What is the Sensex?
The S&P BSE Sensex Index of the BSE in India is called the Sensex. The Sensex, a measure of India’s economy, consists of 30 of the BSE’s most significant and frequently traded equities. It is float-adjusted and market capitalization-weighted.
Every year, between June and December, the Sensex is subject to a semiannual review. The Standard & Poor’s (S&P)-run Sensex is the oldest stock index that represents the Indian markets, having been established in 1986. Analysts and investors use it to track the ups and downs of specific sectors and the economic cycles in India.
Understanding the Sensex
January 1, 1986, saw the debut of the Sensex. This investable index, which serves as both a bellwether and a financial indicator, monitors the performance of India’s 30 most significant and reliable businesses. These businesses, which used to be listed on the Bombay Stock Exchange (BSE), are among the largest and most significant segments of the Indian economy. It is thus the most monitored index in India.
US dollars and Indian rupees (INR) are used to compute the Sensex. The index’s mean total market capitalization as of October 31, 2023, was $50.1 billion. The index’s top five components were as follows:
- HDFC Bank
- Industries Reliance
- ICICI Bank
- Information Systems
- ETC
The state of the Indian economy has influenced and changed the Sensex’s methodology. When it was initially introduced, it was determined using the market cap; however, in September 2003, it switched to a free-float capitalization technique. This gave the impact of a firm on the index a weighting. The index does not include restricted stocks, such as those owned by business insiders, since it bases its calculation on a company’s float rather than its outstanding shares.
The aims of the index remain the same despite all the modifications made to the methodology.
- The S&P BSE Index Committee chooses its members based on several factors:
- They ought to be listed on the BSE in India.
- They ought to be a big-to-mega-cap business.
- There ought to be some liquidity in the stocks.
- The firms’ primary business operations should bring in money.
- They need to maintain the sector’s equilibrium with the Indian equities market.
- The terms “sensitive” and “index” are combined to form the phrase “Sensex.”
The Sensex’s past
Since India opened up its economy in 1991, the index has grown significantly. The most significant increases were in the twenty-first century, from around 5,000 at the beginning of 2000 to about 42,000 in January 2020. The primary cause of this has been India’s booming economy, which has been expanding at one of the fastest rates in the world for years.5.
Early in 2020, the worldwide coronavirus epidemic struck, slowing down the entire economy, including India’s. In 2020, the Sensex dropped below 30,000.
However, as with most others, India’s economy has recovered from the coronavirus epidemic. The Sensex has had significant increases, surpassing pre-pandemic levels, which indicates this. The index surpassed 50,000 in 2021 and 60,000 in 2022. It passed the 65,000 milestone in 2023.
The growth of the middle class in India is closely linked to the country’s rising economy and vice versa. One study predicts that by 2030, over 80% of families in the country will have middle-class incomes, up from around 50% in 2019. One significant factor influencing consumer demand is the middle class.
How is the Sensex operational?
Thirty of India’s biggest and most liquid public firms make up the benchmark S&P BSE Sensex index, sometimes called the Sensex or Sensex Index. One of the primary stock exchanges in India, BSE, is where the firms that comprise the Sensex are sourced from. Global investors frequently use the Sensex as a gauge of the state of the Indian economy, which has recently experienced significant growth.
How Do You Calculate the Sensex?
The free-float capitalization approach is used to compute the Sensex. This approach is comparable to the market-capitalization weighting technique, which assigns weights to firms based on their percentage of the index’s overall market capitalization. Because of this, the biggest businesses in the Sensex’s index are given greater weight. However, the free-float capitalization technique does not account for shares restricted or controlled by corporate insiders, unlike the market-capitalization method, which only considers shares that are freely accessible for trading.
How does the Sensex stand up?
The Sensex’s 10-year annualized return as of November 8, 2023, is 12.14%. The estimated five-year return is 13.02%.
The Final Word
Due to India’s restrictions on international investors, it could be difficult for investors to access the Indian stock market without the Sensex. Investing in the Sensex may be wise for investors seeking exposure to developing markets, one of the world’s top economies, and diversity.
Conclusion
- The benchmark stock index for the Indian economy, the Sensex, comprises 30 of the biggest and most well-capitalized companies listed on the BSE.
- S&P BSE Sensex runs the index, which debuted in 1986.
- Both US dollars and Indian rupees are used in the calculation.
- The index is float-adjusted and market capitalization-weighted.
- Since India’s economy was opened in 1991, the Sensex has increased.
