Complete Guide to BSE Sensex: Selection Criteria to Investment Process

Sensex is one of the most popular indices in the Indian stock market. Whether you are an investor or not, you must have heard or read this word at least a few times in your life to date, haven’t you? So if the word has fascinated you or you want to understand the index better, or you want to start trading the stocks of the index, or invest for the future, here is a full-fledged guide on the BSE Sensex index which you can follow. 

Sensex Index – Overview & Constituents 

Sensex is a thirty-stock index, which is the most tracked index in the Indian stock market as well. The index is made of the top thirty stocks according to liquidity and fundamental strength from the BSE 100 universe. The index was launched on 1 January 1986 and it is rebalanced every six months in June and December. 

The constituents of the Sensex index are as follows – (As of 17 December 2024)

ADANI PORTS AND SPECIAL ECONOMIC ZONE	LARSEN & TOUBRO LTD.
ASIAN PAINTS LTD.	MAHINDRA & MAHINDRA LTD.
AXIS BANK LTD.	MARUTI SUZUKI INDIA LTD.
BAJAJ FINANCE LIMITED	NESTLE INDIA LTD.
BAJAJ FINSERV LTD.	NTPC LTD.
BHARTI AIRTEL LTD.	POWER GRID CORPORATION OF INDI
HCL TECHNOLOGIES LTD.	RELIANCE INDUSTRIES LTD.
HDFC BANK LTD.	STATE BANK OF INDIA
HINDUSTAN UNILEVER LTD.	SUN PHARMACEUTICAL INDUSTRIES
ICICI BANK LTD.	TATA CONSULTANCY SERVICES LTD.
INDUSIND BANK LTD.	TATA MOTORS LTD.
INFOSYS LTD.	TATA STEEL LTD.
ITC LTD.	TECH MAHINDRA LTD.
JSW STEEL LTD.	TITAN COMPANY LIMITED
KOTAK MAHINDRA BANK LTD.	ULTRATECH CEMENT LTD.

The top ten stocks by weightage – 

1. HDFC Bank Ltd.: 14.97%
2. ICICI Bank Ltd.: 9.99%
3. Reliance Industries Ltd.: 9.13%
4. Infosys Ltd.: 7.66%
5. TCS Ltd.: 4.82%
6. Larsen & Toubro Ltd.: 4.82%
7. Bharti Airtel Ltd.: 4.6%
8. ITC Ltd.: 4.55%
9. State Bank of India: 3.5%
10. Axis Bank Ltd.: 3.48%

The top sectors by weightage – 

1. Financial Services: 26.67%
2. Consumer Discretionary: 16.67%
3. Information Technology: 13.33%
4. Commodities: 10%
5. Fast Moving Consumer Goods: 10%

Selection Criteria

The eligibility for the constituent stocks of BSE Sensex is as mentioned below – 

• The stock must have been listed at least 6 months prior to the selection process for the index.
• The stock must have been traded each trading day during the preceding six months from the date of index construction.
• The stock  must be available in the form of a derivative contract as well
• DVRs, that meet these above eligibility criteria, are then summed up with the common stocks of the company, and then an index is constructed on the aggregated data. 

Factors Affecting the Sensex Index

Sensex being the most tracked indices in the equity market, factors affecting this index not only affect the constituent stocks but also the entire market. Therefore, here are the factors you need to consider while evaluating the index – 

• Global and Domestic market sentiment: The market sentiment whether it is on the global platform or domestic space affects the index. Looking at the index movement, the overall market sentiment can be gauged. 
• Financial reports: When the constituent companies of the bse Sensex index announce their financial returns annually or quarterly, the index gets affected as the constituent stock prices move faster. If the results are positive as per anticipation or exceeded them, then the index might move up, while if the returns are not as good as they thought to be, or the constituting companies suffered loss during any quarter, or in a financial year, then the stock can drag the index down. 
• Corporate announcements: One or more of its constituent companies can affect Sensex with any major corporate announcements. For instance, if a few of the companies of Sensex announces dividends, then the prices of those stocks can go up which can take the Sensex up as well. 
• Monetary Policies: Repo Rates or other rates if altered by RBI then it can have a significant effect on the Sensex movement. If the rates are changed as per the market’s anticipation, then it can boost the market sentiment, taking the index higher, and vice versa. 
• Corporate Activities: If the constituent companies pay dividends, issue bonus shares, and do other similar activities, then stock prices usually go up as the investors get excited, which boosts the index as well. 

