What is Sensex? Meaning & How to Invest [Beginners Guide]

Sensex Meaning - How Sensex works?

You might have heard the word Sensex, if not more, at least once in your lifetime. But what is Sensex and what does it actually mean? How does it work? Why do people talk about Sensex synonymously with the Stock Market?

Let’s Find Out!

Content:

Sensex Meaning

The full form of Sensex is Sensitive Index; it is the benchmark index of BSE (Bombay Stock Exchange). Sensex was established in the markets as S&P BSE Sensex in the year 1986 and is considered to be the oldest Index in India. Sensex tracks 30 very large and most actively traded companies out of more than 5700 listed companies listed on BSE. These 30 companies are from different industrial sectors that indicate the Indian Economic Trends and Stock Market as a whole.

Sensex is internationally traded on Eurex and various leading exchanges of Brazil, Russia, China, and South Africa.

Sensex Timings

Sensex follows Equity Segment’s timings from 9:15 am to 3:30 pm, Monday to Friday.

How Sensex works?

As explained above, Sensex consists of the Top 30 most prominent companies, so whenever these 30 stocks move, Sensex moves proportional to these stocks. 

Check out the list of Sensex stocks below:

Sensex

Industry

Maruti Suzuki India Ltd.

Automobile

Mahindra & Mahindra Ltd.

Bajaj Auto Ltd.

ICICI Bank Ltd.

Banking

Kotak Mahindra Bank Ltd.

AXIS Bank Ltd.

State Bank of India

IndusInd Bank Ltd.

HDFC Bank

UltraTech Cement Ltd.

Cement

Larsen & Toubro Ltd.

Construction

Hindustan Unilever Ltd.

Consumer Goods

ITC Ltd.

Asian Paints Ltd.

Nestle India Ltd.

Titan Company Ltd.

Reliance Industries Ltd.

Energy – Oil & Gas

Oil & Natural Gas Corporation Ltd.

Power Grid Corporation of India Ltd.

Energy – Power

NTPC Ltd.

Housing Development Finance Corporation Ltd.

Financial Services

Bajaj Finance Ltd.

Bajaj Finserv Ltd.

Infosys Ltd.

Information Technology

Tata Consultancy Services Ltd.

HCL Technologies Ltd.

Tech Mahindra Ltd.

Tata Steel Ltd.

Metals

Bharti Airtel Ltd.

Telecommunication

Sun Pharmaceutical Industries Ltd.

Pharmaceuticals

You might be wondering, when there are over 5700 companies listed on BSE, why are only 30 companies included in the Sensex? How big a company has to be? How Sensex is calculated? 

Continuing to the Sensex meaning, it is important to note how is Sensex constituted as well!! Let’s explore how it’s done below.

How is Sensex Constituted?

Below points are considered before including a company in the Sensex:

  • Market Capitalization: The market capitalization of the company should be at least 0.5% of the market capitalization of the index.
  • Frequency: The trading frequency of the company’s stock should be 100% in the last year. Exceptions can be made for various reasons like security suspensions etc.
  • Average Daily Trades & Turnover: Among all the listed companies on BSE, the stock should be in the Top 150 companies in terms of average daily trades & turnover for the last one year.
  • History: The stock should have a listing history of one year on BSE.

How is Sensex Calculated?

Sensex is calculated using the free-float market capitalization methodology. The index reflects the total free-float market value of all the stocks in the index relative to a particular base period. The base period of Sensex is 1978-79, and the base value is 100 index points. 

Index value = Total free float market capitalization / Base market capitalization x Base index value. 

How to Invest In Sensex?

You can invest in the Sensex via Index Mutual Funds and Exchange Traded Funds (ETFs). These funds invest in a basket of stocks that mirror the returns of the index like Nifty or Sensex etc. The main difference between Mutual Funds and ETFs is, the prices of ETFs are updated actively during the day similar to stocks and can be bought and sold at live prices.

On the other hand, the prices of Mutual Funds are updated only at the end of the day and can be bought and sold based on the End of the Day Price.

As you have already learned, Sensex consists of the largest companies from different industrial sectors that collectively represent the Economic Trends of India. Similarly, there are Sectoral Indices that track the collection of stocks of a particular sector and represent the overall performance of that sector.

Sectoral Indices

Some of the Sectoral Indices are listed below:

  • S&P BSE Healthcare: This index represents the overall behavior and performance of the Healthcare Sector in India.
  • S&P BSE Telecom: This index represents the overall behavior and performance of the Telecom Sector in India.
  • S&P BSE Auto: This index represents the overall behavior and performance of the Automobile/Transportation Equipment Sector in India.
  • S&P BSE Oil & Gas: This index represents the overall behavior and performance of the Oil & Gas Sector in India.
  • S&P BSE Bankex: This index represents the overall behavior and performance of the Banking Sector in India. 

Indian markets and the economy as a whole are also measured using another index Nifty. Nifty and Sensex sound a lot synonymous to each other but are quite different. Check out the difference between Nifty and Sensex.

Quick Summary

  • Sensex is the benchmark index of BSE (Bombay Stock Exchange). Sensex tracks 30 very large and most actively traded companies listed on BSE. These 30 companies are from different industrial sectors that indicate the Indian Economic Trends and Stock Market as a whole.
  • Sensex follows equity segment timings from 9:15 am to 3:30 pm(Monday to Friday).
  • Whenever the top 30 most prominent companies move, sensex moves proportionally to these stocks 
  • Factors such as market capitalisation, frequency, average daily trades and turnovers and history are considered before including a company in the sensex.
  • Sensex is calculated using free float market capitalisation methodology.
  • You can invest in sensex through mutual funds and exchange traded funds.
  • Sensex also has various indices that specifically track different industries like: S&P BSE Healthcare, S&P BSE Telecom etc
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Vinayak Hagargi

Vinayak is Impressively Enthusiastic about Financial Markets, Research & Curating Layman-Friendly Content. He has been Successfully Contributing to the Financial Markets for over 2 years & has written over 100+ articles. He aims to continue sharing his knowledge to empower newbies with Relatable, & Easy to Understand Content.

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