BSE Sensex

What is BSE Sensex?

The BSE Sensex (INDEXBOM: SENSEX), officially known as the S&P BSE Sensex, is India’s oldest and most respected stock market index, launched in 1986 by the Bombay Stock Exchange (BSE). The term "Sensex" is derived from "Sensitive Index" and it represents the performance of 30 of the largest, most financially sound, and most actively traded stocks listed on the BSE. These companies come from diverse sectors, including finance, IT, energy, healthcare, and consumer goods, offering a comprehensive snapshot of the Indian economy’s health and market sentiment.

The Sensex serves as a bellwether for the Indian equity market, widely tracked by investors, analysts, and fund managers both in India and internationally. Its movements reflect the collective performance of the selected blue-chip companies, making it a crucial benchmark for portfolio performance comparison and investment decisions. The Sensex is also the foundation for various investment products, including mutual funds, exchange-traded funds (ETFs), and derivatives. Regularly reviewed to maintain its relevance, the Sensex’s composition changes as per the evolving market landscape, ensuring that only the most significant and representative companies are included. The index is calculated in real-time throughout market hours, providing immediate updates on market direction.

How is BSE Sensex calculated?

The BSE Sensex is calculated using the free-float market capitalisation-weighted methodology, which ensures that only shares that are readily available for trading by the general public impact the index’s value.

• The free-float market capitalisation for each of the 30 constituent companies is determined by multiplying the company’s share price by the number of shares available in the market (excluding promoter and locked-in shares) and then by the company-specific free-float factor.
• The sum of these free-float market capitalisations for all constituent stocks gives the total free-float market capitalisation of the Sensex.
• This total is then divided by a fixed "Index Divisor", which normalises the index value to a base period (1978-79, with a base value of 100).
• The divisor is adjusted periodically for corporate actions like stock splits, rights issues, or new inclusions to ensure continuity and comparability over time.
• The Sensex value thus reflects real-time movements in the free-float market capitalisation of its 30 companies, capturing market trends and investor sentiment.
• Updates are made every few seconds during trading hours, making Sensex a highly dynamic and reliable indicator for the Indian equity market.

Selection criteria for BSE Sensex

The selection of companies for inclusion in the BSE Sensex is based on strict and transparent criteria. Companies must be listed on the Bombay Stock Exchange and should rank among the top stocks in terms of average daily market capitalisation and traded value over the last six months. They must also have a high liquidity, demonstrated by a significant trading frequency and volume. Only those companies with a minimum listing history of six months are eligible, except in cases of large-cap IPOs that qualify based on size and trading activity. Additionally, the Sensex aims to represent a diverse range of sectors to provide a balanced view of the Indian economy. The index is reviewed semi-annually, and changes are made to ensure it continues to represent the most influential and widely held stocks in the market.