Understanding the Sensex.
What is a stock index?
1. In simple terms, it is a listing of stocks and a statistic reflecting the composite value of its
components.
2. It gives an idea if most of the stocks have gone up or most of the stocks have gone down.
3. Compiled in 1986, the Sensex is a basket of 30 constituent stocks representing a sample of large,
liquid and representative companies
4. The base year of Sensex is 1978-79 and the base value is 100.
5. The Sensex is an indicator of all the major companies of the BSE
6. If the Sensex climbs up, it means that the prices of the stocks of most of the major companies on the
Bombay Stock Exchange have gone up.
7. If the Sensex goes down, it indicates that the stock price of most of the major stocks on the BSE
have gone down
8. The Nifty represents the top stocks of the NSE or National Stock Exchange. Though there are other
exchanges, none are as popular as the two and most of the stock trading in the country is done
though the BSE and the NSE.
9. The Sensex is the most popular one and is regarded as the true reflection of the stock market by
many.
*Capital goods lead Sensex rally
Advantages of sensex rally
• Investors have pushed up the market value of Reliance Industries by $1.75 billion this week
to about $21 billion.
• Reliance Industries has the second-biggest weighting on the Sensex.
• The benefits outweigh any lingering concern over the method and timing of the corporate
split,
• Shareholders will expect to be fully compensated for the separation of the growing cellular
phone business
• The rupee has appreciated more than 10 percent in the last one year and the rally seems to
be continuing.
• Development of commodities market : Speculators and cartels can control prices of agro
and other commodities for their own gains.
• The foreign direct investments (FDI) rose sharply during December 2006 and January 2007
and the External Commercial Borrowings (ECB) also rose significantly during the same
period. This excess supply of money in dollars strengthened the rupee against the dollar.
• The rising rupee also pushes the inflation down as it results in lowering the prices of
imports particularly of oil, capital goods and basic raw material which in result reduces the
end price of commodities.(eventually It was the result of the sensex rally )
• The surprising part about this rally is that the rise is backed with volume and market
breadth. This means Indian as well as foreign investors are both pouring money in heaps
across the market
• The stock market is directly proportional to the global perception of that country, ditto
being the case for India. In long term, Indian markets are one of the most attractive in the
world and upward growth is but natural.
• This growth is not heading towards doom, but towards new peak. Some of the readers may
call me partial, but India has got most basics right, except Infrastructure.
• Indian Stock market has been scaling new peaks literally every month
• There have been 5 record single day trading sessions in this year alone including the one we
had yesterday that shot up BSE by more than 600 points
• Although, appreciation of rupees has its own plus and minuses, a common Indian man is
much richer than he was earlier.
• The growth in salaries of these middle class consumers make them attractive to companies
worldwide, making a beeline to enter India
Disadvantages of sensex rally
• The exporters are holding their nerves witnessing this seemingly uncontrollable rise against
the dollar.
• The rising inflation number . The above factors resulted in an increase in demand and a
shortage of supply, too many funds chasing too few assets, resulting in an increase in
inflation.
• RBI hiked interest rates to counter inflation.
• High interest rates led to more foreign borrowings and inflow of more dollars
resulting in the appreciation of rupee
• ’India is growing too fast and furious, it is not good. It can boomerang India back where it
all started’
• India is just not ready for this kind of growth.
• Inflation has grown at equally fast pace hovering somewhere around 6% to 7%.
• In the space of two years India has swung from a current account surplus to a deficit equal
to 3% of GDP, indicating a growing gap between demand and supply.
Reasons for sensex rally .
1. Effect of globalization : In the last few years the effect of globalization has
increased, we are now more closely connected with other economies. Change in
prices of commodities in US and Europe affect prices at home
2. Rapid credit growth : Credit growth has risen by 30 percent per year in the last three
years
3. Rise in demand : Due to high credit growth the demand of the essential goods and
housing rose exponentially
4. The rise in Indian market is partly due to on millions billions of dollars that
Foreign Institutional Investors have poured over last few months
5. The amount of FII money currently in Indian market today is more than ever.
6. Indian Rupee has appreciated a lot.
7. The potential for investment by foreign corporations in India is great. Moreover,
it is one of the most fascinating places on the face of the earth in which to do
business.
How long will the sensex rally go on ?
It's difficult to get unanimity among chart-gazers. Like astrologers, each has his own way of looking at the
future.
But the views of India's band of technical analysts are beginning to converge. Their prediction: the stock
market boom is likely to crest in the near future………
Sensex and nasdaq !!!! Why are the two rallies so similar?
1. The reason could be because the liquidity unleashed by the Fed rate cut rushed into tech stocks listed
on the Nasdaq nine years ago, while liquidity has flowed into emerging markets this time.
2. If that line of reasoning is true and Monday’s Nasdaq bubble is indeed being reincarnated in today’s
emerging markets or in the Sensex, then, going by the chart, the current rally has a lot of steam left in it
3. And if stocks move into bubble territory, valuations go for a toss. At the peak of the bubble in early
2000, the Nasdaq traded at a price-earnings multiple of around 200.
4. One last point—the Nasdaq rally was fuelled by total rate cuts of 75 basis points, the last one coming on
17 November 1998. Fed funds futures are currently showing a 42% chance of another 25 basis point
rate cut at the Fed Open Markets Committee meeting at the end of this month.
5. Now it’s up to the market to make the most of the new opportunities.
## Profit-taking checks Sensex progress ##
Rupee, Sensex and India: too fast too furious?
Sensex rally surprises and worries me: FM comments
1. Finance Minister P Chidambaram said on Friday that he was sometimes worried
about the steep rise in the Sensex, admitting to speculators partially driving the
30-share benchmark stock index. But he expected things to cool down.
2. The Sensex is being driven by copious inflows of funds from a number of
sources abroad. To some extent, speculators are taking advantage of the rise in
the Sensex,” he added.
Some comments of the most prolific technical analysts in the market
1. The Sensex has broken all resistance levels in its upsurge and we could see the index
climb to 4790 in a month and touch the 5000 levels by January 2004," says Hitendra
Vasudeo, a technical analyst at [Link]
2. However, there could be bumps on the way. Srivastava, who works for Sharekhan, the
retail-cum-online broking arm of SSKI, says that the Sensex is now entering the last wave
of the uptrend that had started from May 2003
3. Vasudeo also has a scarier note of caution: "Since 1992, the Sensex has a history of
going back to square one after touching a new high and if the Sensex breaches the 6150
level in the long term, we could probably end up where we started."
4. However, Dawoodani says that only a decisive breach of 4100 levels could prove to be
fatal.