Sensex and The Economy

Sensex and the Economy
Sensex and the

Economy
INSIDE
GDP 2021-22
India's real gross domestic
product (GDP) growth in
2021-22 was 8.7% after
adjusting for inflation
__
Project GDP
The IMF had cut India's
gross domestic product
(GDP) growth projection
for 2022 to 8.2% from 9%.
The growth projection for
2023 is 6.9%
__
Sensex - BSE
31 Mar 2021 – 49,509.15
st
31st Mar 2022 – 58,568.51
Introduction
T
he term Sensex refers to the standard indicator of the Bombay Stock Exchange (BSE) in India.
It is comprised of the 30 largest and most actively traded stocks on the BSE and provides a
measure of India's economy. It is float-adjusted & also weighted market capitalization. The
Sensex is reviewed semiannually each time in June and December. Created in 1986, the Sensex is the
oldest stock indicator in India and is operated by Standard & Poor's (S&P). Shareholders & Investors
use it to observe the cycles of India's economy and the development and decline of some companies. As
of Aug. 31, 2021, the mean total request cap of the indicator was 3.71 trillion rupees.
The Sensex is calculated using a free-

float capitalization system. This system
is analogous to the request-capitalization
weighting system, in which companies
are ladened according to their share of
the total request capitalization of the
index. As similar, Sensex gives further
weight to the largest companies within its indicator. But unlike the request-capitalization system, the
free-float capitalization system only takes into account shares that are freely available to be traded, as
opposed to defined shares Sensex View 2012 – 2022
or those held by companies’ interposers.

SENSEX is the longhand for the Indian stock market and it's a good index of how the Indian economy is
performing. Infact, economists believe that the SENSEX is a commanding index. This implies that the
development of the SENSEX will foresee the presentation of the Indian economy.
What is the problem and why the study is important?

Why Is Sensex Rising When the Indian Economy is in retardation?
Why is Sensex rallying despite the poor health of the Indian Economy?
T he Sensex hit a continuance high while the Nifty soared past certain limit. But, the Indian
Economy is in a state of retardation with the GDP growth rate declining every day.
This appears to the stocks is supposed to be an index of the state of the Indian Economy & numerous
believe that the stocks have a positive relationship with the GDP growth rate.
But is this the real picture?
Several studies have looked up at GDP growth rate and stock market indicators over different time ages
and geographical locales and have observed that there's either no correlation between the two, or there's
a veritably low degree of correlation, while some compliances suggest a negative correlation between
the two. So, Study is needed on how Sensex is related to the Indian Economy or if there's no relation
between both of them.
Analysis based upon the study that -

Does Sensex really depicts Indian Economy in any way?
S
ensex and other stock market indicators represent only companies that have a larger
capitalization. Indeed, if many companies in Sensex do well in terms of earnings, it reflects
well on the indicator.
The reason behind this abnormality is that the investors are looking to invest in large companies amidst
the retardation. This has made many stocks really precious, and as a result, the Sensex has gone
through the roof. During a period of highly profitable growth, investors are auspicious about returns &
eye for better future returns. Hence, they're willing to pay any price to share in the anticipated
gains. As a result, they end up purchasing overpriced shares and get fairly low returns in the future,
indeed in this case even if the growth rate increases, the Sensex falls
Another primary reason is the growth of globalization and multinational pots. These companies decide a
large part of their profit from requests outside their pocket. Hence, an increase in the share prices of
these companies may not be reflective of the original condition of the economy, and nor will they
inescapably profit from the original condition of the Indian Economy
Further, there are certain sectors in the Indian economy that are largely competitive and have a low-
profit periphery. Any attempt made by them to ameliorate their technology will monstrously profit the
consumers and the money market in the long run. But it'll hardly add any value to the company’s share
prices, because of the low-profit periphery. Hence, Sensex will go down indeed in a period of high
profitable growth.
But the most important reason behind the ‘incongruity’ is that stock market indicators like Sensex make
upon investor sentiment and stop-gap. This stop gap and sanguinity depend upon a number of factors
like significant profitable opinions and decisive political leadership. The stock market can increase
indeed before factual growth is delivered and as mentioned before, these indicators comprise some of the
largest enterprises in the country, which may not be affected by profitable retardation. Hence, people
prefer to play safer bets by investing in them.
Discussion of the issue
S
everal factors have told the rise in Sensex, indeed as the Indian Economy is floundering. The
investors are positive that they will get some good returns on their investment owing to the way
taken by the RBI and the government in the once six months. These ways include drop-in repo
rate to meet demand, commercial duty cut, easing of FDI morals, GST cut in some parts &
recapitalization of PSU’s. There’s a global dimension to it as well. The reduction is anticipated to

