SENSEX
A well-known stock market index in India is the BSE SENSEX, sometimes referred to as the S&P Bombay Stock Exchange Sensitive Index or just SENSEX. It is made up of 30 reputable, financially sound businesses that are listed on the Bombay Stock Exchange. These 30 constituent businesses are among the biggest and most frequently traded equities, and they represent several industrial sectors of the Indian economy. The S&P BSE SENSEX has been regarded as the heartbeat of India’s local stock markets ever since it began on January 1, 1986. Utilizing a free-float market-weighted formula, its value is determined. To make it simpler to follow the performance and changes of the SENSEX over time, a base value of 100 was first assigned to it on April 1, 1979, with the base year set to 1978–79.
Additionally, the BSE unveiled DOLLEX-30, a dollar-linked version of the SENSEX, on July 25, 2001, to cater to investors interested in tracking the index’s performance about changes in the value of the dollar. The free float capitalization approach is used to determine the Sensex, which reflects the market value of its 30 constituent equities about a base period. It has increased more than 25 times since June 1990, with an average annual rate of return of 18.6% from April 1979.
History of the Sensex
The BSE Sensex witnessed its most severe decline ever on April 18, 1992, when it fell 12.7%. The disclosure of a scheme in which a well-known broker stole funds from the public banking system to use for stock market investments set off this sudden collapse.
India’s economy has opened up since 1991, and that expansion has been evident in the Sensex. With the index rising from about 5,000 in the early 2000s to over 42,000 in January 2020, the 21st century saw the largest increase. The main driver of this significant increase was India’s strong economy, which has been expanding steadily at one of the quickest rates in the world.
The growing middle class is largely responsible for the country’s economic growth, and vice versa. Studies predict that by 2030, close to 80% of Indian households will be classified as middle-income, up significantly from the predicted 50% in 2019. The expanding middle class is a key factor in generating consumer demand, which boosts several economic sectors.
But recently, India’s economic development has slowed, and in 2019, it hit its lowest point in ten years. Early in 2020, the global coronavirus epidemic broke out, which made the economy even slower and raised doubts about potential future growth.
The Purpose and Function of SENSEX: Analyzing India’s Stock Market Performance
The SENSEX’s primary objective is to offer a thorough overview of the performance of the equities listed on the Bombay Stock Exchange. It performs a variety of tasks, including determining how much a particular stock moves the index and assessing the health of the stock market’s overall finances. The performance of the top thirty trending stocks in the nation is measured by the SENSEX using market capitalization and liquidity as indicators of market movement.
Understanding the Sensex
The Sensex, which was introduced on January 1st, 1986, provides information on the performance of 30 of India’s largest and most financially secure corporations while also acting as an investable index. These eminent companies, which represent important areas of the Indian economy, are listed on the BSE (previously the Bombay Stock Exchange). It has the distinction of being India’s index that is most frequently checked.
Both American dollars and Indian rupees (INR) are used to calculate the Sensex. The index’s mean total market value was 3.71 trillion rupees as of August 31, 2021. Reliance Industries, HDFC Bank, Infosys, Housing Development Finance Corp., and ICICI Bank made up the top five index contributors.
The methodology of the Sensex has changed throughout time in response to developments in the Indian economy. In September 2003, it switched to a free-float capitalization technique after initially being computed using market capitalization. By taking into account a company’s float rather than its entire number of outstanding shares, this adjustment provided a weighing mechanism. As a result, the computation excludes insiders’ holdings of restricted stock that are difficult to transfer.
The Sensex’s basic goals have not changed despite these methodological changes. The S&P BSE index Committee uses particular criteria to choose the companies that make up its component index:
Natures of Stock Market Keys
The stock market offers a variety of indices that are used for various purposes. Benchmark and broad market indices track the performance of the entire market, whereas sector-based and market capitalization indexes concentrate on certain stocks and sectors. Investors can choose wisely for their portfolios by understanding these indices.
Benchmark Index
The main metric for examining broad market developments is the benchmark index. It gives information about the overall stock market’s performance and is usually applied as a benchmark. In essence, it contrasts the market returns of a typical fund with the actual returns realized. Benchmark indices prominent examples include NIFTY50 and BSE Sensex.
