Showing posts with label BSE. Show all posts

Are we ‘benching’ it right?

One of the most important ways to gauge the mood of the Indian economy is through Bombay Stock Exchange’s Sensitive Index (Sensex). While it shows if things are hunky-dory in the economy than it is also supposed to reflect the depressing state of the market.
The 30 share index is considered to be the economic barometer of the Indian capital market. Apparently, these 30 components are the largest and most actively traded stocks. These stocks are representatives of different sectors of the economy. Although they represent less than 1 percent of the total number of companies listed on the Bombay Stock Exchange yet they account for around 50 percent of the BSE's total market capitalisation.
Indian economy is defined by the small entrepreneurs and not by the big brothers. The heavyweights are well-armoured to fight a declining economy and it is the small and mid caps that truly bear the burns of rising costs of funds, power, labour etc. This is the basic reason why the market is at 22000 even after the Gross Domestic Product has fallen from 9 percent to 5 percent. The big corporates, who are considered to be the pulse of the country can easily take these things on their chin and walk straight to fight recession or may be even depression. Ironically, a steady Dalal Street is then glorified as a sign of the Foreign Institutional Investors’ re-enforced trust in India despite a crumbling economy.
Reports have shown that in the financial year 2012-13 while the ‘super 30’ earned a return of 7.45 percent, mid-cap and small companies lost to the tune of 10 and 19 percent respectively. While the Sensex fell only by 2.5 percent, mid-cap and small-cap indices have battered by 23 and 28 percent respectively.
Another limitation of the index is that out of the top 30 companies, six companies can alone alter the market because of the higher weights accredited to them.
                               Source: bseindia.com
The dominating representation of these companies has resulted in the Sensex becoming sensitive to only price movements of these companies. But are these six companies the only mirrors of the economy? Not really.
Surprisingly, two of these six companies are from the same parent company, HDFC.
Moreover, like stocks certain sectors also dominate the calculation of the Sensex.
Source: bseindia.com

Issue is not only the skewed representation of sectors but also the extreme sensitivity of the dominating sectors to changes in prices which make the index undesirably volatile.
Above all Sensex can be easily manipulated by fund managers. The index doesn’t seem to measure the economy correctly. The movement seems to misrepresent the economy as well as the stock market. A broader base and adequate representation of the small companies can make Sensex a better benchmark index.

About the author
Ritika Pradhan is a graduate in commerce and hold a diploma in Business Journalism and Corporate Communication from the University of Delhi. She has worked as the Public Relation Manager of EduKart.com and is currently pursuing English Journalism at the Indian Institute of Mass Communication. You can read more of her blogs on http://bruisedview.blogspot.in/

Markets at life high but volatile : Investment Tips

After crunching and falling to all time lows for about a year, the Indian stock market has seen nothing less than a miracle in the last fortnight. Now, whether this is a miracle for the tumbling Indian economy or for the ruling Congress led UPA government is still a question.

Despite the turmoil caused by the geopolitical tensions over Ukraine, the economic barometer of Indian economy, Sensex, has spurted to all time highs breaching the 22000 point mark. The spurt is being attributed to a slew of positive domestic factors which have ultimately led to the robust inflow of FIIs (Foreign Institutional Investors).

The positive sentiment on the Dalal Street is being attributed to the reduction in inflationary pressure, narrowing CAD (Current Account Deficit), and favourable results of the opinion polls.
While the Trade Pundits were banking on Modi as the “only hope of the stock market”, the new data have shown that even a stable third front at the Center can propel the economy to newer highs.
BSE vs NSE

The dependency of the Indian stock market on the FIIs is not a hidden fact. The unfavourable economic data being released by China and Japan have also resulted in the foreign investors banking on India.

Although brokers are betting big on this pre-election rally of the stock market, yet the market doesn’t seem to be stable. A plunge in the IT stocks led basically by the Infosys, spooked the Dalal Street on Thursday. Moreover, it is being said that any further rise in the value of rupee might be detrimental to the country’s exports on whose back the economy is seen to be reviving.

This instability in the economy does not only come from the Dalal Street but also from the vulnerabilities in Parliament. What is needed is a strong platform being built by the new government which is capable enough to carry the pressure of the internal and external turmoil and also back the national and international sentiments with stability. Now that platform can be NaMo’s ‘56 inch ki chaati’ or RaGa’s ‘deeper democratic set up’ or even the fledgling third front.