BSE Sensex is one of the most commonly used terms in the Indian stock market context. Even people, who are not into trading, have heard this term once or more in a general sense.
But, what exactly is BSE Sensex? Well, BSE is a stock exchange!
Huh. What is a stock exchange now?
BSE Sensex India
A stock exchange is a place which acts as a continuous auction market where buyers and sellers can trade securities. Bombay Stock Exchange (BSE) is the first and largest securities market of India.
It is based in Mumbai and was established in 1875 as the Native Share and Stock Brokers’ Association. It is one of the largest stock exchanges in the world which includes about 5000 listed companies.
Now, let us try to understand the meaning of the stock market index.
A stock market index is a metric that tracks the performance of several selected stocks from each sector. Sensex is an abbreviated form of Sensitive Index. It is the stock market index of the Bombay Stock Exchange. It is also called S&P BSE Sensex.
Sensex includes 31 companies selected from about 11 industrial sectors. The companies are selected on the basis of their financial soundness and performance in a way to represent the overall performance of their respective sectors.
These selected companies are reviewed regularly and changes may be made in the constituent companies of the index as and when required.
The index is widely reported in both domestic and international markets through print as well as electronic media.
BSE Sensex Meaning
Like mentioned above, BSE Sensex is a stock market index.
In an index, there are 100s of companies listed. So, in order to understand the health of a particular index, you need to know an objective number against it which fluctuates as per the overall market trend across the industries.
Therefore, an index such as Sensex considers 30 stocks (number of stocks vary from one index to another) from a total of 11 industry domains.
These 30 stocks are selected on the basis of their current market capitalization.
Market Capitalization = Number of Shares X Price Per Share
Thus, such a methodology brings in complete transparency and objectivity while you try to understand the health of a specific index in regards to the overall market momentum.
Based on the value of the market capitalization of a company, it can enter or exit the top 30 stocks at any given point in time.
BSE Sensex History
As one can implicitly assume, that when the stock market and the corresponding indices were born, only a handful (if not none) number of people would have trusted the concept of investing in someone else’s business through something called a “share”.
From that point in history to today’s world where investing in the stock market is seen as one of the crucial investment methodologies to grow your income over time.
From using the ‘Market Capitalization-Weighted’ method to using the ‘free-float market capitalization-weighted’ method, the market and the indices have only matured.
When the index was launched in the year 1986, nobody could have imagined the manifestation it has seen over the last 3 decades or so.
BSE Sensex Stocks
As mentioned above, there are in total 30 stocks from 11 different industries (segregation given later).
Here are the details:
Banking: HDFC Bank, ICICI Bank, Kotak Bank, SBI, Axis Bank, IndusInd Bank, Yes Bank
Like other industries, the stock market industry has its share of holidays as well. On these days (apart from the weekends), the stock market is closed for trading.
The date of the holiday may vary depending on the day the corresponding event such as Diwali, Holi etc falls.
For instance, Mahashivratari and Holi generally happen in March and Diwali may happen either in October or early November. While, there are holidays such as Christmas, Independence, Republic day that have fixed dates.
Stock Market indices such as Sensex are also closed during the days of elections in the state and the country.
Here are the details:
Eid - Ul - Fitr
Mahatama Gandhi Jayanti
Diwali Laxmi Pujan
BSE Sensex All-Time High
Every year, Sensex sees its own high and its not necessary that this index sees a new high every year.
There have been instances when the Sensex has seen a high in the first year and the next year, the index has seen a sudden or even a gradual decline in its value.
Here is a quick look at how the Sensex valued the highest every year since 2008:
BSE Sensex Small Cap
Although, there are more than 5000 stocks listed on this index, however, there is a clear segregation of these stocks on the basis of their respective market capitalization.
First of all, let’s talk about the small-cap stocks which generally fall within the range of ₹5000 Crore. With high volatility, some of these stocks get busted every now and then, implying, these come with high risk (and opportunities of high returns).
Here are some of the listed small-cap stocks on Sensex:
63 Moons Technologies Limited
Aarti Drugs Limited
Abbott India Limited
Adani Gas Limited
Cera Sanitaryware Limited
IIFL Finance Limited
Mahindra Logistics Limited
BSE Sensex Mid Cap
Moving ahead from the small-cap stocks, the mid-cap stocks’ market capitalization lies in the range of ₹5,000 Crore and ₹20,000 Crore.
Mid-cap stocks are relatively less volatile as compared to the small-cap stocks but more volatile than large-cap stocks (discussed later).
This also implies that the mid-cap stocks are riskier than large-cap stocks but safer than small-cap stocks.
