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

What Is the Sensex?

The term Sensex refers to the benchmark index of the BSE in India. The Sensex is comprised of 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 in India 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.

The Sensex is calculated in Indian rupees (INR) and U.S. dollars. As of Aug. 31, 2021, the mean total market cap of the index was 3.71 trillion rupees. The top five constituents listed on the index were:

• Reliance Industries
• HDFC Bank
• Infosys
• Housing Development Finance Corp.
• ICICI Bank

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 BSE Sensex's plunged 12.7%—its worst-ever fall—on April 18, 1992, after revelations of a scam in which a prominent broker siphoned money from the public banking sector to pump money into stock.

The index experienced enormous growth since India opened up its economy in 1991. The biggest gains occurred in the 21st century when it rose from around 5,000 in early 2000 to more than 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.

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.

However, India's economic growth has slowed in recent years, reaching the lowest level in a decade in 2019. The outbreak of the global coronavirus pandemic in early 2020 has slowed the economy further, casting a shadow over future gains.