Stock Market- barometer of the economy

Presented by, Kumar. Anand Rama. Devi Saumyashree Smithu. Desai

 Stock market is a term used to describe all transactions involving the buying and selling of stocks issued by a company Stock market Index is used to give information about the price movements of stocks. A stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector of the market.

Stock market indices are useful for a variety of reasons

They provide a historical comparison of returns on money invested in the stock market against other forms of investments such as gold or debt. Indices help to recognize broad trends in the market It is a lead indicator of the performance of the overall economy or a sector of the economy

 The investor can use indices to allocate the funds rationally among the stocks Technical analysts use indices to predict future market

 Stock is a share of ownership in the assets and earnings of a company Shareholders are entitled to a particular percent of the firms profit after tax Value of the share is enhanced in the Stock Exchange where lot of buyers demand for them. Reflects that more wealth is generated If the same demand grows year after year, it indicates that the economy of the nation is on the growing path

Role of stock exchanges in the economy

Raising capital for businesses Mobilizing savings for investment Redistribution of wealth Facilitates capital formation

The Wealth Effect

Stock prices

Household wealth

Consumption spending

GDP

An increase in stock prices will raise GDP While a decrease in stock prices will decrease GDP

 Shares and securities traded in the Stock Exchanges act as a barometer of the economy. If the shares of most of the large companies go up on value steadily over a period it indicates that the economy is healthy. More and more investment pours into the shares from people observing this bullish trend of Stock markets.

SENSEX Vs FDI inflows

Financial year(AprilMarch) 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Total FDI inflows(in US $ Sensex million) 4322 6051 8961 22,826 34,835 26,506 4492.29 5704.29 7000-11,000 12,000-14,000 15,000-21,000(8th Jan 08) 15,644.44

Source-http://dipp.nic.in/fdi_statistics/india_fdi_index.htm

The market as the barometer for economic performance

Economic growth Low inflation Low interest rates Good employment figures Good governance Political stability

Conclusion
Although stock market is an economic indicator, it should be used in conjunction with other leading indicators such as interest rate, rate of inflation and money supply

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