Volatility of Sensex @ People’s Sentiment
Headquartered in Mumbai, the Bombay Stock Exchange (BSE) is the oldest stock exchange of Asia established in 1875 as "The Native Share & Stock Brokers' Association" by PremchandRoychand. BSE is a corporatized and demutualised entity, with a broad shareholder-base which includes two leading global exchanges, Deutsche Bourse and Singapore Exchange as strategic partners. BSE has facilitated the growth of the Indian corporate sector by providing it an efficient capital-raising platform. More than 5000 companies are listed on BSE making it world's No. 1 exchange in terms of listed members.
The S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive Index) commonly known as Sensex is the most popular index of BSE. Sensex captures the movement of 30 companies with largest market capitalization in BSE. It is India’s most widely tracked stock market benchmark index. It is traded internationally on the EUREX as well as leading exchanges of the BRCS nations (Brazil, Russia, China and South Africa). Sensex is not just considered as the representative of the health of companies listed in BSE but also gives an overall reflection of the health of the economy.
Factors Affecting Sensex
Sensex is directly affected by the movement the price of company shares which are part of Sensex. But the movement of Sensex is not solely dependent on these shares. Price of a share of company is representative of the health of a company. Shares of a company with good financial health and bright future would be in demand and traded at higher prices. Such equities would see upward movement till prospects of company profits are higher.
Brokers and traders at the BSE are not myopic and consider several factors which may affect the company directly and indirectly in the long term before buying or selling a share. These factors include exchange rates, oil prices, food price inflation, gold price, call money rate, Cash Reserve Ratio (CRR), Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI) etc.
Credit Policy and Sensex
Whenever, Reserve Bank of India (RBI) in its credit policy reduce the interest rates, the expected result would by a rise in Sensex because the traders at the Sensex feel that easy money policy would increase the liquidity in the market, thus funds would be easily available to the companies assisting in their future growth. Likewise in case of tight money policy, companies would have fewer funds available with them to plan future growth and thus it would have declining impact on the Sensex. It must be kept in mind that RBI follows tight money policy if inflationary forces are stronger in the economy. Thus, if the public perceives that inflation would be higher in coming days; it may negatively affect the Sensex movement.
Budget and Sensex
During the budget, if government announces rebates in corporation tax, sales tax, excise duty, customs duty, etc; Sensex would rise as such measures would help in rise in companies sales. Even in case of direct taxes, reduction of tax would always have positive impact. For instance, if income tax exemption limit is increased, it would mean that people have more disposable income in their hand which would ultimately result in the increased demand for the company’s products thus helping in the latter’s growth.
Foreign Visits and Sensex
After the US President Barack Obama visited India, Sensex scaled to new heights because it signified the greater economic cooperation between India and the United States (US). Here people perceived that closer economic cooperation between India and the US would expand the market for companies of both countries thus ushering the great economic prospects.
Political Change and Sensex
After 2004 General Elections, when Left parties provided outside support to the government, Sensex plummeted as the politics of left parties is considered as detrimental to the private sector. On the contrary when BJP won 2014 general election, Sensex rises because BJP policies are considered to be in favour of private sector. In 2004, it was evident that with left support, UPA government would be slow in reforms and thus private sector are expected to grow at slower rate while in 2014, BJP formed government on the promise of development which would ultimately affect the private sector.
The aforesaid mentioned factors are among the numerable factors which affect the movement of Sensex. The sentiments prevailing in the economy which could affect either directly or indirectly or long term or short term prospects of the private sector directly affect the movement Sensex. Currently, the falling oil prices may adversely affect the shares of oil companies but would positively affect the other companies as their transport costs would be reduced. In this case, if the public fees that oil prices will fall further in the future, shares of oil companies may fall further.
In this manner, the sentiments of the people affect the BSE Sensex. If any decision or event which the public feel would have positive implications on the corporate would cheer the Sensex. Any factor which even if merely indicates the positive impact on the private sector would boost the Sensex. Perhaps, it is because of this, Sensex is called as sensitive index. For that matter it has also been found that deliberate rumours are spread to get the desired results from the Sensex.