The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks with the base April 1984=100, It consists of the 30 largest and most actively traded stocks,representative of various sectors, on the Bombay Stock Exchange.These companies account for around one-fifth of the market capitalization of the BSE. The base value of the sensex is 100 on April 1, 1979, and the base year of BSE-SENSEX is 1978-79,At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions.

The economy of India, measured in USD exchange-rate terms, is the twelfth largest in the world, with a GDP of around $1 trillion (2008). It recorded a GDP growth rate of 9.1% for the fiscal year 2007-2008 which makes it the second fastest big emerging economy, after China, in the world, At this rate of sustained growth many economists forecast that India would, over the coming decades, have a more pronounced economic effect on the world stage. Despite this phenomenal rate of growth, India's large population has a per capita income of 2659, measured by PPP, and 978, measured in nominal terms (revised 2007 estimate).India's economy is diverse and consist of various activities including manufacturing, agriculture and services.

More specialised indices exist tracking the performance of specific sectors of the market. The Morgan Stanley Biotech Index, for example, consists of 36 American firms in the biotechnology industry. Other indexes may track companies of a certain size, a certain type of management, or even more specialized criteria one index published by Linux Weekly News tracks stocks of companies that sell products and services based on the Linux operating environment. On July 23, 2007, the Sensex touched a new high of 15,733 points. On July 27, 2007 the Sensex witnessed a huge correction because of selling by Foreign Institutional Investors and global cues to come back to 15,160 points by noon. Following global cues and heavy selling in the international markets, the BSE Sensex fell by 615 points in a single day on August 1,2007.

On October 16, 2007, SEBI (Securities & Exchange Board of India) proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not happy with P-notes because it was not possible to know who owned the underlying securities, and hedge funds acting through P-notes might therefore cause volatility in the Indian markets. However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock markets in absolute terms till then. This led to automatic suspension of trade for 1 hour.

Finance Minister P. Chidambaram issued clarifications, in the meantime, that the government was not against FIIs and was not immediately banning PNs. After the market opened at 10:55 AM, the index staged a comeback and ended the day at 18715.82, down 336.04 from the last day's close. In the third week of January 2008, the Sensex experienced huge falls along with other markets around the world. On 21 January 2008, the Sensex saw its highest ever loss of 1,408 points at the end of the session. The Sensex recovered to close at 17,605.40 after it tumbled to the day's low of 16,963.96, on high volatility as investors panicked following weak global cues amid fears of a recession in the US.

The next day, the BSE Sensex index went into a free fall. The index hit the lower circuit breaker in barely a minute after the markets opened at 10 AM. Trading was suspended for an hour. On reopening at 10.55 AM IST, the market saw its biggest intra-day fall when it hit a low of 15,332, down 2,273 points. However, after reassurance from the Finance Minister of India, the market bounced back to close at 16,730 with a loss of 875 points.