What Is SENSEX, and How Can I Invest In It?

The Sensex, or Sensitive Index, is the benchmark stock market index of the Bombay Stock Exchange (BSE), one of the world’s oldest and largest exchanges. It is critical in determining the overall success of the Indian stock market and serves as a measure of the country’s financial health. If you are new to the stock market or are attempting to better understand financial markets, you have probably heard of the Sensex. But what precisely does it represent, how can you invest in it, and why is it so significant?

What is SENSEX?

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 financially solid and well-established companies listed on the BSE in various areas. These companies account up a considerable amount of the market’s overall capitalization.

Key facts regarding the Sensex:

Introduced in 1986.

• Base year: 1978-79.
• Base value: 100 points.
• Composition: 30 large-cap and actively traded stocks.
• Purpose: Shows the overall performance of the Indian stock market and economy.

List of SENSEX companies

The Sensex index covers 30 of the Bombay Stock Exchange’s (BSE) largest and most financially sound companies. These companies come from a variety of industries and represent a large cross-section of the Indian economy. As of January 2025, the companies on the Sensex are:

As you can see, this index includes some of India’s biggest brands and companies. That’s because each company must meet five critical criteria to be considered for inclusion in SENSEX.

How are SENSEX constituents decided?

Every stock is added to the SENSEX following adequate due diligence, ensuring that only high-quality stocks are included. In order to be eligible for inclusion in SENSEX, organizations must meet the five criteria outlined below.

• The company must be listed on the Bombay Stock Exchange (BSE): otherwise, it cannot be a component of the SENSEX.
• Should be huge or medium-sized Company : To be eligible for inclusion in SENSEX, the company must have a market capitalization ranging from large to medium. Because of these criteria, this ranking only includes the best and largest corporations.
• Shares should have strong liquidity: A stock must be liquid before it can be considered for inclusion in the SENSEX index. This means that it should be simple to acquire and sell that particular stock. Since liquidity is a function of the quality of the underlying firm, it also works as a filtering criteria.
• Substantial revenue should come from key activities: There are many companies that have been divided into several sectors based on their basic activity, depending on the type of business they are in. For example, Sun Pharma is a pharmaceutical company, while Bharti Airtel is a telecom corporation.
• SectorWeight of the Company: Sector balancing is another critical consideration. Every sector in a given index is assigned a weight that represents the economy. For example, financial services receive the most weightage in the NIFTY or any other index. So, any company, whether it is already a component of the SENSEX or has been placed in the list, is required to preserve the balance of the sector to which it belongs.

Now, each component of the SENSEX has a separate weightage. This weightage is determined using free-float market capitalization. Here is a list of the top ten stocks in SENSEX with their current total weightage:

As you can see, the top ten stocks account for 66.99% of the index.

Why is the Sensex important?

• Market Performance Indicator: Investors and analysts use the Sensex to assess the health of India’s stock market. When the Sensex rises, it means that the majority of the top companies are doing well, indicating a favorable market attitude.
• Economic Barometer: Because the Sensex covers a wide range of industries, its fluctuations frequently reflect the overall state of the economy. A strong performance in the index may indicate growth in areas such as banking, technology, energy, and consumer goods, all of which are important to India’s economic development.
• Investor Sentiment: Investors use the Sensex to determine how the market is trending. A rising Sensex often shows investor optimism, whereas a decreasing Sensex may indicate economic instability or a market correction. It assists investors in making judgments about investments, savings, and tactics.
• Tracking Corporate Performance: The Sensex’s 30 firms are industry leaders. These corporations are sometimes seen as the most dependable predictors of India’s corporate sector’s overall success.

How Can You Invest in the SENSEX?

As you can see, SENSEX includes the best companies in India, and if you buy SENSEX, you become a part-owner of these incredible businesses. Now, you have two options for investing in SENSEX.

Buy stocks in the same percentage as their weightage in the SENSEX.

You can begin investing directly in the constituents of the SENSEX and the weights they hold in that index. This means you can acquire equities in quantities equal to their weightage.

Invest in Index mutual funds.

The best way to invest in the SENSEX is through index mutual funds. These funds mirror the index, which means that their portfolio is identical to the index’s. So a sensation index fund will own the 30 equities in the same proportion as the sensation.

Investing with Index Funds: A Budget-Friendly Option

If you elect to invest directly in a stock based on its weightage in the sensation, you will incur high costs. That’s because you can’t buy a fraction of a stock in India, which means you have to buy the entire stock rather than just part of it.

Let’s look at an example. Assume you want to invest Rs. 5,000 in the sensation. You will now need to purchase one Reliance shares at the current price of Rs. 2000. So, if you buy Reliance shares for Rs. 2000, 40% of your investment will be similar to Reliance’s 40% weightage, although its true weightage should be approximately 15%. In addition, you will not be able to acquire Reliance stock in fractions; you must purchase the entire shares. It is also important to note that stock weightage fluctuates virtually everyday. If a stock’s value grows or falls, its weight changes. Managing your stocks would be a headache if you began investing directly in equities based on their weightage.

A remedy to this would be to invest in index mutual funds, which allow you to invest a smaller sum of money. The fund managers of these funds manage the money you invest in them in proportion to the weightage of that specific stock in the sensation. Because index mutual funds are professionally managed, the fund manager is the only one who can increase or reduce the weightage of a stock or perform other tracking functions. portfolio managers are also in charge of rebalancing the holdings in your portfolio.

Why use indicator finances?

You should invest in indicator finances for the following reasons.

• Invest with SIPs as low as Rs. 500.
• Professional operation of your finances
• finances are passively managed.
• Low expenditure rate.
• No- bias investing

How to Follow the Sensex?

Tracking the sensation is straight forward. It’s extensively accessible through fiscal news spots, stock request apps, and indeed the BSE website. The sensation is constantly streamlined in real time during request hours to reflect the most recent trading data. fiscal news websites, TV programs, and journals all cover big moves in the sensation.

Bottom Line:

Mr. Warren Buffett, the world’s most successful investor, recommends investing in index mutual funds. He had previously stated: “Index Funds are the most sensible investment options for most of the investors.” These funds have a low risk element because they invest in the country’s largest corporations, thus they will help you reach your financial goals.