Sensex at 17K

Forget points and look at the percentage

Sandeep Singh

Posted online: Thursday, September 27, 2007

When the BSE Sensex, the bellwether for Indian stocks, briefly crossed another rubicon — 17,000 — today, the usual round of celebrations followed. From the perspective of sentiment and valuations, the rise from 16,000 to 17,000 holds a lot of meaning. But mathematically, the significance of every 1,000-point increase is diminishing because of the higher base effect.

For every successive 1,000-point rise in the Sensex, the percentage increase is less and less. For instance, 16,000 to 17,000 is a gain of just 6.3 per cent. To put it in context, when this bull run began, a 1,000 point increase in the Sensex — from 3,000 to 4,000 — was a percentage gain of 33.3 per cent. In other words, the latest 6.3 per cent rise being fawned over is one-fifth of what we started out with in 2003 (See table).
In the past, the Sensex has risen or fallen more than 6.3 per cent in a single day on several occasions, which says a lot about the quantum of this increase. Since July 25, 1990, when the Sensex closed above 1,000 for the first time, it has surged 6.3 per cent or more in a single day on 18 occasions; conversely, it has shed 6.3 per cent or more in a single day on 15 occasions.
The one impressive thing about this rise from 16,000 to 17,000 is the pace of increase. The latest 1,000-point gain has happened in five trading sessions. In absolute terms, that’s the quickest. However, this is a wrong way to assess speed, because it ignores the percentage variance of each crossing.

To factor in the percentage increase, we devised an indicator: sessions per 1 per cent gain. This shows how many sessions it took for each 1 per cent gain. At 0.8, the latest rise is the third-fastest 1,000-point increase in the history of the Sensex. Ahead of it are the Harshad Mehta-tainted increases from 2,000 to 3,000, and then to 4,000. But then, those were gains of 50 per cent and 33 per cent, respectively, and the latest one is 6.3 per cent. To iterate: forget the points, look at the percentage.

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