The Sensex is one of the most basic metrics and attracts the attention of investors and analysts alike. Being a critical indicator of market performance, the Sensex, officially known as the S&P BSE Sensex, is a sophisticated mechanism for assessing the health and direction of the Indian stock market.
Sensex is an abbreviation for ‘Stock Exchange Sensitive Index,’ and it reflects the performance of the Bombay Stock Exchange’s stock market. The S&P BSE Sensex is the benchmark index of India’s stock market, which shows how well the 30 largest and most traded stocks on the Bombay Stock Exchange are performing. People often use it as a measure of how the Indian stock market is doing. (-what is sensex)
The Sensex plays a very important role in reflecting the movements of the Indian stock market and serves as an indicator of the overall health of the economy. Let us get into the details:
1. Composition:
· Sensex consists of 30 largest and most active stocks in the BSE.
These 30 stocks were selected from Indian economy with representative sectors. (-what is sensex)
2. Calculation
Sensex makes use of free float capitalisation in the calculation methodology.
Here free-float, it gives shares in the relative percentage to their market capitalised percentage in its index.
Consequently, highly capitalized companies pull up the bigger impact on indexes.
The calculation is done by dividing the free-float market capitalisation of the 30 companies by a number called the index divisor.
The index divisor ensures that the Sensex remains comparable over time, even when there are changes in the constituent stocks due to corporate actions or replacements. (-what is sensex)
3. Significance:
The Sensex is considered a barometer of investor sentiment and economic trends.
When the Sensex increases, it means that the prices of the underlying 30 stocks have gone up, indicating optimism in the market.
On the other hand, a decrease in the Sensex means that the prices of these stocks have decreased, indicating caution or pessimism. (-what is sensex)
The Sensex is calculated as the sum of the closing prices of the top 30 stocks in the index, multiplied by their respective weights. The weights are based on the free-float market capitalisation of each stock, divided by the base market capitalisation, multiplied by the base value of the index
The Formula for Sensex:
Sensex = Free float market capitalisation of 30 companies / Base market capitalisation * Base value of the index.
For Sensex calculation, the base year to calculate Sensex is 1978-79 and the base value is static, Rs. 2501.24 crore is to be used as the base market capitalisation and a value is 100 is taken as base value
So, the final formula for calculation Sensex is:
Sensex = Free float Market Capitalisation of 30 firms / 25041.24 crores * 100
Free-float market capitalisation is the total market capitalisation of a company’s shares that are available to the public for trading.
Let’s try to understand with an example, let’s say that the Sensex is made up of 3 stocks, with the following weights:
Stock A: 25%
Stock B: 25%
Stock C: 50%
If the closing prices of the stocks on the day of calculation are Rs. 100, Rs. 200, and Rs. 300, respectively, then the free float market capitalisation would be calculated as follows:
Free Float Market Capitalisation = (25 * 100) + (25 * 200) + (50 * 300)
= 2500 + 5000 + 15000
= 22500
In this particulate case
Sensex will be = Free float market capitalisation of these 3 companies / Base market capitalisation * Base values of the index.
Sensex = 22500 / 25041.24 crores * 100
The Sensex value is calculated at the end of each trading day. The index is also updated intraday, but the intraday changes are not considered for the calculation of the Sensex value at the end of the day.
The Sensex is essentially a measure of performance of the 30 largest and most liquid stocks on the Bombay Stock Exchange, or simply BSE. The higher the value of Sensex, the better will be the performance of the Indian stock market. (-what is sensex)
Only the best companies are included in the Sensex. A very strict selection process ensures this, with companies having to meet five key requirements:
Listed on the BSE: This is the first hurdle. Only companies listed on the Bombay Stock Exchange are even considered.
Big and bold: The Sensex is for the major players. Companies need to have a large or mid-size market capitalisation to qualify.
Easy to trade: Smooth and active trading is essential. Stocks need to be highly liquid that would mean being easily bought and sold.
Well-run core business: The Sensex likes solid corporate underpinnings. Large revenue share by the firm, primarily out of its main offerings.
Keeping it balanced: Sensex should represent the Indian economy. All sectors have some weight, and companies are chosen for each sector to maintain that balance. (-what is sensex)
Investing in the Sensex is thus investing in its underlying stocks which make up this index. These can be bought in several ways:
Direct investment: Investors could buy shares directly of the company whose stocks have been included in the Sensex through a trading account, where a trusted broker is Bajaj Financial Securities Limited (BFSL).
