Sensex BSE forecast: measuring the pulse of the Indian economy
Popularly regarded as the pulse of domestic stock markets in India, BSE Sensex is the country’s oldest stock index. First published on 1 January 1986, it tracks the movement of 30 of the largest and most actively-traded stocks on the Bombay Stock Exchange. The Sensex index history dates back to 1978, which serves as its base year with a base value of 100.
BSE Sensex has risen exponentially from 5,000 in the early 2000s to over 47,800 at the start of 2021.
On 23 March 2020, Sensex logged its highest loss ever. It shed 3,934 points and fell by 12.71% in a single day after Indian Prime Minister Narendra Modi’s announcement of a three-week nationwide lockdown to combat the spread of Covid-19.
Recovering from the pandemic a year on, the Sensex has rallied nearly 19% year-to-date. However, as uncertainties regarding the latest Covid variant, Omicron, continue, the index closed at a three-month low today (7 December).
With a vaccination drive against the pandemic underway, is this only a minor blip in recovery, or is the current bear trend expected to continue into 2022? In this article, we look at what makes the Sensex move. Read on for the latest news and analysts’ comments on Sensex predictions.
About BSE Sensex
To answer the question ‘what is Sensex index’, you should first know that the word Sensex is a blend of ‘sensitive' and ‘index’. The term was coined in 1981 by Indian stock market analyst Deepak Mohoni. This benchmark index of the Bombay Stock Exchange is managed by S&P.
Once calculated solely based on market capitalisation, the index changed methodology to the free-float capitalisation method in September 2003. The switch was enabled to include only stocks that were available to trade in the market, thus excluding promoter holding, strategic holding, government holding (if any) and shares under lock-in.
The S&P BSE Sensex is reviewed once every quarter by the Index Committee, and the rebalancing happens twice a year, in June and December. The Sensex outlook for security selection and review policy is driven primarily by the twin objectives of transparency and simplicity. Any changes in the constituents of the index have to be announced six weeks in advance of the actual implementation within the index.
As of April 2021, based on the index weight criterion, the top five constituents of the index were: Reliance Industries Limited (11.99%), HDFC Bank Limited (11.84%), Infosys Limited (9.06%), Housing Development Finance Corp (8.30%) and ICICI Bank Limited (7.37%).
The BSE Sensex Today
The latest Sensex BSE Index news is that it lost 949.32 points in a day’s trading, closing on 6 December at 56,747.14, a 1.65% fall on its previous close of 57,696.46.
All 30 constituent stocks in the SENSEX closed in the red. The three biggest drops were felt by Induslnd Bank, Bajaj Finserv and Bharti Airtel.
On Monday, Induslnd closed at 915.55, a 3.75% decrease from the previous closing price of 951.25, resulting in the highest loss within the index of 35.70 points. With adverse media reports following a whistleblower’s revelation on the company’s allegedly poor corporate governance practices, investor sentiment is low amid the company’s alleged mismanagement of ‘bad loans’.
As of October 2021, a group of senior officials at Induslnd bank wrote to the country’s central bank, Reserve Bank of India, regarding the ‘evergreening’ of loans by the bank’s microfinance subsidiary, Bharat Financial Inclusion. While the bank clarified it was a technical glitch and adopted biometric authorisation for loan disbursals, the stock continues to take the heat.
Bajaj Finserv and Bharti Airtel closed at 16,894.80 and 697.10, taking a 3.43% and 2.95% hit from their previous closing prices, respectively.
How has the BSE Sensex moved in recent times?
Ahead of Diwali, arguably the biggest Indian festival, Sensex closed at 61,765.59 on 18 October 2021. This nearly 30% upward adjustment from the start of the year reflected positive investor sentiment during the season’s festive season.
A month later, however, came the announcement for the repealing of the three controversial farm laws. The contentious farm laws, passed on 17 September 2020, were aimed at easing sourcing and boosting India’s food exports. Following year-long farmer protests resisting the entry of private players into farming and mounting pressure on the Modi-led government, the farm laws were voided on 19 November 2021.
This led to the biggest daily plunge on Dalal Street, a metonym for the financial markets of India, since April, when the nation was gripped by a deadly second-wave of Covid-19. Investors lost as much as INR7.86trn ($100bn) as the Sensex fell by 1.96%.
The highest weighted stock on the Sensex, Reliance Industries Limited (11.99%), plunged by 3.22% on 26 November 2021, following a called-off oil-to-chemicals (O2C) deal with Saudi’s Aramco.
In August 2019, Saudi Arabia’s national oil company, Aramco, signed a non-binding letter of intent to acquire a 20% stake in Reliance’s O2C business for $15bn. Valuation issues after the COP26 climate discussions in Glasgow and a subsequent decline in refining and petrochemical assets are suspected to have ended the two-year long discussions.
BSE Sensex future predictions: what do experts say?
Sensex has shown promising signs of recovery since the pandemic first struck. It started the year at 47,868.98, an 84.24% increase from 25,981.24, as of 23 March 2020. Having lost over 1,000 points on 14 different occasions in 2020, the index has come a long way in 2021.
Fiona Cincotta, a senior market analyst at Citi Index, says: “The Sensex has gained around 20% across the year as India’s recovery from the pandemic helped drive demand for stocks. A broad risk on the environment across global markets, in addition to a strong IPO environment, has boosted Sensex to 62,245, an all-time high. Whilst the index has eased off that high, further gains could still be expected in the coming year, with 70,000, not an unreasonable target, as the Indian economy continues to ramp up.”
However, the pandemic’s long-term effects cannot go unnoticed in the long run. Raghuram Rajan, the former Reserve Bank of India Governor, said in his October address at the 11th Convocation of ICFAI Foundation for Higher Education, that until a few years ago there was a hope that India would become a $5trn economy by 2025. However, after the economic setbacks resulting from Covid-19, this number is only achievable if India grows at 9% for 5 consecutive years.
Looking at current unemployment levels and market movements, a 9% growth rate seems improbable. To make matters worse, with the new variants of Covid-19 cropping up, it’s difficult to make a Sensex forecast 2022 to 2025.
Sharing a technical view on the Sensex, Milan Vaishnav, a Consulting Technical Analyst at Gemstone Equity Research & Advisory Services, says: “Sensex has violated the 18-month rising trend line pattern support and now trades below that. This trend line began from the lows formed in March 2020, and then it joined the subsequent higher bottoms.
“On the way up, Sensex is set to face resistance to this rising trend line. It is presently below the 20-week moving average that stands at 58119. It has immediate resistance at 58250 to 58600 zone. Major supports exist in the 56400 to 56200 zone. Any violation of this zone may result in incremental weakness. Broadly speaking unless the levels of 58600 are taken out, we expect the Sensex to stay in a broad consolidation with the mentioned levels acting as supports.”
Will the Sensex index go up/down?
Several factors dictate whether stock prices rise or fall, including issues with the company and broader macro-economic factors. Considering the volatile nature of the markets, there are no guarantees.
You must make your own assessment of the 30-constituent stocks of the Sensex, taking in such things as the environment in which it trades and your risk tolerance. And never invest money that you cannot afford to lose.
Does SENSEX make for a safe investment?
Safety depends on one’s risk appetite. If you wish to track a handful of top-line stocks and passively manage your investment portfolio, you could opt for SENSEX. However, in no way does tracking an index fund safeguard you against market downtrends. You should conduct your own assessment. And never invest money that you cannot afford to lose.