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Finance Management | "Business Basics and Management Mantras - Taking Stock of Stock Market"

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Business Basics and Management Mantras
Taking Stock of Stock Market-Making Sense of Sensex-Part-1

- by Prof. M. Guruprasad *

Previous

Page - 2

Further the qualities which make sensex a successful and prominent indicator are:

  • A portfolio of quality Blue Chip companies
  • The only broad based Free-Float weighted index in India


  • A good proxy for overall market movements
  • Reliable benchmark for Fund Performance
  • A Good Hedging Tool
  • It is not easy to manipulate

    • What is a Index?

    An Index is an indicator that is designed to summarize the price behaviour of unique set of market goods e.g.,

  • WPI- wholesale prices of commodities
  • CPI- measures rate of inflation/ deflation

    • Index number shows comparison with a base period and Base Value e.g., Base Year 1980, Base value: 1000

    In Stock Market context, an Index represents the price behaviour of equity market.

    Further the movement of a stock Index is incluenced by varoius factors generally there are three types of news which affect stock market.

  • Company Specific news-Affects the valuation of only that company.
  • Industry Related news-Affects all the companies in that industry.
  • Economy Related news affects all companies



    • Parameters for Stock Selection

    An Ideal Index

  • Should have sufficient no.of companies to neutralize the impact of company Specific News.
  • Should be well diversified across sectors so as to neutralize the impact of Industry related News.

  • What remains is Market Risk or economy Related News which affects all the companies equally- Index should reflect this Market Risk.



    • * Contributed by: -
    Prof. M. Guruprasad is Senior Faculty for Economics, Finance and Research, with AICAR Business School Raigad / Mumbai. He has more than 15 years of experience in research and educating / training management students. He was research scholar with the University of Mumbai. Worked as Executive in the Marketing research industry. Also Conducted Workshops and Training programmes. He has published articles in various industry magazines, newspapers and has initiated many discussions on academics.

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