Most people who understand the stock market know that the Bombay Stock Exchange (BSE) is one of the most reliable barometers of the Indian stock market. This free-float market-weighted stock market index is known as the BSE Sensex. In this article, you will learn what is BSE Sensex.

Basically, the BSE index evaluates the performance of thirty different financially sound and well-established companies. Moreover, the Bombay Stock Exchange also lists these companies.

Interestingly, it was the 25th of July 1990 when the Sensex first touched the four-digit figure. What highlights this growth is on the 3rd of July 2024, the Sensex crossed the 80,000 mark with an all-time high of 80,074. This shows how the Indian stock market has grown over the past few years and highlights its true potential.

With the help of the BSE Sensex, you evaluate the price movements of different stocks to understand the general sentiment of the market. 

So, let’s dive into the details to better understand how all these things work!

What is BSE Sensex All About?

The Sensex is short for the Stock Exchange Sensitive Index. Whereas BSE stands for Bombay Stock Exchange. However, this name is no longer in use. Only the term BSE is applicable when you are talking about Sensex in India. This represents the Bombay Stock Exchange’s stock market performance, also known as the country’s benchmark stock market index.

This index will give you a complete overview of the performance of BSE’s top 30 biggest and most traded stocks. This is a great way to measure the overall performance of the Indian stock market, helping investors make informed decisions accordingly.

Basically, in India, BSE’s benchmark index is the Sensex. By learning about the stocks in the BSE, you can get a good idea of the Indian stock market as well as the economy in general. Primarily, the Sensex depends on float adjustment and market capitalization. Hence, it reflects the situation of Indian markets.

Generally, the S&P Index Committee reviews the Sensex semiannually (twice every year). This happens in June and December. Currently, the Sensex is the oldest stock exchange in India (running from 1986). The operator of BSE Sensex is Standard & Poor’s (S&P).

Whether you are an analyst or an investor, you can use the BSE Sensex to observe how Indian markets work. Also, you can get a better idea of the cycles of the Indian economy. Moreover, you can also understand the decline or development of industries in India.

Companies Present in the BSE Sensex

Some companies that are present in the BSE Sensex include:

• Reliance Industries
• Tata Consultancy Services
• HDFC Bank
• Tata Motors
• ICICI Bank
• Infosys
• State Bank of India
• Hindustan Unilever
• ITC
• HCL Technologies
• Bajaj Finance
• Bharti Airtel
• Maruti Suzuki
• Tech Mahindra, and more.

What Is BSE Sensex Listing Criteria?

Generally, the Sensex denotes the top 30 companies in the Indian market and lists them on the BSE Index. Actually, these companies are some of the biggest companies in India and have some of the best stocks for active trading.

However, the S&P BSE Index selects which companies to include in the BSE list. The following are some of the major criteria for selecting companies in the BSE Sensex:

1. The company must be among the “listed companies” of the BSE.

2. The company’s stocks mostly include large or mega-cap stocks.

3. Generally, those stocks are relatively liquid in nature.

4. Most of the earnings of the company in question must come from the core activities of the Indian economy.

5. The company generally contributes to maintaining a balance between the country’s equity market and the sector it operates in.

How Does the Sensex Work as a Sentiment Indicator in the Market?

People often refer to the BSE Sensex as the mood barometer of the Indian stock market. Interestingly, this is not untrue in any way whatsoever. This is because the BSE Sensex is a genuine and reliable indicator of the investor’s sentiment towards the stock market.

Moreover, it gives you an insight into the investor’s sentiment towards individual companies, specific sectors, and the overall economy.

So, let’s break down how the Sensex sentiments give you a genuine idea of the overall stock market:

Bearish Sentiment

The bearish sentiment about the BSE Sensex means investors are pessimistic or cautious about the market. There could be different reasons behind this. For example, it includes factors such as geopolitical tension, economic slowdown, or disappointment in a corporation’s earnings playing their unique roles.

Bullish Sentiment

This highlights the market’s sentiment when things are moving on an upward trajectory. Generally, in this situation, investors are more optimistic about the market’s performance. Basically, this is due to higher corporate earnings, economic prospects, and potential for better returns in the future.

Most often, the market tends to go bullish when global market trends work in the market’s favor. These might happen either due to government policies or positive economic indicators.

Volatile Market

While bullish and bearish sentiments are relatively common, market volatility is another common scenario. This situation highlights a downward or upward market trend resulting from different unexpected events.

Furthermore, these events could be anything from political changes to natural disasters that significantly change the market. Hence, in these cases, BSE index investors will remain more cautious with their market decisions.

How to Understand the Market Sentiment Through Price Movement?

Contrary to popular belief, the general market sentiment does not always rely on the market’s fundamentals. This is why most traders use this as an indicator to measure the profit from short-term price movements. Primarily, these movements depend on the attitude of investors.

Basically, investors will analyze the market trends, use them to their advantage, and enhance their returns. You can analyze these trends, too, and trade against them or as your trading goals require you to do.

Another important thing about understanding market sentiments is evaluating the role of emotions in the entire thing. These emotional factors can often undermine other fundamental factors, making it important to analyze them beforehand.

Important Considerations While Interpreting Sensex Movements

There is no denying the fact that the BSE Sensex is one of the most reliable tools you can use to analyze market sentiment and make trading decisions accordingly. However, some areas remain where the Sensex might fall short of accuracy. As a result, there can be inaccuracies in BSE share price predictions.

This makes it important to remain mindful of some essential considerations that include:

Market Manipulation

Market manipulation is a common risk when you use the Sensex to analyze market sentiments. Oftentimes, you will find things like speculative trading influencing short-term market movements. As a result, this changes the narrative from the underlying market sentiment, resulting in ineffective trading.

Lagging Indicators

Another important consideration while using the BSE Sensex is that it is a lagging indicator. This means that Sensex only reflects past stock market events and does not predict future trends. 

You might find it challenging to base your trading decisions solely on the Sensex. This is because there is no certainty if this reflects anything from future trends.

How to Use the BSE Sensex Like a Pro?

Before we go any further, it is important to clarify that there is no perfect recipe for making the best use of the BSE Sensex. However, one thing you can do here is diversify your decision based on different metrics.

This is very important since relying solely on the BSE Sensex can be risky. To prevent risks, you have to be totally certain that there is no market manipulation or lag in the picture. However, if you use a diverse approach here, it will go a long way toward minimizing risks and using these trends to your advantage.

Final Thoughts

What is BSE Sensex? The BSE Sensex can be one of the best indices you can use to get a clear sense of the market’s unique sentiments. However, that does not mean you should rely solely on this metric. Instead, your approach must be diverse. You need to analyze other indicators to make an informed choice.

For example, the best stock screener apps, like Research360, can help you in this regard.Using this app, you can make better decisions when it comes to the latest Sensex and market movements. Also, you must remain mindful of the risk factors that come with these investments. Hence, do your due diligence and make choices that align with your long-term financial goals.

Additional Reading:

• What Are Alternative Investments?
• What Companies Are In The Miscellaneous Field?
• The Business Practices To Keep In Mind When Running A Strong Company