What Is SENSEX And How To Invest In It?

One of the biggest and oldest stock exchanges in the world the Bombay Stock Exchange (BSE), uses the Sensitive indicator, or Sensex, as its benchmark stock market indicator. It is a key indication of the nation’s economic health and plays a crucial part in assessing the overall success of the Indian stock market. You’ve probably heard of The Sensitive Index if you’re new to the stock market or are attempting to learn more about financial markets. However, what does it actually stand for, how can one invest in it, and why is it so significant?

Sensex What is it?

The Bombay Stock Exchange (BSE) in India uses the Sensex (Sensitivity Index) as its stock market index. It monitors the performance of the top 30 reputable and financially sound businesses across a range of industries that are listed on the BSE. These businesses account up a sizeable amount of the market’s overall capitalization.

Important Sensex Facts:

Launched: 1986
Base Year: 1978–1979
Base value: 100 points is the base value.
composition: 30 large-cap, actively traded stocks make up the composition.
Goal: Indicates the general state of the Indian economy and stock market.

List of SENSEX Companies

Thirty of the biggest and most secure corporations listed on the Bombay Stock Exchange (BSE) are part of the Sensex. These businesses reflect a wide range of the Indian economy because they come from a variety of industries. The Sensex companies as of January 2025 are:

As you can see, this index includes some of the largest corporations and brands in India. This is due to the fact that each business must meet five essential requirements in order to be considered for inclusion in Sensitive Index.

How are decisions about SENSEX constituents made?

Only high-quality equities are included in the SENSEX since each stock is only included after thorough due diligence. In actuality, businesses must meet the following five requirements in order to be added to Sensitive Index

Company must be listed on Bombay Stock Exchange (BSE):

The company cannot be a part of SENSEX if it is not listed on the BSE.

It need to be huge or medium in size:

Business For a corporation to be eligible for inclusion in Sensitive Index, its market capitalization must be substantial to mid-sized. Only the largest and best companies are included in this ranking because of these criteria.

Shares should be highly liquid:

A stock must be liquid in order to be eligible for inclusion in the Sensitive Index. It implies that buying and selling that specific stock should be simple. This liquidity serves as a filter as well because it is a function of the underlying business’s quality.

Significant Revenue from primary Activities:

Significant The company’s core business operations should be the source of a significant portion of its revenue. Depending on the type of industry they are in, many organizations have been categorized into various sectors based on their primary activity. For instance, Sun Pharma is a pharmaceutical company while Bharti Airtel is a telecom provider.

Sector Weight of the Company:

• Another crucial criterion is sector balancing. Every sector in a given index has a weight that reflects the state of the economy. For instance, whether in the NIFTY or another index, financial services are given the most weight. Therefore, it is essential for any firm, whether it is already listed or a part of the Sensitive Index, to keep the sector to which it belongs balanced.
• Now, the weights assigned to the various components of the Sensitive Index vary. According to free-float market capitalization, this weighting is determined. The top 10 SENSEX stocks are listed here, along with their current total weight:

As you can see, the index gives 66.99% of its weight to the top 10 stocks.

What Makes Sensex Vital?

Market Performance Indicator:

To assess the state of the Indian stock market, analysts and investors frequently turn to the Sensex. Positive feeling in the market is indicated when the Sensitive Index rises, which shows that most of the leading companies are doing well.

Economic Barometer:

The Sensex’s fluctuations frequently mirror the status of the economy as a whole because it monitors a wide range of industries. Strong index performance may indicate expansion in sectors vital to India’s economic growth, such as banking, technology, energy, and consumer goods.

Investor Sentiment:

To gauge the state of the market, investors turn to the Sensitive Index. While a declining Sensex may indicate market correction or economic worry, a rising Sensex generally indicates investor optimism. It assists investors in choosing methods, savings options, and investments.

Monitoring Corporate Performance:

The 30 firms that comprise the Sensitive Index are industry leaders. These businesses are frequently regarded as the best predictors of the general performance of India’s corporate sector.

How does one go about investing in SENSEX?

As you can see, SENSEX is made up of the best businesses in India, and purchasing SENSEX entitles you to a share in these incredible businesses. You can now invest in SENSEX in two different ways.

Purchase equities directly in proportion to the SENSEX weighting:

You can begin making direct investments in the SENSEX’s constituents and the relative importance of each to that index. This implies that you can purchase the stocks immediately in the amount that corresponds to their weight.

Put money into index mutual funds:

Investing in index mutual funds would be a superior way to invest in SENSEX. These funds mimic the index, meaning their portfolios are identical to the index. Therefore, the 30 stocks in a SENSEX index fund will be distributed in the same proportion as the SENSEX.

Investing with Index Funds: An Economical Choice

It will be a costly endeavor if you choose to invest directly in stocks based on their SENSEX weight. The reason for this is that you cannot purchase a portion of stocks in India; instead, you must purchase the entire stock.

Let’s examine this with an illustration. Consider investing Rs.5,000 in SENSEX. You must now purchase one share of Reliance, which is currently trading for Rs.2000. Therefore, if you purchase Reliance shares for Rs.2000, 40% of your investment will be equal to 40% of Reliance’s weight, even though its true weight should be closer to 15%. Additionally, you will need to purchase the entire amount of Reliance stock because you will not be able to purchase it in fractions.

You should also be aware that the stock’s weight fluctuates virtually every day. A stock’s weight varies if its value increases or decreases. If you start investing directly in stocks, managing your stocks would become a headache. based on their weight. Investing directly in SENSEX constituents based on their weighting will become very difficult.

Investing in index mutual funds, which enable you to make smaller investments, would be a solution to this problem. The money you invest in these funds is managed by the fund managers in accordance to the weight of that specific stock in the SENSEX. Since index mutual funds are professionally managed, only the fund manager has the authority to change a stock’s weighting or any other tracking. Rebalancing the equities in your fund is another duty of fund managers.

Why Use Index Funds?

The following justifies investing in index funds:

• Invest as little as Rs.500 using SIPs.
• Expert handling of your money
• Passively managed funds
• Minimal Cost Ratio
• Investing without bias

How Can I Follow the Sensex?

It’s easy to follow the Sensex. It is extensively accessible on stock market apps, financial news websites, and even the BSE website. During market hours, the Sensex is typically updated in real-time to reflect the most recent trading data. Newspapers, TV stations, and websites that provide financial news also cover important changes in the Sensex.

In summary, the world’s most successful investor, Mr. Warren Buffett, also suggests investing in index mutual funds. “Index funds are the most sensible investment options for most of the investors,” he once stated. Since these funds invest in the largest corporations in the nation, there is very little risk involved, and they will assist you in reaching your financial objectives.