Broad Market Index
Comparable to benchmark indexes, broad market indices include a greater variety of equities in their makeup. For instance, the BSE 100 consists of the top 100 companies in terms of market capitalization, whereas the BSE Sensex only contains the 30 most financially stable corporations.
Market Capitalization Index
The value of all outstanding shares is reflected in the market capitalization index, which consists of stocks based on their entire market capitalization. This group is exemplified by indices like BSE Midcap and NIFTY Small Cap.
Sector or Industry-based Index
Companies or stocks that are part of a certain sector or industry make up the sector- or industry-based indices. These indices concentrate on specific sectors of the economy, such as banking, healthcare, technology, etc. NIFTY FMCG Index, CNX IT, NIFTY Pharma Index, and NIFTY Financial Services Index are illustrative instances.
Investing in SENSEX Can be Done through Two Approaches
Both strategies give investors a chance to become familiar with the SENSEX and take part in the performance of the top 30 firms traded on the Bombay Stock Exchange as a whole. The decision between the two strategies is based on personal preferences, risk tolerance, and investment philosophy.
Direct Purchase of Stocks
The first strategy entails purchasing individual stocks in an amount equal to their weight in the SENSEX. This implies that based on their weights in the index, you directly invest in the equities that make up the SENSEX. In essence, you buy each stock in an amount according to its percentage in the index.
Capitalize in Index Mutual Funds
The second strategy is to capitalize on mutual funds that duplicate the SENSEX called index funds. These funds keep a portfolio that precisely matches SENSEX’s makeup. By definition, passively managed index funds invest in the same securities and the same proportion as the underlying index, in this case, the SENSEX. The fund’s objective is to duplicate the performance of the index it follows while maintaining the same portfolio composition and providing returns that are comparable to that index.
How to Invest in SENSEX Shares?
There are two methods for purchasing SENSEX:
Buy Stocks in the 30 Firms in Proportion to Their Index Weights: Investors have the option of buying individual shares of any of the 30 SENSEX-listed firms in the same ratio as their index weights.
Finance in index mutual funds. SENSEX Composition Reflected: As an alternative, investors may decide to invest in index mutual funds that, by mirroring the index’s business weightings, reproduce the composition of the SENSEX a easy and diverse approach to invest in the SENSEX is through these ETFs
The Connotation of Stock Market Indices
In the financial sector, stock market indices like the NIFTY and Sensex are very important since they represent the overall performance and state of the stock market. For investors and market participants, these indices serve several important functions.
Stock Picking Made Easier
The share market has thousands of firms listed, making it difficult to analyze each one separately for investment purposes. Stock market indices save the day by serving as a standard of reference. Investors can analyze the performance of the stocks that make up an index to assist them focus on investments with the best size, industry, and financial impact.
Beginner-Friendly Reference
It might be difficult for new investors to comprehend the equities market’s dynamics. Stock market indices are valuable tools for deciphering the behavior of the stock market. These indexes can be used as guidance for novice investors who might not have access to financial consultants.
Reflects Investor Sentiments
Market indices can provide information about investor mood. A market ripple might be caused by specific announcements or reforms that affect a certain stock. Investors can measure the influence of trends and adjust their strategy by analyzing the underlying sentiment using indices.
Passive Investment Option
Stock market indices offer a passive investment choice for people looking for a more hands-off approach to investing. Investors have the option of choosing index funds whose portfolios closely resemble benchmark indices. With only one investment, investors may diversify their portfolios and gain market exposure thanks to this passive investing strategy, which does away with the necessity for in-depth individual stock research.
Investors can choose stocks, analyze market trends, and determine investor sentiment using stock market indices as effective tools. They provide a useful and effective technique to negotiate the stock market’s complexity and make wise investing choices.
Current Constituents of the BSE SENSEX as of July 2023
The BSE SENSEX, which was first introduced in 1986 with a base year of 1978-1979 and a base value of 100, is composed of 30 reputable and financially sound businesses from various industries. The index is rationalized twice a year, in June and December.
