What is Sensex?

A stock market index measures the performance or price movement of a group of stocks based on certain methodologies. These groups of stocks can have some similarities, like belonging to the same sector, or they can be from totally different backgrounds. One such index is S&P BSE Sensex. Let us understand what is Sensex and the features of Sensex.

Sensex is a shortened word for Sensitive Index. It is the benchmark index of the Bombay Stock Exchange, one of the two prominent stock exchanges in India and the oldest stock exchange in Asia. The index has a total of 30 stocks which are the largest companies as per market capitalisation listed on the BSE. It means there are 30 Sensex companies. It tracks the performance of these companies, which in turn can be said to be representative of the performance of the Indian economy.

Sensex is considered a bellwether index for the Indian market and is widely used as both a benchmark and an investible index for fund managers and investors. The index was launched on January 1, 1986, as the country’s first equity index and now covers more than 40% of the total market cap of all the listed companies at BSE.

Now, that we know what is Sensex, let us delve deeper into Sensex calculation.

How is the Sensex calculated?

Asian Index, a joint venture between S&P Dow Jones and BSE which manages the Sensex, selects stocks based on a float-adjusted market cap weighted methodology. It attempts to maintain index sector weights broadly in line with the overall market.

This means only the free float market cap is used to construct the index. Free float refers to those shares that are freely available in the market to trade. This usually excludes shares held by promoters and large institutional investors. The free float market cap of a stock can be calculated by multiplying the number of free float shares by the share price.

Market weighted implies that stocks in the index will have different weights based on their free float market cap. This means the larger the market cap, the bigger the weight in the index and vice versa. The constituent stocks contribute points towards the Sensex according to their weight. Keep in mind that weight is dynamic and changes with movement in stock price.

As of April 2023, the 30 constituent stocks in Sensex, i.e., the 30 Sensex companies are:

The following formula is used for Sensex calculation:

Sensex = (Total free float market cap / base market cap) * base index value

Here, the total free float market cap is simply the addition of the free float market cap of all 30 constituents in Sensex. The base market cap is fixed at Rs 2,501.24 crore and the base value is 100.

How to invest in Sensex?

Sensex is used as an investable index by a lot of investors. Investing in Sensex means you can buy some products based on Sensex that, in turn, invest money in 30 constituent stocks according to their weight in Sensex.

There are two ways to invest in Sensex – Exchange Traded Funds (ETFs) and index funds that track Sensex. Both are similar types of passively managed products offered by mutual fund companies, with one major difference. ETFs can be bought and sold as you buy shares on an exchange. On the other hand, index funds can only be bought and sold from mutual fund companies.

Both ETFs and index funds are some of the least expensive investment tools that promise market-linked returns. Usually, the commission charged by mutual fund companies for Sensex index funds and ETFs is between 0.1% to 0.2%.  

Milestones of Sensex

January 1, 1986: Sensex launched with the base year 1978-79. It was the first-ever equity index in India.

July 25, 1990: Sensex crossed above 1,000

October 11, 1999: Sensex crossed above 5,000

September 1, 2003: Index shifted to free-float methodology

February 7, 2006: Sensex crossed above 10,000

December 11, 2007: Sensex crossed above 20,000

April 26, 2017: Sensex crossed above 30,000

June 3, 2019: Sensex crossed above 40,000

February 3, 2021: Sensex crossed above 50,000

September 24, 2021: Sensex crossed above 60,000

Conclusion

Sensex is just one of the indexes that measure the mood of the market. A similar index to Sensex is Nifty 50 which is the flagship index floated by National Stock Exchange (NSE). As the name suggests it has 50 constituent stocks.

There are several other indices that also track other segments and sectors of the market. For instance, there are indices that track smallcap stocks, midcap stocks, top 100 stocks, top 500 stocks, stocks of certain business groups, etc.

FAQs

Q: What is Sensex?

A: Sensex is an abbreviation for the Sensitive Index. It is the benchmark index of the Bombay Stock Exchange (BSE) and tracks the performance of the top 30 companies listed on the exchange.

Q: How is Sensex calculated?

A: Sensex calculation is done using a free-float market capitalization weighted methodology

Q: What is the base value of Sensex?

A: The base value of Sensex is 100 and the base year is 1978-79.

Q: What is the significance of Sensex?

A: Sensex is considered to be an important barometer of the Indian stock market and the Indian economy as a whole as it reflects investor sentiment. It is used as a benchmark by investors and analysts to evaluate the performance of the Indian stock market and the economy.

A: How many companies are there in Sensex?

A: The Sensex measures the performance of the 30 largest, most liquid and financially sound companies across key sectors listed on BSE.