Sensex Index Calculation Method

BSE Sensex is constructed using the float-adjusted market capitalization method. Here are the details for index construction – 

• The companies meeting the above-mentioned eligibility criteria are ranked as per float-adjusted market capitalization, and the top 75 companies are shortlisted.
• Similarly, another 75 companies are shortlisted based on the total market capitalization of the past six months from the eligible universe. 
• Then both the lists are combined, and sorted according to annualized traded value. Companies having a cumulative annualized traded value higher than 98% are excluded. 
• Now these remaining companies are sorted as per the average six-month float-adjusted market capitalization. Any company having a weight lower than 0.5% is not included. 
• Resultant companies from the above step are then ranked and included in the index as per the below riles –
  • The top 21 companies from the list are included without any sector specifications (it may or may not be a current index constituent)
  • The existing index constituent stocks are ranked from 22 to 39 and included in the index as per highest rank until the target count of 30
  • If the target count is not achieved then non-constituent stocks are also ranked from 22 to 30. Then those are preferred whose common India Industry Classification structure macro-economic indicator is represented lower in the Sensex index than macro-economic indicator representation in the BSE Allcap.
  • Even then the target count of 30 is not met, and non-constituent stocks are chosen as per the highest rank.  

Performance and Returns

Sensex has flared over the years, with more or less consistent returns. Here is a snapshot of the same – 

Total Returns

YTD: 11.82%

3 month: – 2.94%

1 month: 0.56%

Annualised Total Returns

1 Year:  20.59%

3 Years: 13.28%

5 Years: 15.76%

10 Years: 12.18%

Enjoy investing in the top stocks of the Sensex on the Shoonya!

Risk and Volatility

Since Sensex invests in large-cap stocks mostly, the risk and volatility factors are comparatively lower however; it is present and need to be considered when someone wants to invest in the index via ETFs, or index funds in its constituent stocks. 

The annualized risk of Sensex is as follows for Total returns – 

1 Year:  11.98%

3 Years: 12.27%

5 Years: 19.02%

10 Years: 16.41%

Annualized risk-adjusted returns 

1 Year:  1.72%

3 Years: 1.07%

5 Years: 0.83%

10 Years: 0.74%

How to Invest in the Sensex INDEX?

You can invest in the Sensex index using ETFs, or index funds, or you can trade them on the trading platform. You can also trade Sensex futures, and Sensex options in the F&O section of Shoonya’s app. To do so, you have to add the index to your watchlist following these steps – 

• Open the Shoonya app.
• Head to the “Watchlist” tab located at the bottom of your screen.
• In the search bar, type “Sensex IN” and add it to the watch list, and then you will be able to see the indices.
• Once you find your desired index, click on the add option given on the right side.
• Now you can see the index on the watchlist. 

Top ETFs of Sensex

Sensex is used as a benchmark for multiple index funds, and ETFs, and here are some of the popular ones according to 1-year return– 

1. Nippon India ETF BSE Sensex – 14.05%
2. SBI BSE Sensex ETF – 14.02%
3. UTI BSE Sensex ETF – 14.02%
4. LIC MF BSE Sensex ETF – 13.92%
5. Kotak BSE Sensex ETF – 13.81%

Conclusion

So, if you want to trade or invest in BSE Sensex as ETFs, or individually invest in its constituent stocks, then analyzing, and understanding this index is crucial. In addition, to understand the overall market sentiment, Sensex plays a crucial role too. 

FAQs| Sensex Index

Source: AsiaIndex

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.