Role of Sensex with respect to Food Inflation, Discuss
Food items being a part an essential commodity are of a great concern to each & every person on our planet Earth. So, the availability of these food items, both physical as well as economical is of great importance. At the same time to make it accessible to maximum number of individuals is also a looming challenge. The oldest stock exchange of the Asian continent i.e. BSE situated in Mumbai which was established in the late 19th century is looked upon as an indicator to the market sentiments prevailing in the Indian economy. It uses SENSEX i.e. Sensitivity Index as an indicator. It represents the performance of top 30 companies as per M Cap (Market capitalisation). These 30 companies are selected in such a manner that the SENSEX as a whole represents the whole economy. It becomes essential to consider SENSEX over the NSE's NIFTY because it uses 1978-79 as a base year, thus providing the fluctuations & variation in the market more accurately.
All the stock exchange across the world acts as a barometer, thus influencing the investor's decision whether or not to direct their investments in the respective countries. On the national side, Stock exchange alerts the investors of upcoming opportunities & challenges.
Agriculture being a primary activity has a long withstanding effect on almost all the succeeding activities in secondary & tertiary sectors irrespective of its nature (positively or negatively). Thus the production & price of agricultural commodities especially food items leaves its mark on the whole economy. The stock which derives its value from food items is looked upon as an indicator of the condition of agricultural sector in the economy.
There is a two way relation between the SENSEX & actual availability of food items in the market. Both affects each other i.e. if there is a rise in the index it may be expected that the available supply of food items is able to balance its demand. On the other hand, if there is fall in the index, demand may be exceeding the supply of food items, thus leading to the undesirable condition known as food inflation. Thus, SENSEX can be both, the cause of inflation on the one hand and the result of inflation on the other.
SENSEX being an index associated to various sector, indicates the situation of these sectors as a whole. In order to deduce the cause & effect relationship with respect to the individual sectors, other details are also needed to be considered & studied. The Government should initiate this methodology to prevent any unwanted & undesirable market sentiments as this may lead to the inappropriate volatility in the market, which, added by unfavourable climate & global turmoil may worsen the situation further.
Thus it can be concluded that the SENSEX in one way or the other affects the food inflation, but it is not the only one to do so. The care must be taken that the indicators are in accordance with the actual market conditions.
Raviraj Ghanvat
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