Here is a quick look at some of the listed mid-cap stocks on Sensex at the time of writing this piece:
Eris Lifesciences limited
ICICI Securities limited
JM Financial limited
VIP Industries limited
Relaxo Footwears limited
Apollo Tyres Limited
Ajanta Pharma Limited
Fortis Healthcare limited
Cochin Shipyard limited
BSE Sensex Large Cap
Lastly, the top category of stocks in terms of the market capitalization is the Large Cap. These stocks have a market capitalization in excess of ₹20,000 Crore.
These are the least volatile stocks i.e. with low risk but at the same time come with low returns.
Low risk in stocks implies that the companies are relatively dependable and are mature in their respective industries. Here are some of the examples of large-cap stocks:
Bharati Infratel Limited
JSW Steel Limited
Dr Reddy Laboratories
ABB India Limited
Axis Bank Limited
Eicher Motors Limited
Tata Motors Limited
State Bank Of India
BSE Sensex Forcast
Well, forecasting about the stock market can be really vague.
However, looking at the market trends and the overall historical index movement here is a quick snapshot of what you can expect in terms of how Sensex valuation can be anticipated for the next few months:
Here is how the Sensex forecasting looks like graphically:
BSE Sensex Objectives
Some of the objectives of the Sensex are:
Measurement of Indian Market Movement: Due to a long history and wide acceptance, BSE is considered to be a very good indicator for reflecting Indian market movements and sentiments of traders, speculators and investors.
Acts as Benchmark: Due to the complete and balanced representation of all the sectors, Sensex acts as an appropriate benchmark for fund managers to compare the growth of their funds.
Index-Based Derivative Products: Due to the constituent companies of the Sensex, all kinds of investors refer to S&P BSE SENSEX for their trading and investment purposes. It is the most liquid contract in the Indian market.
BSE Sensex Calculation
Initially, SENSEX was calculated based on the “Full Market Capitalization” methodology but since it is a less effective and thus, less preferred method, the calculations later shifted to the free-float methodology with effect from September 1, 2003.
This means that instead of considering the full market capitalization of the company, only the free-float capitalization is considered while calculation of the index and assigning weights to stocks in the index.
Free-float refers to those shares of the company that are readily available for trading in the market. It excludes promoters’ holding, government holding, insiders’ holding, equity held by Employee Welfare Trusts and other locked-in shares.
Every quarter, all the companies are required to submit a free-float format designed by the BSE. Then, the free-float factor for each company is determined by the BSE based on the information provided by them in the prescribed format.
The free-float factor is multiple with which the total market capitalization of a company is adjusted to arrive at the free-float market capitalization.
After the free-float of a company is determined, it is rounded off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below.
For example, a free-float factor of 0.65 means that only 65% of the market capitalization of the company will be considered for index calculation.
% Free Float
Free Float Factor
>0 – 5%
>5 – 10%
>10 – 15%
>15 – 20%
>20 – 25%
>25 – 30%
>30 – 35%
>35 – 40%
>40 – 45%
>45 – 50%
>50 – 55%
>55 – 60%
>60 – 65%
>65 – 70%
>70 – 75%
>75 – 80%
>80 – 85%
>85 – 90%
>90 – 95%
>95 – 100%
Selection Criteria for Securities listed on Sensex
Basically, the securities that constitute S&P BSE Sensex are screened on two main criteria:
Quantitative Criteria – They include the following five main points-
Market Capitalization – The security should be in the Top 100 companies listed by full market capitalization. The weight of each security, which is based on free-float should be at least 0.5% of the Index.
Listing History – The security should have been listed for at least one year on Sensex
The frequency of Trading – The security should have been traded on every trading day for the last one year. Sometimes, an exception can be made in case of extreme situations like suspension of security
Average Daily Trades – The rank of the security should be among the top 150 companies listed by the average number of trades per day for the last year.
Average Daily Turnover – The security should rank among the top 150 companies listed by the average value of shares traded per day for the last year.
Qualitative Criteria – The stocks selection committee or the index committee should be of the opinion that the track record of the particular security is acceptable to be a part of the index.
As per the latest numbers, the companies that form the Sensex are listed below in decreasing order of their weightings:
Kotak Mahindra Bank
Larsen & Toubro
Oil & Natural Gas Corp
Mahindra & Mahindra
Tata Steel Ltd
Tata Motors DV Ltd
To give you a clearer idea, here is the Sensex reading from one of the trading sessions:
The index value of 34,928.33 comes from the total of the listing of the companies mentioned above. This total count varies based on the numerical stance of those companies at any given point in time.
Trading on BSE includes stocks, stock futures, stock options, index futures, index options and weekly options and the day-to-day maintenance of the index is taken care by the Index Cell of the exchange.
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