Sensex – Introduction, Calculation, and Deciding Process

Welcome to the world of Sensex, India’s most renowned stock market index. In this comprehensive guide, we will unravel the essence of Sensex, explore its significance in the Indian financial landscape, and demystify the process behind Sensex calculation. Whether you’re an experienced investor or just beginning your investment journey, understanding Sensex is crucial for navigating India’s dynamic stock market.

Sensex Introduction: A Glimpse into India’s Stock Market

The term “Sensex” might ring a bell if you’re involved in the world of finance or have an interest in India’s economic landscape. But what exactly is Sensex, and what role does it play in the intricate web of the stock market? In this article, we’ll delve into the nitty-gritty of Sensex, also known as the Stock Exchange Sensitive Index.

Defining Sensex

Sensex, a contraction of “Stock Exchange Sensitive Index,” is a stock market index that carries the crucial responsibility of tracking the performance of 30 of the most influential and liquid companies listed on the Bombay Stock Exchange (BSE) in India. But Sensex is more than just a collection of numbers; it is often hailed as a barometer of the Indian economy. Why? Because it mirrors the overall health and trajectory of the stock market and various sectors within it.

A Glimpse into History

The journey of Sensex began in 1986 when it was first launched. Since then, it has been diligently managed by Standard & Poor’s (S&P), a prominent name in the financial industry. Over the years, Sensex has evolved and adapted to the ever-changing dynamics of the Indian stock market.

Sensex Calculation

One might wonder how Sensex’s value is computed. It employs a methodology known as the free-float market capitalization method. This approach takes into account only the shares that are actively available for trading in the market. Shares held by promoters, directors, or government entities are excluded from this calculation.

The index value is determined by dividing the total free-float market capitalization of the 30 constituent stocks by a base value. In the case of Sensex, the base value is set at 100, and the base year is 1978-79.

The Mathematical Formula

The formula for calculating Sensex is a straightforward one:

Sensex = (Total free-float market capitalization of 30 stocks / Base value) x 100

The free-float market capitalization of each stock is figured by multiplying its market price by the number of shares available for trading. The base value of 100 ensures that the index remains consistent over time.

Periodic Adjustments

To keep Sensex in tune with market realities, the base value is adjusted periodically. This adjustment accounts for corporate actions such as stock splits, dividends, bonus issues, and other factors that can influence the index’s value.

Review and Selection

Sensex isn’t static; it undergoes a rigorous review process twice a year, in June and December. The index committee of S&P BSE carries out this review, and the stock selection process is based on a set of criteria. These criteria include liquidity, impact cost, market capitalization, and revenue derived from core activities. The committee ensures that the index maintains a balanced representation across various sectors of the economy.


Sensex is far more than just a set of numbers. It’s a dynamic indicator of India’s stock market health and economic direction. As it adapts to the ever-evolving financial landscape, Sensex continues to be a pivotal tool for investors, analysts, and anyone seeking insights into India’s economic vitality.


Is investing in Sensex the same as investing in individual stocks?

Investing in Sensex represents a diverse portfolio, reducing risk compared to individual stock investments.

How often is Sensex rebalanced?

Sensex is reviewed semi-annually to ensure that it accurately reflects the stock market’s current state.

Can individual investors buy shares of Sensex?

Sensex itself is not a tradable asset. However, you can invest in Sensex-based exchange-traded funds (ETFs) that mimic its performance.

Is Nifty index fund good?

Nifty index funds are beneficial for investors seeking Indian equity market exposure, offering diversification, low expenses, liquidity, and minimal tracking error.

What is Sensex in simple words?

Sensex, or the Sensitive Index, is a market indicator of the Bombay Stock Exchange (BSE), representing 30 solid companies from various sectors, reflecting market sentiment.

What is Sensex & Nifty? 

Sensex and Nifty are market indices measuring stock performance in India, calculated using free-float market capitalization, with Sensex having 30 stocks and Nifty having 50.

How is Sensex calculated? 

Sensex uses free-float market capitalization, with the formula: Sensex = (Total free-float market capitalization / Base market capitalization) * Base index value.

How are Sensex 30 companies selected? 

An index committee selects Sensex 30 companies based on criteria such as BSE listing, large cap size, liquidity, revenue and profit growth, and sector diversity.


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