What Is Sensex? Definition, Key Milestones & How It’s Calculated

The Sensex, officially known as the S&P BSE Sensex, is a benchmark stock market index of the Bombay Stock Exchange (BSE). The term "Sensex" is a blend of the words “Sensitive” and “Index.” It reflects the performance of the top 30 financially sound and actively traded companies listed on the BSE.

Introduced in 1986, the Sensex serves as a key barometer of India’s stock market health and economic trends. It is widely followed by domestic and international investors as a proxy for the overall performance of the Indian equity market.

The Sensex is calculated using the free-float market capitalisation-weighted method. This approach considers the market value of a company’s freely tradable shares, ensuring that the index better reflects the market dynamics.

Sensex Calculation Formula:

Sensex = (Free-float Market Capitalisation of 30 Companies / Base Market Capitalisation) × Base Index Value

• Base Year: 1978–79
  

• Base Index Value: 100
  

• The free-float market capitalisation is the product of the total market capitalisation and the free-float factor (proportion of shares available for public trading)
  

This methodology ensures that companies with larger and more publicly traded shares have a higher influence on index movements.

The Sensex functions as a benchmark for market trends. A rise in the Sensex, shows that the overall stock prices of the 30 constituent companies are increasing, signalling positive market sentiment. Conversely, a falling Sensex indicates declining stock prices and potential investor caution.

Sensex Tracks:

• Top 30 companies across sectors like finance, IT, FMCG, energy, and infrastructure
  

• Sectoral balance to reflect the Indian economy
  

• Real-time price movements based on live trading data
  

The composition is reviewed periodically to ensure the index stays relevant to current market conditions.

Investors can gain exposure to the Sensex without buying each of its 30 stocks individually. Multiple instruments allow retail and institutional investors to track or mirror its performance.

Popular Ways to Invest in Sensex:

• Index Mutual Funds: Passively managed funds that replicate the Sensex portfolio
  

• Exchange-Traded Funds (ETFs): Listed on the stock exchange, offering real-time trading
  

• Derivatives (Futures & Options): Used by experienced traders to speculate or hedge
  

• Sensex SIPs: Systematic Investment Plans in index mutual funds for disciplined investing
  

These avenues make investing in Sensex simple and accessible even for first-time investors.

The Sensex has recorded several key milestones since its inception, reflecting India’s economic progress and investor confidence.

Notable Milestones:

• 1986: Sensex launched at a base value of 100
  

• 1992: Crossed 1000 points for the first time during liberalisation era
  

• 2006: Breached the 10,000 mark amid economic expansion
  

• 2014: Crossed 25,000 after general elections and policy optimism
  

• 2021: Touched 50,000 for the first time
  

• 2023: Moved past 65,000 driven by foreign inflows and corporate earnings growth
  

These landmarks show the long-term growth trajectory of the Indian capital markets.

While Sensex has grown steadily over decades, it has also faced sharp declines triggered by domestic and global events.

Key Market Crashes:

• 1992: Harshad Mehta scam led to massive sell-off
  

• 2008: Global financial crisis caused a 60% fall in a single year
  

• 2015–16: Concerns over global slowdown and weak earnings
  

• 2020: COVID-19 pandemic triggered one of the sharpest crashes in history
  

• 2022: Global inflation and interest rate hikes led to significant corrections
  

These events reflect the volatility that even benchmark indices like Sensex can face due to macroeconomic or systemic issues.

The Sensex is a vital indicator of India’s stock market, tracking 30 leading companies across key sectors. It helps investors understand market trends and offers simple ways to invest through mutual funds, ETFs, and SIPs.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.