What Is BSE S&P Sensex And How To Invest In It? – Forbes Advisor INDIA

Sensex stands for Stock Exchange Sensitive Index. It is one of India’s oldest indices and consists of 30 selected stocks from companies listed on the Bombay Stock Exchange of India. These selected 30 stocks are owned by some of the largest companies and are therefore the most actively traded stocks. BSE has full authority to keep revising the list of 30 stocks over time. The Sensex makeup generally conducts a biannual reconstitution in June and December each year.

Sensex is very important for assessing market movements, which additionally allows investors to make rational investment decisions. It also helps to understand the general mood of the economy and industry-specific developments. For example, when Sensex shows an uptrend, investors tend to buy more shares as it is a clear sign that the economy is growing.

Sensex and NIFTY 50 are the two main indices of Indian capital markets and to know the differences between the two, read our story on the difference between Sensex and NIFTY 50 for more details.

Sensex is an integral part of the Bombay Stock Exchange (BSE). In order to learn more about Sensex, it is important to first understand something about BSE. The BSE is one of the oldest stock exchanges in India, having been established as early as 1875. The BSE allows trading in all segments including stocks, derivatives, debt, mutual funds, currencies and so on. It has always been a pioneer in shaping and developing the Indian capital market.

Sensex’s value is calculated using the free float market capitalization method. The formula for this is:

Free Float Market Cap = Market Cap * Free Float Factor.

Where market capitalization is the market value of the company calculated as follows:

Market capitalization = share price/share * number of shares issued by the company

And the free float factor is the certain percentage related to the total number of shares issued by a company and these shares are readily available for trading to the general public. This also means that stocks owned by the promoters or the state holding company that are not available for public trading are not included in this factor.

Now that we have determined the free float market cap, Sensex’s value would be calculated as follows:

Sensex Value = (Total Free Float Market Cap/Base Market Cap) * Base Period Index Value.

The base year is 1978-79 and the base value is 100 index points.

How are Sensex stocks selected?

• All these shares should be listed on the BSE.
• Stocks must be either large-cap or mega-cap. Large cap companies have a market capitalization between INR 7,000-20,000 crore. Mega cap companies have a market capitalization between INR 20,000 crore.
• The revenue or earnings of the company should come from its main activities.
• Companies need to help keep a specific sector balanced in tandem with the Indian stock market.
• Stocks with higher liquidity and active trading.

What are the tips for trading or investing in Sensex?

• Open a Demat account: The user must have a Demat account. The Demat Account is an account that holds your shares in electronic form.
• Open a trading account: Register with either a registered broker or brokerage platform and open a trading account. Since BSE does not allow direct purchase or sale of securities. A trading account makes it easy to buy and sell stocks online.
• bank account: Aside from a demat and trading account, an investor must also have a bank account and a PAN card to trade on Sensex.
• Choose your investments: Once your account is opened, you are free to invest in the Sensex constituents and the weighting they have in that particular index. However, the better option to invest in Sensex is to invest in index mutual funds or exchange-traded funds (ETFs).

What are the main factors influencing changes in Sensex?

Conditions of the world economy: When global conditions are favorable, the Sensex will show bullish moves and investors will feel safer to put money into the stock market. The exact opposite will occur if global conditions worsen.

Inflation: Inflation directly affects Sensex. Inflation increases the prices of goods and services, leaving investors with fewer funds to invest in the stock markets. Also, companies will have higher production costs, which will cause the Sensex to decline.

Changes in interest rates: Rising interest rates cause index performance to decline. Since higher interest rates would increase the cost of borrowing, it would put further pressure on the company’s performance.