Current enterprises in the BSE SENSEX (as of July 2023)
| No. | Sector | Symbol | Ticker Number | Companies |
|---|---|---|---|---|
| 30 | Cement | ULTRACEMCO.BO | 532538 | UltraTech Cement |
| 29 | Diamond & Jewelry | TITAN.BO | 500114 | Titan Company |
| 28 | IT Services & Consulting | TECHM.BO | 532755 | Tech Mahindra |
| 27 | IT Services & Consulting | TCS.BO | 532540 | Tata Consultancy |
| 26 | Pharmaceuticals | SUNPHARMA.BO | 524715 | Sun Pharma |
| 25 | Banking – Public | SBIN.BO | 500112 | State Bank of India |
| 24 | Conglomerate | RELIANCE.BO | 500325 | Reliance Industries |
| 23 | Power | POWERGRID.BO | 532898 | Power Grid Corporation o |
| 22 | Oil Exploration and | ONGC.BO | 500312 | Oil and Natural Gas |
| 21 | Power | NTPC.BO | 532555 | NTPC |
| 20 | FMCG | NESTLEIND.BO | 500790 | Nestlé India |
| 19 | Automobile | MARUTI.BO | 532500 | Maruti Suzuki |
| 18 | Automobile | M&M.BO | 500520 | Mahindra & Mahindra |
| 17 | Engineering & Construction | LT.BO | 500510 | Larsen & Toubro |
| 16 | Banking – Private | KOTAKBANK.BO | 500247 | Kotak Mahindra Bank |
| 15 | Cigarettes & FMCG | ITC.BO | 500875 | ITC Limited |
| 14 | IT Services & Consulting | INFY.BO | 500209 | Infosys |
| 13 | Banking – Private | INDUSINDBK.BO | 532187 | IndusInd Bank |
| 12 | Banking – Private | ICICIBANK.BO | 532174 | ICICI Bank |
| 11 | FMCG | HINDUNILVR.BO | 500696 | Hindustan Unilever L |
| 10 | Banking – Private | HDFCBANK.BO | 500180 | HDFC Bank |
| 9 | Steel | JSWSTEEL.BO | 500228 | JSW Steel |
| 8 | IT Services & Consulting | HCLTECH.BO | 532281 | HCL Technologies |
| 7 | Pharmaceuticals | DRREDDY.BO | 500124 | Dr Reddy’s Laboratories |
| 6 | Telecommunications | BHARTIARTL.BO | 532454 | Bharti Airtel |
| 5 | Finance (Investment) | BAJAJFINSV.BO | 532978 | Bajaj FinServ |
| 4 | Finance (NBFC) | BAJFINANCE.BO | 500034 | Bajaj Finance |
| 3 | Automobile | BAJAJ-AUTO.BO | 532977 | Bajaj Auto |
| 2 | Banking – Private | AXISBANK.BO | 532215 | Axis Bank |
| 1 | Paints | ASIANPAINT.BO | 500820 | Asian Paints |
Previous Companies in the BSE SENSEX
Note: This list is incomplete and might have more companies added
| No. | Company Name | Date Added | Date Dropped | Ticker Number |
|---|---|---|---|---|
| 1 | Tata Motors | – | 23-Dec-19 | 500570 |
| 2 | Yes Bank | – | 23-Dec-19 | 532648 |
| 3. | Adani Ports & SEZ | 21-Dec-15 | 24-Dec-18 | 532921 |
| 4. | Wipro | – | 24-Dec-18 | 507685 |
| 5. | Dr. Reddy’s Laboratories | 18-Jun-18 | – | 500124 |
| 6 | Reliance Infra | – | 08-Aug-11 | 500390 |
| 7 | Reliance Communications | 12-Jun-06 | 08-Aug-11 | 532712 |
| 8 | Lupin | 22-Jun-15 | 18-Dec-17 | 500257 |
| 9 | Cipla | 18-Dec-17 | – | 500087 |
| 10 | Gail India | 19-Jun-17 | – | 532155 |
| 11 | Bharat Heavy Electricals | 20-Jun-16 | – | 500103 |
| 12 | Vedanta | 23-Dec-19 | – | 500295 |
| 13 | Hindalco Industries | 21-Dec-15 | – | 500440 |
| 14 | Tata Power | 22-Jun-15 | – | 500400 |
Metamorphoses among Sensex and Nifty
The key distinctions between the Sensex and Nifty indices, such as their relative incorporation dates, former names, number of firms and sectors, index computation process, operator, and volume and liquidity traits.
