How is the rise and fall of the sensex points related to share prices?

Question

what do these fluctuating points indicate

Answer 1

Because the sensex is a value weighted index, the sensex index represents the total value of all the shares of all 30 stocks that are part of the index. To keep the size of the index reasonable, the total value is divided by fixed number. For the sensex, that number is the number that was required to make the index value start at 100 on April 1, 1979.

To demonstrate how this works, let me invent a simplified value weighted index, simpex. It will the the index of three imaginary stocks. The stocks have the following characteristics:

Stock 1: Shares outstanding = 100, price per share = 400 rs

Stock 2: Shares outstanding = 400, price per share = 200 rs

Stock 3: Shares outstanding = 1,000, price per share = 30 rs

To create an index of these three stocks that starts at 100 I would first calculate the total market value of all the stocks

(100 x 400) + (400 x 200) + (1,000 x 30) = 150,000 rs

then divide that by 100 to get 1,500 for a divisor. Hence on the first day the simplex index is 100.

The next day if the value of Stock 3 went from 30 rs to 33 rs that would change the value of the index to

(100 x 400) + (400 x 200) + (1,000 x 33) = 153,000 / 1,500 = 102.

Since 102 is 2% more than 100, I know that the total value of the three stocks increased by 2%.