Exchange-Traded Funds (ETFs): ETFs that track the Sensex are a way to invest indirectly in the index. They are trying to replicate the index’s performance and offer diversification across multiple stocks.
Index Funds: Similar to ETFs, index funds track the Sensex passively by holding the same stocks in the same proportions as the index. (-what is sensex)
With its wide reach and popularity, let us look at a few advantages of Sensex, which are mentioned below:
If a company is listed on Sensex, it will benefit from greater visibility. Moreover, it would also enhance the business’s reputation.
In any case, there is pride being listed on the BSE Sensex as high-performing companie are its constituents.
It aids businesses and entrepreneurs in raising share capital.
It allows companies to grow through expansions, mergers, and acquisitions.
It also gives benefits such as improving worker efficiency in risk distribution and providing incentives. (-what is sensex)
(-what is sensex) The Sensex has witnessed several significant milestones in its history, reflecting the evolution of India’s economy and financial markets:
| Milestone | Date |
| Launch of Sensex with a base value of 100 | January 2, 1986 |
| Crossing the 5,000 mark | 01/10/99 |
| Crossing the 20,000 mark | 2007 |
| Crossing the 21,000 mark | 2008 |
| Notable crashes: 1992 Harshad Mehta scam, 2008 financial crisis, COVID-19 pandemic | Various |
| Current all-time high | Present |
(-what is sensex) With the meaning and advantages of Sensex clarified, let us also discuss some of the major plunges in the index historically. These are:
| Date | Cause | Impact | Points Lost |
| January 21, 2008 | Market reacts to global financial crisis, records highest single-day loss | Loss of 1408 points, highest since inception | 1408 points |
| January 22, 2008 | Continued market uncertainty, trading suspended for an hour | Trading halt to mitigate further losses | – |
| 01/10/08 | Intensification of global financial crisis | Sensex hits 10-year low, closing at 8509.56 points | – |
| 2009 | Satyam fraud scandal shakes investor confidence | Loss of nearly 750 points | 750 points |
There are so many factors affecting Sensex, which can’t be covered within the scope of this paper. For the reader’s convenience, they have been divided into three classes: macroeconomic, industry-specific, and country-specific. Let us have a look at these factors in detail: (-what is sensex)
Macroeconomic factors like interest rates, inflation, and foreign exchange rates significantly impact Sensex. The cost at which a company can raise funds changes due to changes in interest rates, affecting sentiment in the market. A situation of high inflation may force the input prices up, thereby reducing the company’s margins. All these apart, changes in foreign exchange rates affect company earnings from exports and imports. All these factors can bring fluctuations in the price level of the Sensex. (-what is sensex)
These factors may include regulatory change, technological upgrade, and acquisitions and mergers, which directly affect the index. Technological changes affect companies’ competitiveness as well as the growth of various sectors, but more so within the telecom as well as information technology sectors. Besides, changing environmental norms create a regulatory burden on companies regarding their operations, which affects profits. Acquisitions and mergers change the course of business or financial performance altogether. (-what is sensex)
The various company-specific factors such as management changes, changes in financial performance and market share affect Sensex. Some other general financial metrics that have an impact on stock price, and hence Sensex, are revenue, earnings, and profit margins. Management change like a new CEO can entirely deroute the strategic direction and performance of a company and impacts stock price. Changes in the market share as well as competition within the industries affect earnings and growth prospects. (-what is sensex)
The Sensex is more than a number indicating stock prices-it reflects the Indian economic landscape and investor sentiment. As an important benchmark, it gives insights into the performance of India’s top companies across different sectors. Investors use Sensex to gauge market trends, make informed investment decisions, and monitor economic health. The journey of the index through various milestones stands testimony to the dynamism of India’s financial markets and broader economy, which makes it an important tool for investors seeking to tap into the growth story in India.(-what is sensex)
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Registered Office:
3-1-309/310, Tara Kaushalya Nivas,
Nimboliadda, Kachiguda, Hyderabad-500027
Contact: +916300169336
E-mail: admin@4rinvestments.in
Mumbai Office:
C/o.15B,5B, 1st Floor, Royal Industrial Estate,
Sewree Wadala Road No.26, Wadala(West),
Mumbai-400031
@2023 4R Investments. All right reserved.
Website by Vrinda Techapps
