Sometimes we get attracted to something out of curiosity rather than interest. A shop has opened in our vicinity by name “Mensexchange”. You see, though it sells only men’s apparel, there is no denying that people are curious about what is it really upto?!. The shop is getting lot of attention from the onlookers.
BSE “Sensex” is one such term which attracts millions of people. We have seen many people around me who started exploring more out of curiosity and have now become regular players in the markets
We believe that any complex things can be simplified with the help of an example. Let’s take example of Indian cricket team to understand the meaning of sensex.
When somebody says, “Indian team is in great form and is expected to win against Australia”, what does he mean?Does he mean that everyone out of a billion Indians can play better cricket than somebody from Australia?
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He only means that, the 11 best cricketing talents of India are performing better than the ones of Australia. These 11 players are representation of the cricketing talent of India.
Now on the similar lines, it is easy to understand that 30 best companies of India represent the health of country’s economy.
An Index was formed taking the share price of each these 30 companies on a predefined manner by the Bombay Stock Exchange (BSE) and it was called SENSitivity indEX (SENSEX). So going by the definition, we can say that SENSEX is abbreviation for Bombay Stock Exchange’s Sensitivity Index.
The credit of coining the term SESNEX goes to Mr. Deepak Mohani
But why sensitive? Because the index moves according to share price of individual companies.
Indian team’s performance is sensitive to performance of each player, right?
Now, whenever you hear “Sensex crashed 1000 points today” as breaking news, what can you make out of it?
For this, for sake of simplicity assume that sensex is comprised of a single company whose share price is at Rs2000. Hence the value of the sensex is also 2000. Now the company was making profit of Rs200 previous year and expected good result this year also. But today it announces that it could able to make only Rs100 this year. Everyone holding the shares starts selling them and the price reduces to Rs1000. Thus sensex, which is sensitive to share price of the company plunges 1000 points.
In real case, sensex is cumulative movement of individual share prices. One of the player in the team may be struggling with the form, but the team could still be winning, you see.
OK, We understood meaning of Sensex, But why do we need Sensex?
1) Simple, you select your best team and compare with the 11 best talent of Australia and bet in. Similarly indices of two countries provide the tool for investors (Foreign investor especially) to chip in
2) Few years back there was a online game called “Super selector”. You could select your own team and check your team performance with others. The Sensex is used as benchmark to compare with your portfolio. If you could beat the performance of sensex, your companies fared better that the top 30 companies of the country!. It shows your stock picking ability. Now you can understand why all the Mutual fund managers always thrive to beat sensex!
This is all regarding the meaning of Sensex in simple words and its uses. Following are the top 30 talents of Indian economy as on Today
Sr No Company Name
*Also Read: Top 10 Stock Brokers Of India
How did you get attracted to sensex? what was your first impression, let us now through comments!
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