When you read the business news or monitor the market, you tend to hear statements such as Sensex up today or Sensex down sharply, and beginners may wonder what any of this means: What is Sensex, sensex kya hai? Sensex is no more than an index of the main stock market in India.
It is the performance of the 30 strongest and experienced companies that are listed on the Bombay Stock Exchange. The rise in prices of these companies increases the Sensex and vice versa. To put it in the simplest words, Sensex is like a report card that would demonstrate the state of the Indian stock market, whether it is healthy, strong, or weak at any particular time. In this blog we will explore how Sensex works and why it influences investor decisions.
What Companies Make Up the Sensex
The Sensex is composed of 30 large, consistent, and highly traded companies that are the largest in India. Such firms work in the banking sector, IT, energy, fast-moving consumer goods, cars, and manufacturing. Collectively, they demonstrate the performance of the Indian economy.
The list is regularly updated, therefore, leaving only the most significant and powerful companies in the index.
| Company | Sector |
|---|---|
| Reliance Industries | Energy & Conglomerate |
| HDFC Bank | Banking & Finance |
| ICICI Bank | Banking & Finance |
| State Bank of India | Banking & Finance |
| Infosys | Information Technology |
| TCS (Tata Consultancy Services) | Information Technology |
| HCL Technologies | Information Technology |
| ITC | FMCG & Diversified |
| Hindustan Unilever | FMCG |
| Larsen & Toubro (L&T) | Engineering & Construction |
| Axis Bank | Banking & Finance |
| Kotak Mahindra Bank | Banking & Finance |
| Bharti Airtel | Telecom |
| Maruti Suzuki | Automobiles |
| Mahindra & Mahindra | Automobiles |
| Tata Steel | Metals |
| JSW Steel | Metals |
| UltraTech Cement | Cement |
| Titan Company | Consumer Goods & Retail |
| Bharat Electronics (BEL) | Defence & Aerospace |
| Bajaj Finance | NBFC |
| Bajaj Finserv | Financial Services |
| Power Grid Corporation | Power & Utilities |
| NTPC | Power & Utilities |
| Sun Pharma | Pharmaceuticals |
| Wipro | Information Technology |
| Tech Mahindra | Information Technology |
| Tata Motors Passenger Vehicles | Automobiles |
| Trent Ltd. | Retail / Consumer Retail |
How to Invest in Sensex?
The investment in the Sensex is easy and user-friendly. You cannot purchase the Sensex, although you can purchase index funds or ETFs that track the Sensex. There are several basic steps to be followed before you start:
1. Open a Demat Account
You require a Demat account so that you can store your investments in digital form. It has the units of the funds or ETFs that you purchase, and you can easily open your Demat account with Pocketful for a fast and seamless investing experience.
2. Open a Trading Account
An online purchase of Sensex funds requires you to have a trading account, as well. The BSE does not allow people to directly sell or purchase securities.
3. Maintain a Bank Account
You require a bank account in which your trading and Demat accounts are connected. KYC is also required to complete with the help of a PAN card to begin investing.
As soon as you are ready with these three accounts, you can start investing in the Sensex by:
- Sensex Index Funds
- Sensex Exchange-Traded Funds (ETFs)
Both alternatives allow you to invest in the 30 companies that comprise the Sensex in a very easy and diversified manner.
Read Also: BSE Sensex vs BSE All Cap? A Comparative Study
How Sensex Moves and How Its Value Is Calculated
The BSE periodically revises and updates the list of companies that comprise the Sensex in order to ensure that the index always reflects the actual, up-to-date performance of the Indian market. Initially, the Sensex employed a full market-cap approach. It was later altered in 2003 to a free-float market-cap system, which is the global standard today.
Using the free-float method, only the shares that people can purchase and sell in the market are taken into consideration. Stocks owned by the promoters, insiders, or the government, known as restricted shares, are excluded since they are generally not traded.
The calculation uses this formula:
Free-Float Market Capitalisation = Market Capitalisation x Free-Float Factor.
- Market Capitalisation refers to the total of all the shares of the company in the market.
- Free-Float Factor: The proportion of the total shares that are freely traded in the market.
Why Sensex Goes Up or Down
The index is a 30-stock index that the Sensex tracks. When the majority of them increase, then the Sensex increases. If they drop, the Sensex falls. These actions are influenced by a number of key factors:
1. Company Performance
As soon as a company demonstrates positive quarterly performance, earns more money, presents a new product, or expands its business, the shares increase. In case it does not work well or makes losses, shares decline.
2. Economic Conditions
Issues such as GDP growth, inflation, interest rates, and job data have an influence on the sentiments of the investors. When the economy is strong, the Sensex tends to be pushed up, and when it is weak, the Sensex will be pulled down.
