means Sensex is 500 times what it was on 1st April 1979.
There are 5000+ companies whose stocks/shares can be bought or sold by people on the Bombay Stock Exchange (BSE – a market where people sell their shares and other people buy those shares).
Out of these 5000+, some companies are well-established and have proven themselves over a number of years.
Let us say there are 100 such companies.
BSE picks the top 30 out of these companies and calculates their Free-Floating Market Capitalisation (FFMC).
FFMC is equal to all the stocks available for trading (buying/selling) to common people (i.e., not held by company insiders or government, etc.) multiplied by their share value.
E.g., Company A has 100 shares for trading, and the value of each share is priced at Rs. 20, so the total FFMC will be Rs. 2,000/-.
FFMC of all these 30 companies is totalled, and it adds up to billions of rupees.
Let us say this value was 403.47 Billion on 1st April 1979.
To report and make sense of such a complicated number on a daily basis would be highly inconvenient; imagine someone saying: “Today Sensex crossed 1738.8 billion, yesterday it was 1696.48 billion.”
So, this figure (or whatever it was on 1st April 1979) was equated to 100; this equating to 100 is called Indexing (and therefore Sensex is called Stock Market Index of 30 companies).
When we say Sensex crossed 50,000, it means FFMC of the top 30 companies on the BSE list has become 500 times that of 403.47 Billion; it is seen as an indication of how well the Indian stock market is performing.
While the number 30 is fixed, the composition of the group can change and is reviewed in June and December each year.
Companies with fading performance are replaced by ones getting stronger.
This is how all major stock market indices in the world operate.
