What is SENSEX (Stock Exchange Sensitive Index)

The SENSEX full form is Stock Exchange Sensitive Index. BSE officially calls it the S&P BSE SENSEX, its benchmark stock market index. The name blends the words 'Sensitive' and 'Index'. It tracks the performance of 30 actively traded companies listed on the BSE.

BSE introduced the SENSEX in 1986. The index measures the performance of its 30 constituents using a float-adjusted market capitalisation methodology.

The SENSEX reflects changes in the market value of its 30 constituent companies, with their float-adjusted market capitalisation determining their respective weights in the index. BSE's SENSEX is calculated and maintained by Asia Index Private Limited, a joint venture between BSE and S&P Dow Jones Indices.

At a high level, the SENSEX reflects changes in the float-adjusted market capitalisation of its 30 constituent companies and represents these changes as a single index value.

SENSEX Tracks:

• The performance of 30 constituent companies listed on BSE.

• Companies from various sectors, with sector representation considered during constituent selection.

• Changes in the float-adjusted market capitalisation of its constituents, based on stock prices and the applicable free-float factors.
   

The SENSEX composition is reviewed periodically based on the index methodology. Changes may be made to maintain the index's intended representation of the eligible market. 

The SENSEX is calculated using a float-adjusted market capitalisation methodology. This method considers only the shares available for public trading, not the company's total issued shares. Understanding how SENSEX works at this level means following four steps: BSE multiplies each company's closing price by its free-float shares, sums these values across all 30 companies, divides the total by the base market capitalisation, then multiplies the result by the base index value.

Formula for SENSEX:

SENSEX = Float-adjusted market capitalisation of constituents ÷ Index Divisor

The SENSEX has a base period of 1978-79 and a base index value of 100. The index uses a divisor-based methodology to calculate its value. The divisor is adjusted when events such as corporate actions or constituent changes affect the index's aggregate market capitalisation, helping maintain continuity in the index.

The calculation can be expressed as:

SENSEX = Float-adjusted market capitalisation of constituents ÷ Index Divisor

Float-adjusted market capitalisation is calculated using the market value of shares available for public investment, after applying the applicable free-float factor. Shares held by promoters, controlling public investment, governments and certain other strategic holders may be excluded or assigned lower free-float weights, depending on the index methodology.

Example:

Suppose the SENSEX has three hypothetical companies with the following details:

• Company A: 10 million shares outstanding, 80% free-float factor, closing price of ₹150

• Company B: 20 million shares outstanding, 60% free-float factor, closing price of ₹250

• Company C: 15 million shares outstanding, 70% free-float factor, closing price of ₹350

The float-adjusted market capitalisation would be calculated as:

• Company A: 10 million × 80% × ₹150 = ₹1,200 million

• Company B: 20 million × 60% × ₹250 = ₹3,000 million

• Company C: 15 million × 70% × ₹350 = ₹3,675 million

Total float-adjusted market capitalisation = ₹7,875 million

The SENSEX value is then derived by dividing the aggregate float-adjusted market capitalisation of its constituents by the applicable index divisor.

The SENSEX is calculated on a real-time basis during market hours using the latest available prices of its constituents. The closing index value represents the SENSEX level at the end of the trading session.

The movement of the SENSEX depends on a variety of economic, financial, and global factors that influence investor sentiment and stock market performance. Understanding these elements provides insight into market trends and investor sentiment.

1. Corporate Earnings: Changes in the earnings and financial performance of SENSEX constituents can influence their share prices and, consequently, the index.

2. Economic Indicators: Economic indicators such as GDP growth, inflation and interest rates can influence equity valuations, market expectations and the SENSEX.

3. Foreign Investment Flows: Changes in foreign portfolio investment flows can influence demand and liquidity in Indian equities and may affect the SENSEX.

4. Global Market Trends: Movements in international equity markets, commodity markets and currencies can influence Indian equities through changes in global risk sentiment, capital flows and market expectations.

5. Government Policies and Budget Announcements: Changes in government policies, taxation and public spending can affect market expectations and may influence the SENSEX.

6. Crude Oil Prices and Currency Movements: Changes in crude oil prices and the value of the Indian rupee can affect companies differently, depending on their exposure to imports, exports and energy costs, and may influence the SENSEX. 

7. Geopolitical and Global Events: Geopolitical events and global crises can increase market uncertainty and volatility, which may affect the prices of SENSEX constituents.

The SENSEX can therefore be influenced by a combination of company-specific, domestic and global developments. These factors can affect the prices of its constituent companies and, in turn, the index level.

The S&P BSE SENSEX is BSE's benchmark index comprising 30 constituent companies. It uses a float-adjusted market capitalisation methodology, with a base period of 1978-79 and a base value of 100. The index is calculated and maintained by Asia Index Private Limited.