From Basics to Insights: What is Sensex and Why Should You Care?

What is Sensex? Suppose you are curious about the stock market and its impact on the Indian economy, and you’ve encountered the term ‘Sensex’ in financial discussions. In that case, this blog post will clarify Sensex and its operation.

At its core, Sensex is a stock market index. What is the Sensex full form? It is an abbreviation for the Sensitive Index. It represents the performance of the top 30 Bombay Stock Exchange (BSE) companies. So, people talk about the Sensex, they’re essentially referring to the overall performance of these 30 companies.

The performance of these top 30 companies can significantly impact the Indian economy. When the Sensex is up, it’s often seen as a sign of a strong and growing economy, which can lead to increased investor confidence and foreign investment. To clarify, what is the full form of Sensex?

To give you an idea of just how much of an impact Sensex can have, consider this: During the COVID-19 pandemic in 2020, the Sensex fell by over 38% in just a few weeks. This impacted the Indian economy, as businesses struggled and many people lost their jobs.

Understanding what is Sensex and how it works is crucial for gaining a better insight into the Indian economy and the stock market. To fully grasp its significance, it’s helpful to know what is the full form of Sensex.

So, let’s jump in and learn more about Sensex!.

What is Sensex

Let’s dive into the nitty-gritty of the Sensex and understand what it is all about.

What is Sensex exactly? The Sensex is a stock market index that tracks the performance of the top 30 companies listed on the Bombay Stock Exchange (BSE). It is a weighted index, meaning that the stocks with a higher market capitalization have a greater influence on the index’s movement.

Now, let’s talk about how is Sensex calculated. The Sensex was previously calculated using the weighted market capitalization method. However, the BSE Sensex value has been calculated using the Free Float Market Capitalization method since September 2003.

The following are the key steps in its calculation:

Step 1: Selection of 30 stocks that form the index based on market capitalization and trading volume.

Step 2: The market capitalization of each company is determined by multiplying the share price by the number of outstanding shares.

Market capitalization = Share price per share * Number of shares issued by the company

Step 3: Calculate the free float market capitalization of each company by multiplying the market capitalization by the free float factor.

FreeFloat Market Capitalization = Market Capitalization * FreeFloat Factor.

The free float factor represents the total number of shares issued by a company that is available to trade for the common public. Shares that are not available to the public, such as those issued to the promoters or the government, are not included in this factor.

Step 4: Calculate the total free-float market capitalization by summing up the free-float market capitalization of all 30 companies.

Step 5: Calculation of the BSE Sensex value using the below formula:

Value of Sensex = (Total free-float market capitalization / Base market capitalization) * Base period index value.

The base period used here is 1978-79. The base value is 100 index points.

Now that you know the calculation part, let’s talk about what is Sensex’s significance. The Sensex is often used as a measure of the Indian stock market’s overall performance, and many investors use it as a benchmark to track the growth or decline of their portfolios.

Additionally, the Sensex is a useful tool for economists, policymakers, and financial analysts who want to assess the health of the Indian economy.

What is Sensex – Factor Affecting

Now that you know what is Sensex and how it works let’s take a closer look at some of the factors that can affect its performance. There are a lot of economic and political factors that can impact the Sensex, as well as global trends and events that can have a ripple effect on the Indian economy. Let’s explore some of these factors in more detail.

1. GDP Growth Rate:

The Sensex is highly sensitive to the country’s GDP growth rate. A higher growth rate is usually indicative of a healthy economy and encourages investor confidence, which results in an upward trend for Sensex. Conversely, a lower GDP growth rate can hurt the stock market.

2. Inflation Rate:

A higher inflation rate can lead to an increase in interest rates, which can negatively affect the Sensex. Higher interest rates make it more expensive for companies to borrow money, which can result in lower earnings and a decrease in the stock market.

3. Government Policies:

Changes in government policies can have a significant impact on the Sensex. For instance, economic reforms such as demonetization, GST, and FDI policies have influenced the Sensex in the past.

4. Global Economic Conditions:

The Sensex is also influenced by global economic conditions such as the global oil prices, FDI, and the value of the Indian rupee in comparison to other currencies. Any change in these factors can have an impact on the Sensex. Global Economic Conditions: The Sensex is also influenced by global economic conditions such as the global oil prices, FDI, and the value of the Indian rupee in comparison to other currencies. Any change in these factors can have an impact on the Sensex.

