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Making Sense of Sensex at 25000

Sensex and Saas, are two mysteries of every Gruhini’s life. Both never cease to surprise us: one does with its moods and another with its moves. Our spouse can help us handle our Saas’s mood swings, but when we ask them about Sensex moves, they end up changing their mood! But you don’t have to worry.

Your Great Gruhini has done a quick primer of what is Sensex, how it works and how it affects your life.

1. What is Sensex?

Sensex is just like your body weight. The body weight indicates your health, the Sensex is a broad indicator of the general state of stock market.

Also just as body weight doesn’t give a true picture of your bone density, basic metabolic rate etc, Sensex doesn’t give a true picture of all the stocks that are traded on an exchange. It only captures rise or fall in 30 large companies’ (such as Hindustan Unilever, Tata Motors, HDFC Bank) stock prices based on formula (based on a weighted average of market value of all shares of a company). Nifty, another popular index captures share price of 50 such companies based on a formula. There are other indices which capture share prices based on an industry, such as a banking index will track prices of banks and so on.

 2. How does it rise or fall?

The Sensex value (24,121 at the time of writing this post) is a weighted average of 30 stocks. On any given day, this value is calculated on the basis of share price movement of 30 stocks. On May 16, Sensex was up from 23,905 (previous day) to 24,121. It’s a rise of 216 points or 0.90%. All the 30 stocks’ price rose between 0.63%-11%

 3. What does the Sensex rise or fall indicate?

Stock prices can fall or rise because of on actual event, in anticipation of a specific event, or change in ownership of the company. A rise in Sensex indicates two things: good times for the company or economy is about to come. As more people chase to buy the limited quantity of shares, the price goes up.

A fall indicates that a bad news for the company or economy is on the horizon so there are more sellers than buyers.

For instance the recent rise in Sensex is being attributed to the prediction of one major political party’s win. Foreign and local investors are buying more stocks in the hope that a new government will bring new policies, new leadership and hence companies will do well.

4. Does the Sensex affect my daily life, my daily budget?

The day you read “investors gain crores in stock market” in your morning newspaper, fret not. You can still go ahead and buy broccoli or zucchini for your special menu. The price of your daily use items doesn’t get affected by the Sensex moves.

Actually it works the other way round: change in your budget can affect the Sensex. If you have to pay more for let’s say cars, television sets, the stock price of these companies could fall in anticipation of lower sales (most of us will postpone our purchase if prices go up). For instance when the excise duty on cars was reduced in the budget announced on February 16, prices of cars got reduced but the share price of car companies went up in anticipation of rise in the car sales.

 5. Can I buy shares based on Sensex movement?

Yes. You can. But don’t forget that Sensex rise doesn’t mean that shares (if not part of the Sensex group of stocks) you pick up will go up too. A stock’s price will depend on its financials also.

Hope this post helps you understand Sensex moves faster than your Saas’s mood. If not then feel free to write to us at thegreatgruhini@gmail.com

 Mini Gruhini Advice

“I recommend keeping a small budget ($100) and buy some stocks (rather than one more outfit) and watch the progress. It’s a lot of fun and makes you connect with the real Sensex out there and then buy the outfit, nonetheless”

FaceBook response posted by Mantaj Hans, a friend and a Gruhini from US.

About Rachna Monga Koppikar

Rachna aka your Great Gruhini is a finance writer with over a decade's experience in writing about personal finance matters with leading financial publications of India. As she studies to be a certified financial planner, she is also on a mission to make every woman a money savvy individual. So shed your inhibitions. Get over your money worries with The Great Gruhini. Write to her at thegreatgruhini@gmail.com

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