S&P BSE SENSEX

Considering the sector-wise break up of S&P BSE SENSEX, it is as follows:

BSE SENSEX Trends

The performance of SENSEX in 2018 has been an uncertain one, to say the least. On January 1, 2018, the BSE SENSEX was reported to be at 34,059.9 points. In the first quarter of the calendar year, it lost close to 1,500 points to descend into the 32,500 region. However, through the months of May and June, the index recovered handsomely to make record gains. By early August, SENSEX had crossed the psychologically important mark of 37,000 and the same by the end of the month had reached its 52-week high at 38,989.65.

However, the months of September and October proved to be rather disastrous for the investors. The fears of trade war, a weakening rupee, and global uncertainties added to the fall of SENSEX. Consequently, in these months, the index shed close to 10% roughly 4,000 points. As of mid-October, the SENSEX was seen gaining momentum at levels close to 34,500.

Eligibility Criteria for BSE SENSEX

For a company to be included in the BSE SENSEX, it has to fulfil the following conditions:

1. The company must be a part of the S&P BSE 100 index.
2. It must have a listing history of at least six months on the Bombay Stock Exchange and its stock must have traded every trading day during the six-month reference period.
3. The companies that meet the criteria so far must have reported revenues in the preceding four quarters.

In addition to this, the average six-month float-adjusted market capitalisation and the average six-month total market capitalisation is also calculated. The top 75 companies in the two cases are identified and then combined. Thereafter, the new list of the companies is further sorted based on the liquidity of the shares, that is, average six-month value traded.

The filtered list of constituents obtained in the above steps is then ranked based on absolute turnover considered over a three month period. Any company that has a cumulative turnover of more than 98% is excluded from the list. The remaining companies are then sorted based on average six month free-float adjusted market capitalisation.

Finally, all the companies included within the index must have an acceptable track record.

How is BSE SENSEX Calculated?

The SENSEX is calculated using the following formula:

[Free-float market capitalisation of the constituents]/[Base Market Capitalisation] x [Base Index Value]

For S&P BSE SENSEX, the base year is considered to be 1978-79, even though the index itself was compiled in 1986. Therefore, the base market capitalisation is the total market cap of the constituent companies during the base year. The Base Index Value has been set at 100 for the sake of calculation.

As for the free-float market capitalisation, it is nothing but the market cap calculated by considering only the shares which are available to the general public for trading. Please remember that free-float market capitalisation does not consider the shares held by promoters, government, corporate entities, or any such body. These are essentially the shares that will not come into the markets for trading during the normal course.

Let us understand this better with the help of the following example. For the sake of simplicity, consider that S&P BSE SENSEX has two constituent companies - A and B.

Company A has a total of 2,000 shares of which, 500 are held by promoters and other bodies while the remaining 1,500 are held by the general public. These shares available to the general public for trading. As for Company B, it has issued a total of 3,000 shares of which 2,000 are available for active trading and the remaining 1,000 are held with promoters, governments and corporate entities.

At the time of calculation of the index, assume that the stock price of Company A is Rs.10 while the stock price of Company B is Rs.20. Another assumption to make here is that the total base market capitalisation of the two companies is 35,000.

Therefore,

The free-float market cap of Company A = 1,500 x 10 = Rs.15,000

The free-float market cap of Company B = 2,000 x 20 = Rs.40,000

The total free-float market cap of the two companies = Rs.55,000.

Therefore, S&P BSE SENSEX = (55,000)/(35,000) x 100 = 157.42.

Factors Impacting BSE SENSEX

BSE SENSEX comprises 30 companies that are listed on the stock exchange. It is a well-known fact that stock markets are affected by a combination of factors. However, the human sentiment is one factor that possibly cannot be ignored and in all fairness, it cannot be quantified. There is no predicting when the markets will rise or fall but the best that we can do is mitigate the risks and prepare for it by considering the following:

1. The Gross Domestic Product data
2. The Industrial Production data
3. RBI Repo Rates and Interest Rates
4. Inflation
5. Gold and oil prices
6. The stability of the government and political scenario
7. International developments and news
8. The performance of international markets

How to Invest in SENSEX?

Considering that BSE SENSEX has 30 constituent companies, one has to invest in the stocks of these individual companies. To go about it, all you have to do is open a DEMAT account and a trading account with any of the several stockbrokers in the country. You can also invest in mutual funds that have holdings in the companies listed in the index. Alternately, you can also look at index funds that track SENSEX. Whatever may be the case, it is strongly advised that you research thoroughly on the companies you are investing in. Happy investing!

Other S&P BSE Indices

In addition to the S&P BSE SENSEX, there are other important stock market indices concerning the Bombay Stock Exchange. These indices cover various sectors of the Indian economy such as energy, technology, metal, information technology, oil & gas, infrastructure, consumer goods, healthcare, et cetera. Some of these indices are:

1. S&P BSE SENSEX 50
2. S&P BSE 100
3. S&P BSE 200
4. S&P BSE 500
5. S&P BSE Utilities
6. S&P BSE Industrials
7. S&P BSE Dividend Stability Index
8. S&P BSE Power
9. S&P Oil & Gas
10. S&P BSE AllCap
11. S&P BSE LargeCap

Stocks vs. Mutual Funds: Here's What We Recommend

Stock market investments require a lot of research and knowledge. They do not generally offer any tax benefits and are regarded as high-risk investments. Hence,it is crucial to have a diversified portfolio. At Bankbazaar, we encourage our readers to invest on mutual funds.It doesn't require a lot of knowledge and equity linked mutual fund schemes offer tax benefits. Additionally, since mutual funds comprise stocks from multiple companies, they help in building a diversified portfolio.

DISCLAIMER:

The contents of this post/blog does not constitute financial or other professional advice nor does it imply in any manner a principal-agent relationship, and is not a professional advice on a specific financial matter.