5. Fiscal Deficit:

A high fiscal deficit, which refers to the difference between government expenditures and revenues, can negatively impact the Sensex. This is because a high fiscal deficit can lead to an increase in government borrowing, which in turn can result in a higher interest rate and a decrease in the stock market.

Overall, the Sensex is affected by a range of economic and political factors, as well as global events. Understanding these factors can help investors make informed decisions when trading in the stock market.

What is Sensex – Major Falls in Sensex Stocks

The global financial crisis of 2008-2009 severely impacted economies worldwide, with the Dow Jones Industrial Average experiencing a sharp decline during intraday trading, leading to a major stock market crash.

India’s Sensex was also significantly affected by this downturn, suffering its largest-ever drop of 1,408 points on January 21, 2008. The following day, the index continued its downward trajectory, prompting a temporary halt in trading for an hour.

Throughout 2008, from January to November, the Sensex saw a series of declines, pushing the market into a state of uncertainty. By October 2008, the index reached its lowest point in a decade, closing at 8,509.56 points.

In 2009, the situation worsened with the Satyam fraud scandal, causing the Sensex to fall by nearly 750 points, further destabilizing the market.

What is Sensex – How to Invest in Sensex 2024

Now that you know what is BSE Sensex and how it works, you might be wondering how you can invest in it. Luckily, investing in Sensex is fairly easy and can be done online. Here’s a step-by-step tutorial to get you started.

1. Get a PAN card: You need a Permanent Account Number (PAN) to invest in the Indian stock market.
2. Open a Demat account: A Demat account is a digital account that holds your securities, including stocks and bonds. A Demat account must be opened with a broker.
3. Choose a broker: You can choose a broker that suits your needs and preferences. The broker should be a registered member of the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE).
4. Fund your account: After opening your Demat account, you need to transfer funds to your brokerage account. You can transfer funds through net banking, UPI, or any other payment gateway.
5. Place an order: Once your brokerage account is funded, you can place an order to buy Sensex stocks. You can place an order through your broker’s online trading platform or by calling your broker.

It’s important to remember that investing in the stock market always carries some level of risk, so it’s essential to do your research and make informed investment decisions.

What is Sensex – Historical Performance

If you are interested in investing in Sensex, it’s important to have a good understanding of what is Sensex’s historical performance. By looking at past trends and patterns, you can get a better idea of how the stock market works and make more informed investment decisions.

So, let’s take a closer look at the historical performance of Sensex.

Year	Sensex Annual Return
1979	–
1980	29%
1981	34%
1982	26%
1983	-3%
1984	16%
1985	44%
1986	62%
1987	-11%
1988	-22%
1989	79%
1990	9%
1991	50%
1992	267%
1993	-47%
1994	66%
1995	-14%
1996	3%
1997	0%
1998	16%
1999	-4%
2000	34%
2001	-28%
2002	-4%
2003	-12%
2004	83%
2005	16%
2006	74%
2007	16%
2008	20%
2009	-38%
2010	81%
2011	11%
2012	-10%
2013	8%
2014	19%
2015	25%
2016	-9%
2017	17%
2018	11%
2019	17%
2020	-24%
2021	68%
2022	18%
2023	1%

About the above chart, the following observations can be made:

• Over the years, Sensex has gone through many ups and downs. There have been times when it has reached new heights, and times when it has plummeted.
• However, despite these fluctuations, Sensex has shown a consistent upward trend over the long term.
• One of the major milestones in the history of Sensex was in 1992 when it crossed the 1,000-point mark for the first time.
• This was followed by many other major milestones, such as crossing the 10,000-point mark in 2006, the 20,000-point mark in 2007, and the 50,000-point mark in 2021.

There have also been many events that have had a significant impact on the performance of Sensex. For example,

• The economic reforms of the early 1990s led to a period of rapid growth and development in India, which in turn had a positive impact on the stock market.
• Similarly, changes in government policies and economic conditions can have a significant impact on Sensex and other stock indices.

Overall, what is Sensex reveals that its historical trends and patterns show consistent long-term performance despite occasional setbacks. The impact of economic reforms and policy changes is also evident in its performance over the years.

What is Sensex – Corporate list Mentioned in Sensex

Here’s the list of Sensex companies along with their rankings, based on their importance and market weight in the index. Please note that the rankings of companies in the Sensex can vary over time due to changes in their market capitalizations and stock performance.

