Sensex – The Dancing Beauty of Indian Stock Market

By:

M. Subramanian
Senior Faculty (Finance Area)
R.L. Institute of Management Studies
TVR Nagar, Madurai-625 022
E-mail: madurai_subbu@yahoo.co.in

Main Contribution - Backbone Support by II MBA (Finance – Batch 2004-06)
Krishnan, Gomathisankar, Anuchakravarthy, Karthikeyan, Vetrivel, Priyardarshi Bal, Alamelu, Shyamala, Abhishek Geo, Saravanan, Shaji Sameul, Sijo George, Nithya, Rampriya, Kalyana Sundara Rajan, Chandru, Selvin Anish, Arun Gobinath.
 

Introduction

'Sensex' the glamorous dancing beauty of traditional Indian stock market. In the recent past this glamorous stock market indicator dances aggressively. This paper is aimed at throwing lights on various factors that made our sensex baby to dance fast with lots of forward steps. Does the movement of Sensex or Nifty really mean any thing to the investors, fund managers, investment advisors, and last but not the least to the regulators? Do these numbers have any significance? Do they have any scientific basis? How does a layman understand these numbers? What exactly that goes into these numbers?

In recent years, indexes have come to the forefront owing to direct applications in finance in the form of index funds and index derivatives. Index derivatives allow people to cheaply alter their risk exposure to an index (hedging) and to implement forecasts about index movements (speculation). Hedging using index derivatives has become a central part of risk management in the modern economy. Securities market indexes have been constructed to give a quick answer to the question: What is the-market- doing?

What-the-Index-Means?

An index is a number, which measures the change in a set of values over a period of time. A stock index represents the change in value of a set of stocks, which constitute the index. More specifically, a stock index number is the current relative value of a weighted average of the prices of a pre-defined group of equities. It is a relative value because it is expressed relative to the weighted average of prices at some arbitrarily chosen starting date or base period. The starting value or base of the index is usually set to a number such as 100 or 1000.

Characteristics-of-a-good-Index

• A good stock market index is one, which captures the behavior of the overall equity market.
• It should represent the market; it should be well diversified and yet highly liquid.
• Movements of the index should represent the returns obtained by "typical" portfolios in the country.

SENSEX MOVEMENT IDENTIFICATION FACTORS

M. Subramanian, Senior Faculty (Finance Area), R.L. Institute of Management Studies, TVR Nagar, Madurai – 625 007. Has published several articles and papers in international (1 paper) and national level conferences (4 papers). He has more than 9 years of experience: 5 years industry & 4+ years in teaching. He now teaches Management Accounting to I MBA students and to II MBA (Finance) – Indian Capital Markets and Fundamental Technical Analysis.
Author's Qualification: B.Com, BGL, MFC, MBM, MBA, M.Phil (Mgt), DIRPM, PGDMM.
Email: madurai_subbu@yahoo.co.in

About the Backbone Students Team

Highly committed students, with a passion to learn for growth. They do lot of field study in the field of finance, to gain practical experience. These students are born to win, that as a faculty I can assure that this batch will deliver the best in the market and surely bring lot of laurels to the institute. Readers of this article can approach our students for projects and placement in the following email address.
Email: fin_rlims@yahoogroups.com (or) rlims@rlinstitutes.com
 

M. Subramanian
Senior Faculty (Finance Area)
R.L. Institute of Management Studies
TVR Nagar, Madurai-625 022
E-mail: madurai_subbu@yahoo.co.in
 

Source: E-mail September 1, 2005

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