If you are ever tried to invest in stocks in India and searched through the internet, you must have encountered the term “Sensex”.
Especially, when you open the share market news, the term is used mostly. Whether you want to become a stock market investor, or just simply want to know about it, you will find this informational context about Sensex, really helpful.
But what exactly does it mean and why is it important? In this blog post, we will answer these questions and give you some insights into how Sensex works and how you can invest in it.
So,
What is Sensex?
Sensex is a market index of BSE or Bombay Stock Exchange which is the second stock exchange in India. The term Sense stands for sensitive index. It was launched in 1986 by stock market analyst Deepak Mohoni.
It is a benchmark index that tracks the performance of 30 of the most prominent and liquid companies listed on the Bombay Stock Exchange, which is one of the oldest and largest stock exchanges in India.
These 30 companies represent various sectors of the Indian economy, such as
- ·Banking.
- Energy.
- IT.
- Pharma.
- FMCG,
- Chemical.
And many more.
The list of these companies is revised periodically by the BSE to reflect the changes in market conditions and industry trends. The companies that are listed on the exchange are,
- Reliance Industries.
- HDFC Bank.
- Infosys.
- Housing Development Finance Corporation.
- ICICI Bank.
- Tata Consultancy Services.
- Hindustan Unilever.Kotak Mahindra Bank.
- State Bank of India.
- Bajaj Finance.
- Bharti Airtel.
- Asian Paints.
- ITC.
- HCL Technologies.
- Larsen & Toubro.
- Maruti Suzuki India.
- Axis Bank.
- Nestle India.
- Sun Pharmaceutical Industries.
- Titan Company.
- UltraTech Cement.
- NTPC.
- Mahindra & Mahindra.
- Tech Mahindra.
- Power Grid Corporation of India.
- IndusInd Bank.
- Bajaj Auto.
- Oil and Natural Gas Corporation.
- Tata Steel.
- Bharat Petroleum Corporation.
The Sensex is an indicator of the overall health and sentiment of the Indian equity market. It reflects the performance of some of the largest and most influential companies in India, across various sectors such as banking, IT, energy, consumer goods, and automobiles. The Sensex also serves as a benchmark for investors, traders, and fund managers to compare their returns and strategies.
How Sensex works?
Sensex is calculated using the free-float market capitalization method, which means that it gives more weight to the companies that have more shares available for trading in the market. The free-float market capitalization of a company is calculated by multiplying its share price by the number of shares that are not held by promoters, government, strategic partners, or other locked-in shareholders. The free-float market capitalization of all 30 Sensex companies is then divided by a base value to get the index value.
The free-float method gives a more accurate picture of the market value of a company and its impact on the index.
The base value of Sensex is 100 and the base year is 1978-79. The index is revised twice a year, in June and December, to include or exclude companies based on their,
- Market performance.
- Liquidity.
- Industry representation,
and other criteria.
The Sensex has witnessed many highs and lows over the years, reflecting the economic and political events that have shaped India’s growth story. Some of the notable milestones of the Sensex are:
- The Sensex crossed the 1000 mark for the first time in 1990.
- The Sensex crossed the 10000 mark for the first time in 2006.
- The Sensex crossed the 20000 mark for the first time in 2007.
- The Sensex crossed the 30000 mark for the first time in 2015.
- The Sensex crossed the 40000 mark for the first time in 2019.
- The Sensex crossed the 50000 mark for the first time in 2021.
The next thing about it is the right the
Importance of Sensex:
It’s an indicator of the Indian economy:
Sensex is an important indicator of the overall health and sentiment of the Indian stock market and the economy. It reflects how investors perceive the growth prospects, profitability, and risk of the companies that constitute it. It also influences how foreign investors view India as an investment destination. A rising Sensex means that investors are optimistic and confident about the future performance of these companies and the economy, while a falling Sensex means that investors are pessimistic and cautious.
Great for investment diversification:
Investing in Sensex can be a good way to diversify your portfolio and gain exposure to some of the best companies in India. You can invest in Sensex either directly or indirectly. Directly investing in Sensex means buying all the 30 stocks that make up the index in the same proportion as their weightage in the index. This can be costly and cumbersome, as you will have to track and rebalance your portfolio regularly to match the changes in the index composition.
Indirectly investing in ETF:
Indirectly, investing in Sensex means buying an exchange-traded fund (ETF) or an index fund that tracks Sensex. An ETF is a type of mutual fund that trades on a stock exchange like a stock and replicates the performance of an underlying index. An index fund is also a type of mutual fund that follows an index, but it does not trade on an exchange and can only be bought or sold through a fund house. Both ETFs and index funds offer low-cost, passive, and diversified exposure to Sensex without requiring much effort from your side.
Now, if you want to invest your money in the Sensex, then what is the procedure?
Open a demat and trading account:
No matter which stock market you choose, you must have a demat account. A demat account is where you hold your shares electronically, and a trading account is where you buy and sell shares online. You need both accounts to invest in Sensex. You can open these accounts with a broker or a bank that offers these services. You will need to provide some documents, such as your
- PAN card.
- Aadhaar card.
- Bank statement, and
- address proof,
to complete the account opening process.
Choose a Sensex fund or ETF:
A Sensex fund or ETF (exchange-traded fund) is a type of mutual fund that invests in the same stocks as the Sensex index, in the same proportion. This means that the fund or ETF will mimic the performance of the Sensex index, minus some fees and expenses. Investing in a Sensex fund or ETF is an easy and convenient way to invest in Sensex, as you don’t have to buy individual stocks or track their prices. You can choose from various Sensex funds or ETFs available in the market, such as SBI Sensex Fund, HDFC Sensex ETF, ICICI Prudential Sensex ETF, etc.
Decide your budget:
After that, you need to set how much to invest and when. Once you have chosen a Sensex fund or ETF, you need to decide how much money you want to invest and when. You can invest either through a lump sum or through a systematic investment plan (SIP).
A lump sum is when you invest a large amount of money at once, while a SIP is when you invest a fixed amount of money at regular intervals, such as monthly or quarterly. Both methods have their pros and cons, depending on your financial goals, risk appetite, and market conditions. Generally, a lump sum is suitable for investors who have a large amount of money available and want to take advantage of low market prices, while a SIP is suitable for investors who want to save regularly and benefit from rupee cost averaging.
Keep monitoring your investments:
Monitor your investment and review your portfolio. After investing in Sensex, you need to monitor your investment performance and review your portfolio periodically. You can check the NAV (net asset value) of your fund or ETF online or through your broker’s app or website. You can also compare your fund or ETF’s performance with the Sensex index and other similar funds or ETFs.
You should review your portfolio at least once a year, or more frequently if there are significant changes in the market or your financial situation. You should assess whether your investment is meeting your expectations, whether your risk profile has changed, and whether you need to rebalance your portfolio by adding or reducing your exposure to Sensex.
Therefore, before investing in Sensex, you should do your own research, consult a financial advisor if needed, and make an informed decision based on your own analysis and judgment. The Sensex is not only a measure of the stock market performance, but also a reflection of India’s economic and social progress. The Sensex showcases the achievements and potential of India’s corporate sector, as well as its resilience and adaptability to changing times. The Sensex is a symbol of India’s aspirations and ambitions as a global player.
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