1. Reliance Industries Limited
2. Tata Consultancy Services Limited (TCS)
3. HDFC Bank Limited
4. ICICI Bank Limited
5. Infosys Limited
6. State Bank of India
7. Hindustan Unilever Limited (HUL)
8. Kotak Mahindra Bank Limited
9. Bharti Airtel Limited
10. ITC Limited
11. Larsen and Toubro Limited (L&T)
12. Maruti Suzuki India Limited
13. Axis Bank Limited
14. Bajaj Auto Limited
15. Asian Paints Limited
16. Mahindra and Mahindra Limited
17. Sun Pharmaceutical Industries Limited
18. Power Grid Corporation of India Limited
19. NTPC Limited
20. Tata Steel Limited
21. Wipro Limited
22. Coal India Limited
23. Hero MotorCorp Limited
24. Dr. Reddy’s Laboratories Limited
25. Adani Ports and Special Economic Zone Limited
26. Oil and Natural Gas Corporation Limited (ONGC)
27. Tata Motors Limited
28. Housing Development Finance Corporation Limited (HDFC)
29. Reddys Laboratories Limited
30. Lupin
31. Viola

The ranking depends on factors like market capitalization, stock price performance, and sectoral weight in the overall index. The companies at the top of the list (like Reliance Industries, TCS, and HDFC Bank) usually have the largest weight in the index.

What is Sensex – Its Prospects

When it comes to the Sensex, there are a lot of factors that could potentially impact its performance in the coming years.

1. Growth potential:

Despite the ongoing pandemic and market fluctuations, the BSE Sensex has shown remarkable resilience and continues to grow steadily. The Indian economy is also expected to recover, which could lead to further growth in the stock market.

2. Tech-driven advancements:

With the rapid advancements in technology, the BSE Sensex foundation is expected to leverage the latest technological innovations to make stock trading faster, more efficient, and accessible to a wider range of investors.

3. Increasing foreign investments:

India has become an attractive investment destination for foreign investors due to its strong economic fundamentals, political stability, and large market size. As more foreign investments flow in, the BSE Sensex is likely to experience further growth.

4. Government initiatives:

The Indian government has taken several initiatives to boost the country’s economy, such as the ‘Make in India’ campaign and the push for digitalization. These initiatives could lead to an increase in investments and drive growth in the BSE Sensex.

5. Rising middle class:

As the Indian middle class grows, there is likely to be an increase in consumer spending, which could lead to a surge in demand for stocks. This trend could drive the BSE Sensex to new heights.

However, there are also potential challenges and risks, such as global economic uncertainties, inflation, changes in government policies, and geopolitical tensions, that could impact the BSE Sensex foundation in the future.

Nonetheless, with its strong fundamentals and future potential, the BSE Sensex remains an attractive investment option for investors looking to enter the Indian stock market.

Also Read: Is Finance a Good Career Path for 2023

Comparison of Sensex and Nifty

Feature	Sensex	Nifty
Full Name	BSE Sensitive Index	Nifty 50
Exchange	Bombay Stock Exchange (BSE)	National Stock Exchange (NSE)
Number of Stocks	30	50
Calculation Method	Price-weighted	Free-float market capitalization-weighted
Base Year	1978-79	1995
Purpose	Represents the top companies on BSE	Represents the top companies on NSE
Sector Representation	Broader representation of industries	Broader representation of industries
Volatility	Generally considered more volatile	Generally considered less volatile
Use	Benchmark for BSE	Benchmark for NSE

Understanding Sensex for Better Investment Decisions

Overall, understanding what Sensex is is crucial for investors and analysts to track the performance of Indian markets. By monitoring economic and political factors, global trends, and upcoming policy changes, one can make informed investment decisions in the stock market.

As India continues to grow and evolve as a major global economy, Sensex will likely continue to play a crucial role in tracking the performance of the Indian markets. Whether you are a seasoned investor or a beginner, understanding the Sensex is an important step toward making smart investment decisions.

So, next time you hear someone ask “What is Sensex?” ” You can confidently explain its significance and meaning.”. Keep an eye on the Sensex, and who knows, you might just be able to spot the next big trend in the Indian stock market!

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Conclusion

The Sensex (S&P BSE Sensex) is a stock market index that tracks the performance of the top 30 companies listed on the Bombay Stock Exchange (BSE). These companies are selected based on factors like market capitalization, economic importance, and financial health. The Sensex uses a free-float market capitalization method, meaning only tradable shares are considered. It acts as a benchmark for the Indian stock market, reflecting overall market trends and investor sentiment. A rise in the Sensex signals positive performance, while a fall indicates a downturn. The Sensex is an essential tool for investors and analysts to gauge the health of the Indian economy and make informed decisions.

Frequently Answered Questions (FAQs)

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