What is SENSEX?
The Sensex, short for the Sensitive Index, stands as the premier stock market index in India, representing the performance of 30 large and well-established companies listed on the Bombay Stock Exchange (BSE). These companies undergo selection based on specific criteria outlined by the S&P BSE Index Committee, ensuring a diverse representation of sectors and industries within the Indian economy.
Components of the Sensex index comprise some of India’s largest and most actively traded stocks, thereby reflecting the overall market sentiment and trends. Inclusion criteria necessitate listing on the BSE, possession of large or mega-cap stocks, demonstration of liquidity, generation of earnings from core activities, and contribution to maintaining sector balance within the country’s equity market.
Since its inception, the Sensex has witnessed significant growth, particularly in the post-2000 era, coinciding with India’s rapid economic development and escalating Gross Domestic Product (GDP). Notable milestones, such as surpassing the 6000-point mark in 2002, primarily propelled by the performance of information technology companies, underscore the index’s significance as a barometer of the Indian stock market’s health and trajectory.Â
How is Sensex Calculated?
The Sensex, a crucial measure of how well the Indian stock market is doing, has shown impressive growth over the years, with ups and downs along the way. Since it started in 1979 with a value of 100 points, it has skyrocketed to over 59,000 points by April 24, 2024. That’s an incredible increase of more than 590 times its original value, showing how resilient it has been through different market situations.
The Sensex’s journey can be divided into different periods, each with its own economic conditions and market trends. There were times of steady growth, like in the early years, and extraordinary jumps during India’s economic boom from 2000 to 2008. However, there were also tough times, like the global financial crisis in 2008, which caused a drop in the Sensex. Despite these challenges, the Sensex bounced back after the crisis and kept rising, with some bumps along the road, such as the dip caused by the COVID-19 pandemic in 2020. It’s important for investors to keep an eye on these ups and downs and understand that just because the Sensex did well in the past, it doesn’t guarantee it will do the same in the future.
How Has the Sensex Performed in Recent Decades?
The Sensex, a crucial measure of how well the Indian stock market is doing, has shown impressive growth over the years, with ups and downs along the way. Since it started in 1979 with a value of 100 points, it has skyrocketed to over 59,000 points by April 24, 2024. That’s an incredible increase of more than 590 times its original value, showing how resilient it has been through different market situations.
The Sensex’s journey can be divided into different periods, each with its own economic conditions and market trends. There were times of steady growth, like in the early years, and extraordinary jumps during India’s economic boom from 2000 to 2008. However, there were also tough times, like the global financial crisis in 2008, which caused a drop in the Sensex. Despite these challenges, the Sensex bounced back after the crisis and kept rising, with some bumps along the road, such as the dip caused by the COVID-19 pandemic in 2020. It’s important for investors to keep an eye on these ups and downs and understand that just because the Sensex did well in the past, it doesn’t guarantee it will do the same in the future.
How to Invest in SENSEX?
Investing in the Sensex provides exposure to the performance of the top 30 largest and most actively traded stocks listed on the Bombay Stock Exchange (BSE). Here’s a step-by-step guide to investing in the Sensex:
- Choose an Investment Method: Determine the investment method that aligns with your investment goals, risk tolerance, and preferences. Options include index funds, exchange-traded funds (ETFs), direct stock investing, and index derivatives.
- Select an Index Fund or ETF: For a passive investment approach, consider investing in an index fund or ETF that tracks the Sensex’s performance. Research different options available in the market, considering factors such as expense ratios, tracking error, liquidity, and past performance.
- Open a Demat and Trading Account: To invest in Sensex-listed stocks or ETFs, open a Demat (Dematerialized) account and a trading account with a registered brokerage firm authorised by the Securities and Exchange Board of India (SEBI).
- Fund Your Trading Account: Deposit funds into your trading account to have sufficient capital for purchasing shares or units of the chosen index fund or ETF. Transfer funds electronically from your bank account using online banking or other payment methods offered by the brokerage firm.
- Place an Order: Once your trading account is funded, place an order to buy shares or units of the selected index fund or ETF. Specify the quantity and price at which you want to buy, choosing between market orders or limit orders based on your preferences.
- Monitor Your Investment: Regularly monitor the performance of your investment in the Sensex. Keep track of market trends, economic indicators, and news events that may impact the Sensex or its constituent stocks.
- Rebalance Your Portfolio: Periodically review your investment portfolio and rebalance it as needed to maintain your desired asset allocation and risk exposure. Consider buying or selling shares or units of the index fund or ETF to realign with your investment objectives.
- Stay Informed: Stay updated on developments in the financial markets, regulatory changes, and economic trends that may affect your investment in the Sensex. Utilize resources such as financial news websites and research publications to make well-informed investment decisions aligned with your financial goals.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.