What is SENSEX? How India's Most Famous Index is Calculated
SENSEX is the stock market index of the Bombay Stock Exchange (BSE). It tracks 30 of the largest and most actively traded companies in India and is the most widely quoted number when people talk about how Indian stock markets are doing.
When your father says the market crashed today or your colleague mentions markets hit an all-time high, they are almost always talking about the SENSEX. It is India's financial thermometer. One number that gives you a rough sense of how corporate India is performing at any given moment.
How is the SENSEX calculated?
The SENSEX uses a free-float market capitalisation methodology. This means each company's weight in the index is based on the value of its shares that are freely available for public trading, not its total share count.
Free Float Market Cap = Share Price x Shares Available for Public Trading
SENSEX = (Total Free Float Market Cap of 30 stocks / Base Market Cap) x Base Value (100)
The base year is 1978-79 with a base value of 100. This is why the SENSEX level today, which is above 70,000, means the market is about 700 times larger in free-float market cap terms than it was in 1978-79.
Which companies are in the SENSEX?
The 30 companies in the SENSEX are selected by BSE's index committee based on factors like market capitalisation, trading volume, listing history, and sector representation. The list is reviewed every six months. Companies that no longer meet the criteria are replaced.
As of recent years, the SENSEX includes companies like Reliance Industries, HDFC Bank, TCS, Infosys, ICICI Bank, Bajaj Finance, Hindustan Unilever, ITC, Larsen and Toubro, and State Bank of India among others. Financial services and technology companies tend to have the highest combined weight.
If SENSEX goes up 500 points, does that mean all stocks went up?
No. A 500-point rise in the SENSEX means the combined free-float market cap of those 30 companies increased. Many stocks outside the SENSEX could have fallen on the same day. Similarly, a falling SENSEX does not mean every company is losing value.
The SENSEX reflects a weighted average of just 30 large companies. Understanding this prevents overreaction to daily movements when you hold stocks outside those 30.
How is SENSEX different from NIFTY 50?
| SENSEX | NIFTY 50 | |
|---|---|---|
| Exchange | BSE | NSE |
| No. of companies | 30 | 50 |
| Base year | 1978-79 | 1995 |
| Base value | 100 | 1,000 |
| Broader coverage | No | Yes, covers more sectors |
Both indexes broadly move together because many large companies appear in both. However, NIFTY 50 is considered a broader indicator since it includes 50 companies across more sectors.
Investments in securities market are subject to market risks. Past index performance is not indicative of future results. This article is for educational purposes only.
Frequently Asked Questions
Can I invest directly in the SENSEX?
You cannot buy the SENSEX directly, but you can invest in it through SENSEX index mutual funds or ETFs that track the 30 SENSEX stocks. These products aim to mirror the SENSEX's performance. They are available through most brokers and mutual fund platforms in India.
The SENSEX is at 70,000 today. Does that mean stocks are expensive?
Not necessarily. The absolute level of the SENSEX is not a valuation indicator. What matters more is the PE ratio of the index, earnings growth of constituent companies, and how valuations compare to historical averages. A SENSEX at 70,000 with strong earnings growth can be reasonably valued while one at 30,000 with declining earnings can be expensive.
What causes the SENSEX to move on days when nothing major happens in India?
Markets are driven by a combination of global cues, institutional fund flows, currency movements, and expectations about the future. Even on days with no domestic news, US market movements, changes in crude oil prices, or shifts in foreign investor sentiment can move the SENSEX. Markets price in expectations continuously, not just reactions to news events.
How often is the SENSEX composition reviewed?
BSE's index committee reviews the SENSEX composition twice a year, typically in June and December. Companies can be added or removed based on changes in market capitalisation, trading volumes, and overall eligibility criteria. Any change is announced in advance to give market participants time to adjust.
Is the SENSEX a good indicator of how the overall Indian economy is doing?
It is one indicator, but not a perfect one. The SENSEX tracks only 30 large companies, many of which are export-oriented or have significant international revenues. It may not reflect conditions in small and medium businesses, rural India, or sectors not represented in those 30 stocks. GDP data, PMI, IIP, and other economic indicators together give a more complete picture.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
Indira Securities Pvt. Ltd. | SEBI Reg. No.: INZ000031633 (Stock Broker) | IN-DP-431-2019 (DP) | NSE | BSE | MCX | Indira Commodities Pvt. Ltd. - MCX: 46025 | NSE: 50001 | SEBI Reg. No.: INZ000038238 | #153/154, 4th Cross, Dollars Colony, J.P Nagar 4th Phase, Bengaluru - 560078 | [email protected] | [email protected]
