Until the COVID-19 pandemic crippled the global economy, India was among the world’s fastest growing large economies. The index that provides an accurate gauge of India’s economic health is the S&P BSE Sensex. Let’s find out what it is and how it works.
The Bombay Stock Exchange (BSE) was the first stock exchange in Asia. It was established in Mumbai as the Native Share and Stock Brokers’ Association in 1875. There are about 5,500 stocks listed on the exchange. But most of them are small-cap stocks. The combined market capitalization of all companies listed on the BSE was $794 billion as of May 21, 2020.
What is BSE Sensex?
The overall performance of the Bombay Stock Exchange (BSE) is measured by the S&P BSE Sensex. The term Sensex was derived from Sensitive Index in 1989. Sensex is the most-tracked stock market index in India. It was first published in January 1986 with the base value of 100. Its base year is 1978-79.
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The S&P BSE Sensex is a free-float market cap-weighted index of 30 of the largest and most actively traded stocks listed on the Bombay Stock Exchange. Investors and analysts closely monitor the Sensex because it reflects overall health of the Indian economy. In July 2001, the Bombay Stock Exchange launched DOLLEX 30, a US dollar-denominated version of the Sensex.
The Sensex has delivered an annualized return of 13.68% since its inception in 1986. However, the returns of dollar-denominated DOLLEX-30 could be much lower due to the depreciation in Indian Rupee over the last couple of decades.
Some of the largest constituents of the index are Reliance Industries, HDFC Bank, HDFC, ICICI Bank, Infosys, ITC, Kotak Mahindra Bank, and Tata Consultancy Services.
How to invest
The American Depository Receipts (ADRs) of several BSE Sensex constituents are listed in the US. They include HDFC Bank, ICICI Bank and Infosys. But if you want to have greater exposure to Sensex, you can invest through India-focused exchange traded funds (ETFs).
The most popular India-focused ETFs trading in the US are the iShares MSCI India ETF (INDA), WisdomTree India Earnings Fund (EPI), and iShares India 50 ETF (INDY).
It’s easier for the foreign institutional investors (FIIs) than retail investors to invest in Indian markets. India doesn’t allow foreign individual investors to invest directly in the Indian markets. But high net-worth individuals can register themselves as a sub-account of an institutional investor to invest in the country.