3. Global Markets
In India markets, market crashes, financial crises, or high growth, experienced in the US, Europe, or other large economies, can alter and cause the Sensex to behave similarly.
4. Government Policies and Budget Announcements
When the government alters the tax regulations, expenditure on infrastructure, reforms, or other regulations this has a direct impact on the companies, which causes the index to either decrease or increase.
5. Foreign Investment
The Sensex increases when foreign investors purchase Indian stocks. Once they sell the stocks and go, the index is likely to drop.
6. Market Sentiment
Markets are also moved by how the investors feel, scared, confident, hopeful, or panicked. Good news drives up the prices, whilst bad news or uncertainty drives down the prices.
7. Sector Trends
When major industries like banks, IT companies, energy companies, and car makers perform well, then the Sensex goes up. When these large sectors perform poorly, the index drops.
Read Also: BSE Case Study
Milestones of Sensex India
Sensex has been on a steady rise over the last 30 years, and this has demonstrated how the Indian economy has expanded. Since its initial large hardships in the 1990s to record highs today, every era can be tracked on how it expanded, hit its problems, and emerged.
Key Highlights
| Timeline | Key Events & Milestones |
|---|---|
| Early 1990s – 2000 | In July 1990, the Sensex was approximated to be at 1001 points. It hit 2000 points in 1992 for the first time. Then the index hit a milestone of 5000 points in 1999. |
| 2000 – Mid-2000s | The Sensex shot towards 6006 points in the early 2000s as a result of the IT boom. On January 2, 2004, it reached 6026.59 points. The index surpassed 7000 points after the settlement of the Ambani family, which boosted the Reliance Group stocks. Since June through to December 2005, it has increased beyond 9000 points, owing to strong buying by foreign and domestic investors. |
| Mid-2000s – 2010 | The Sensex was as high as 10, 003 in the middle of the day on Feb 7, 2006. By Dec 2007, it surpassed 20,000 points, since a lot of funds were buying. There was a crash and recovery of the market between 2008 and 2010. |
| 2013 – 2015 | The Sensex performed better than the Hang Seng Index in 2014 and was the largest index of stock markets in Asia. In 2014, the index increased at a rapid rate to 28,000 points. It was closed at 29,278 points on 23 January 2015, a new high. Since the RBI reduced its repo rate, it had passed 30,000 points for the first time. |
| 2017 – 2019 | The Sensex continued to increase between 2017 and 2018.It hit above 38,000 points. |
The Sensex has fluctuated over the last 3 decades with an upward trend. Although it may fluctuate a lot in the short run, the index has increased significantly on average. This demonstrates that it is worth long-term investing in the stock market of India.
When the Sensex Fell: Key Market Plunge Events
Sensex has experienced numerous swift declines in the years, typically due to global financial issues, corporate scandals, or panic attacks within the market. In 2008, the world witnessed a massive crash in the global financial crisis, which hit markets in all parts of the globe.
The world economy took a huge hit in January 2008 when the Dow Jones plunged. This hurt India right away. On 21 January, Sensex had gone down by 1408 points in a single day, the largest ever run-down in the history of the index. The next day, the Sensex continued to go down, and it was halted for an hour to prevent panic selling.
The fall went on all through 2008. Between January and November, the index was falling, indicating the level of uncertainty that existed in world markets as well as local markets. In October 2008, the Sensex closed at 8509.56, one of its lowest points in nearly a decade.
The other major shock occurred in 2009 when a major company in India, Satyam fraud was involved in fraud. The announcement caused the Sensex to fall by approximately 750 points, provoking investor panic once again and shaking the market.
Read Also: How Does the Stock Market Work in India?
Conclusion
Sensex is not merely a figure on the screen, but it is the heartbeat of the Indian stock market. It is used to indicate the level of strength or weakness of the market through the tracking of the performance of 30 major companies.
For beginners, understanding Sensex meaning helps build confidence and gives a clear picture of market direction. By tracking Sensex changes, one can get to know the way the economy responds to news, events, and global trends.
You can invest in the near future or just wish to know how Sensex works; either way, knowing the working mechanism of Sensex makes you a better and wiser player in the world of finance. And for more such information and details, follow Pocketful today.
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Frequently Asked Questions (FAQs)
Sensex full form kya hai?
Sensex full form is the Sensitive Index. It is used to show the overall movement in the market.
Why does Sensex go up and down?
Sensex is volatile since the prices of its 30 companies are constantly varying as a result of news, global markets, investor mood, and economic events.
Can beginners invest in the Sensex?
Yes, beginners can invest in the index with the help of mutual funds or ETFs. Also, now there are options to trade directly as well.
Is Sensex a good indicator of market health?
Yes, Sensex can be called one of the most reliable indicators, as the biggest companies are represented, and the direction of the market can be seen clearly.
