Sensex touches a 50,000 high; A Comprehensive Analysis

The Weekly Insights | Issue 4

A Historic High…

Sensitive Index (Sensex) was established in 1986 with a base price of 100 and touched a historic high of 50,000 on 21st January 2021 after 34 years of being in existence. This high was aided by market hulks — Reliance Industries and the Bajaj Twins (Bajaj Finservices and Bajaj Finance) amid positive cues from the global markets.

First Let’s Plunge into Important Glossary to Better Understand the Whole Event

What is BSE (Bombay Stock Exchange)?

BSE is a market where you can buy or sell stocks. It was established in 1875 and is the oldest stock exchange in Asia. In terms of market capitalization, it is the world’s 10th largest.

What is Sensex?

Sensex is a stock market index that was launched by BSE (Bombay Stock Exchange) in 1986. It assesses fluctuations in stock prices of 30 biggest companies in terms of market value, turn over, profit, etc. The value of Sensex is calculated on a per minute basis.

In simple terms, if the value of Sensex is going up, then the stock price of most companies on BSE will go up and if the value of Sensex is going down, then stock price of most companies will go down.

Sensex was introduced to give direction to buyers and sellers in terms of whether the market is going up or down. The term Sensex was coined by a stock market analyst Mr. Deepak Mohoni.

Companies included under Sensex are selected by S&P BSE Index Committee based on the following criteria:

- The company has to be listed under BSE in India.

- It must consist of large or mega-cap stocks.

- It has to be relatively liquid.

- The earnings of the company must come from its core activities.

- The company must contribute to keep the sector balanced with the country’s equity market.

What is a Session?

A session is basically one functional day of the market. E.g., Monday to Friday equate to 5 sessions.

Now that We Know Some Basic Concepts to Dissect the Rise, Let’s Go Ahead…

Important Milestones of Sensex’s Journey to 50,000

Milestone 1 — On 6th February, 2006 Sensex hit 10,000 points in 5,942 sessions.

Milestone 2 — On 29th October 2007 Sensex hit 20,000 points in 432 sessions.

Milestone 3 — On 4th March 2015 Sensex hit 30,000 points in 1,820 sessions.

Milestone 4 — On 23rd May 2019 Sensex hit 40,000 points in 1,042 sessions.

Milestone 5 — On 21st January Sensex hit 50,000 points in 415 sessions.

Reasons for the Current Rise…

- Stability in US politics and a smooth power transition from Trump to Joe Biden.

- A rising sentiment among the market players that there could be an improvement in the geopolitical environment and trade relations.

- USD 1.9 trillion proposed stimulus by Joe Biden, keeping the markets elevated as of now. Some money from this stimulus package is expected to find its way to the Indian equity market.

- Global equities at a record high.

- SEBI’s approval of the Reliance-Future deal.

- Strong rally of the domestic market. Sensex moved from 45,000 points to 50,000 points in just 35 sessions.

- Positive corporate earnings post lockdown can be seen.

- Union Budget 2021–22 will be out in 9 days that again creates an optimism in the market. Finance Minister Nirmala Sitharaman said, “This budget is going to be never like before”. Newer reforms and growth programs are expected to be announced in the new budget.

- Covid19 cases are seen to be going down. Also, commencement of the vaccination program, provides further hope and confidence to the economy.

Obstacles for the Markets…

- Though vaccinations have begun, the major concern is new mutations of the virus which might lessen the effectiveness of the vaccines which might bring down the confidence of the world markets.

- Duration of the stimulus package provided by the central banks will play a key role in the rise or fall of the markets. If banks pull the stimulus package back earlier than expected, then markets would see a correction as the money in the economy will flood back to the banks.

Closing Note…

Some experts consider this steep rise to be a bubble and some think that the market will rise further or remain at elevated levels in the near future. Only time will tell what the future holds. As of now, just sit back and enjoy the bull run.