| Sensex | Nifty | Aspect |
|---|---|---|
| S&P BSE SENSEX | CNX FIFTY | Former Names |
| 1986 | 1996 | Incorporated |
| Free-Float Calculation | Free-Float Calculation | Index Calculation |
| 30 companies | 50 companies | Number of Companies |
| Covers 13 industrial sectors | Covers a total of 24 industrial sectors | Number of Sectors |
| Bombay Stock Exchange (BSE) | India Index Services and Products (Subsidiary of NSE) | Operated by |
| Low | High | Volume and Liquidity |
Objectives of BSE Sensex
The BSE Sensex is a crucial indicator of market activity and sentiment, serves as a standard for measuring fund performance, and has a big impact on index-based derivatives products. It is a crucial tool in the Indian stock market due to its widespread adoption and varied content.
Measurement of Market Movements
The main goal of the BSE Sensex is to act as a trustworthy gauge of market trends and sentiment. It is the go-to index for determining the mood in the Indian stock market due to its lengthy history and widespread acceptance among ordinary investors, institutional investors, overseas investors, and fund managers.
The Benchmark for Funds’ Performance
The SENSEX index serves as an excellent benchmark for fund managers because it includes blue-chip businesses and has a fair representation of companies from various industries. They use it to gauge the relative success of their investments by comparing the performance of their funds to the index.
Index-based Derivatives Products
The BSE Sensex is very important to institutional investors, small investors, and money managers who use it for a variety of different objectives. The index is thought to be the most liquid contract on the Indian market because it consists of top corporations in important economic areas. It is therefore anticipated that it will control the industry and draw a substantial market share, particularly for index-based derivatives products.
Benefits of SENSEX
Companies, stockholders, and employees all benefit from the SENSEX listing, which fosters market expansion, credibility, and effectiveness.
Better Visibility: A company’s visibility and legitimacy are improved by being listed on the SENSEX, which boosts demand for its shares and boosts valuation.
Enhanced status: Being listed on the SENSEX builds a company’s brand while also elevating its status as it represents the top performers.
Easy Access to Capital: Companies can more readily raise share capital thanks to the SENSEX listing.
Promotes the Growth of SMEs: SENSEX creates growth prospects for SMEs, including those for mergers, acquisitions, and expansions
Higher Liquidity for Shareholders: Shareholders benefit from higher liquidity and expansion opportunities like mergers & acquisitions.
Employee rewards and Risk Distribution: SENSEX also provides opportunities for employee rewards and increases the effectiveness of risk distribution.
Sensex’s Rollercoaster: From Soaring Highs to Turbulent Lows!
The global stock market crashed in 2008 and 2009 as a result of a serious crisis in the world economy and a huge intraday decline in the Dow Jones industrial average.
India’s stock market was not immune to the effects, as it suffered a startling loss of 1408 points on January 21st, 2008, the biggest decline since the system’s creation. The next day, trade had to be stopped for an hour due to a sharp decline.
From January to November 2008, the Sensex kept going down, creating a lot of concern in the market. In October 2008, the index reached a closing level of 8509.56 points, the lowest point during the previous ten years.
In 2009, the index fell by around 750 points as a result of the Satyam scandal, which added to the already tumultuous market.
In a Nutshell
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Frequently Asked Questions
1. What Distinguishes Sensex from NASDAQ?
The BSE in India uses the Sensex as its benchmark index; it consists of 30 major corporations from various industries. However, NASDAQ, a significant stock exchange in the US, is well known for its emphasis on technology and growth stocks, which include well-known firms like Apple, Microsoft, and Amazon.
2. How Does the Sensex vs. Gold Chart Work?
The Sensex vs. Gold chart contrasts the price of gold, a safe-haven investment known for its value, with the price of the Sensex, which represents the performance of the Indian stock market. Investors and analysts can use the chart to spot patterns and potential correlations between these two assets.