increase borrowings by diligence, performing in goods getting cheaper. This will hopefully increase
demand in the Indian Economy.
The government had blazoned a cut in

commercial duty. For new manufacturing
companies, the duty will be reduced. This
has been reflected in the earnings of
companies. Further, the government will
ease the burden of cargo upon foreign
institutional investors. Due to the awful
low-interest rates in numerous countries,
dealers are willing to invest in arising
countries like India.
Economic Survey of India- Ministry of Finance
Dealers and investors are hopeful that the government will take a stronger way in the coming many
months. They anticipate a cut in particular income rates, GST rate cut, and labor and land reforms
among.others.
These opinions will take time to impact the Indian Macroeconomics condition for the future, but
investors are nonetheless suspicious about the prospects. Indeed, in the case of recession, the stocks
market.increases.
Hence, the stock market has regard for unborn prospects in its prices.
Conclusion and Suggestions
A
ll said and done, there probably won’t be a direct correlation between the stock market and
the Indian Economy. It's futile to defend the current political leadership and the profitable
retardation using the stock market indicators.
Numerous fund directors use the Sensex as the standard indicator for measuring and showing the
performance of schemes of their finances. These schemes don't replicate stocks in the indicator, barring
cases of indicator finances that have stocks nearly in the same pattern as the indicator. It's veritably easy
for fund directors to manipulate the performance of their schemes operating against the Sensex because
of limitations similar to the slanted distribution of the sectors and stocks in the Sensex. It's a different
story that numerous fund directors still find it delicate to beat the standard indicator.
The Sensex doesn't feel to represent the Indian monetary condition rightly. The movement in the Sensex
is often misrepresented by the behavior of the Indian economic condition and the stock market. The
indicator needs to be made more broad- grounded in terms of a number of companies and sectors. Also,
arising companies should be adequately represented in Sensex.
References:
Financial Stability Report (2021, 2022): Financial Stability Unit, Reserve Bank of India, Mumbai.
Reserve Bank of India - Financial Stability Report (rbi.org.in)
BSE Sensex view of last 10 years and key take away’s.
BSE Sensex - Live Sensex and Stock Values (bseindia.com)
Economic Survey – Ministry of Finance – Govt. of India
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1793826
Economic Survey - In India’s GDP Growth Overstated?
echap10_Vol1.pdf (indiabudget.gov.in)

Sensex and The Economy

Uploaded by

Copyright:

Available Formats

Sensex and The Economy

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sensex and The Economy

Uploaded by

Copyright:

Available Formats

Sensex and the Economy

Sensex and the

31st Mar 2022 – 58,568.51

The Sensex is calculated using a free-

or those held by companies’ interposers.

What is the problem and why the study is important?

Analysis based upon the study that -

Does Sensex really depicts Indian Economy in any way?

Discussion of the issue

recapitalization of PSU’s. There’s a global dimension to it as well. The reduction is anticipated to

The government had blazoned a cut in

Conclusion and Suggestions

Reserve Bank of India - Financial Stability Report (rbi.org.in)

BSE Sensex view of last 10 years and key take away’s.

BSE Sensex - Live Sensex and Stock Values (bseindia.com)

Economic Survey – Ministry of Finance – Govt. of India

Economic Survey - In India’s GDP Growth Overstated?

You might also like