S&P BSE Sensex Index: Definition and What It Means for the Bombay Stock Exchange

What Is the Sensex?

The Sensex is the benchmark index of the BSE in India. The Sensex comprises 30 of the largest and most actively traded stocks on the BSE and provides a gauge of India's economy. It is float-adjusted and market capitalization-weighted.

The Sensex is reviewed semiannually each year in June and December. Created in 1986, the Sensex is the oldest stock index reflecting India's markets and is operated by Standard & Poor's (S&P). Analysts and investors use it to observe the cycles of India's economy and the development and decline of particular industries.

Understanding the Sensex

The Sensex was launched on Jan. 1, 1986. It is both a bellwether and an investable index used to track the performance of India's 30 largest and most financially sound companies. These companies are listed on the BSE (previously known as the Bombay Stock Exchange) and represent some of the biggest and most important sectors of the Indian economy. As such, it is India's most-tracked index.

Market Cap and Holdings

The Sensex is calculated in Indian rupees (INR) and U.S. dollars. As of Dec. 29, 2023, the mean total market cap of the index was $141.7 billion.

The top five constituents listed on the index as of Dec. 29, 2023, were:

• HDFC Bank
• Reliance Industries
• ICICI Bank
  
• Infosys
• Larsen and Toubro

Methodology

The evolution of the Indian economy has shaped and changed the methodology of the Sensex. It was calculated based on the market cap when it was first launched but shifted to a free-float capitalization method in September 2003.

This provided a weighting for the effect of a company on the index. The index uses a company's float rather than its outstanding shares, which means it doesn't include restricted stocks that can't be readily sold, such as those held by company insiders.

Despite all the changes to the methodology, the index's objectives haven't changed at all.

Its constituents are selected by the S&P BSE index Committee based on several criteria:

• They should be listed in India on BSE.
• They should be a large-to-mega-cap company.
• The stocks should be relatively liquid.
• The companies should generate revenue from core activities.
• They should keep the sector balanced broadly in line with the Indian equity market.
  

History of the Sensex

The index experienced enormous growth since India opened up its economy in 1991. Large gains occurred in the 21st century when it rose from around 5,000 in early 2000 to nearly 42,000 in January 2020. This has mainly been the result of India's surging economy, which for years has grown at one of the fastest paces in the world.

The outbreak of the global Coronavirus pandemic in early 2020 slowed India's economy like it did all economies around the world. The Sensex fell to below 30,000 in 2020.

Like most economies, however, India has bounced back since the Coronavirus pandemic. This is reflected in the strong gains in the Sensex to levels well above pre-pandemic times. In 2021, the index passed 50,000, and in 2022 it passed 60,000. In 2023, it crossed the 65,000 mark.

India’s expanding economy owes much to the rise of the nation's middle class and vice versa. According to one study, nearly 80% of the nation's households will be middle-income by 2030, up from about 50% in 2019. The middle class is an important driver of consumer demand.

The Bottom Line

The Sensex allows investors to gain exposure to the Indian stock market, which may otherwise prove difficult given the requirements India places on foreign investors. For investors looking for diversification and exposure to emerging markets and one of the largest economies in the world, investing in the Sensex could be a good option.