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BSE Sensitive Index at 4,361; at 6,497 - Views on News from Equitymaster
 
 
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  • Apr 13, 2000

    BSE Sensitive Index at 4,361; at 6,497

    On the 10th of April the Bombay Stock Exchange (BSE) revised the composition of its widely followed BSE Sensex to include the following - Satyam Computers, Zee Tele, Dr Reddy's and Reliance Petroleum. And out went - you guessed it - the old economy representatives - Indian Hotels, Tata Chemical, Tata Power and IDBI.

  • The revamped BSE Sensex - A volatile bias

    Just to put things in perspective, the BSE Sensex would have remained unchanged between 10th and 12th April had the composition not been altered. However, post alteration, the Sensex actually gained 4% and this could be attributed to the rise in the prices of Satyam, Zee and Infosys.

    Now the interesting part. What if the four technology stocks - Infosys, Satyam Computers, NIIT and Zee decline.

    Decline by 50.0% 30.0% 20.0%
    BSE Sensex 4,361 4,792 5,001
    Chg in Sensex -19.7% -11.7% -7.8%

    These four stocks command a combined weightage of approximately 40% in the markets (new Sensex). In comparison, the technology sector, which comprised just Infosys and NIIT before the reshuffle would have commanded just 20% weightage.

    The positive picture. Notwithstanding the crash in the markets, suppose these four stocks surge by 50% from their existing levels. The Sensex would appreciate by a stupendous 20%.

    Rise by 50.0%
    BSE Sensex 6,479
    Chg in Sensex 19.7%

    The new economy stocks seem to exist in a vacuum where cement, steel, hotels and what you have are not important. The BSE Sensex has made a conscious shift towards this new paradigm. It has also invited volatility.

     

     

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    Aug 24, 2017 02:32 PM

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