Intro: The activity of the Stock Exchanges is measured through Index representing the companies and their Securities price fluctuations.
Stock exchanges are known to be the Barometer of the Economy. The stock exchanges help in diverting the savings of the public from unproductive sectors, Banks, Mutual Funds etc., to the productive sector of Companies. Productive sector here means sectors and industries were the productions of goods and services are being carried out. The companies can thus raise money directly from public through the Capital Market and Stock Exchanges, instead of getting it through intermediaries. The more developed the economy of the country, the greater is the activity in its Stock Market and Vice- Versa. In modern times, the world economies and related economic factors have progressed to such a large extent, that heavy Capital investment are required in order to run an optimum size business organisation. As it is not possible for individual businessmen alone to raise such large/huge capital for investment in companies, such capital is therefore raised by dividing the Capital of such organisations into small units known as Share of a company. These shares are then issued to the general public for investments through Public issue of shares.
Business organisation’s capital can be spelt out as two types- The Own capital, and the Loan capital. The Own capital consists of Share Capital and reserves, and the Loan Capital consists of Loans- secured and unsecured, and debentures and Bonds. Hence, Stock exchanges serve two purpose; one is the open market operation which provides liquidity for the old shares and securities of existing Companies and institutions, hence also known as secondary market; and, the second which helps these Companies to raise/borrow their capital from public/ investors at large, by issuing Public issue and rights issue shares, debentures and deposits, hence also known as Primary market.
The activity of the Stock Exchanges is measured through Index representing the Companies and their Securities price fluctuations. We have taken the Data of Nifty a broad based Index of the National Stock Exchange of India to study the economic status of the Country.
NIFTY is the leading index in the Indian Stock Market that keeps the record of the large companies on the National Stock Exchange- It is the only financial product in India which has the largest ecosystem. This ecosystem comprises of onshore and offshore exchange traded funds, exchange-traded futures and options that are linked to NSE in India, CME and SGX abroad, and offshore OTC derivatives and other index funds.
The year 2008 was a period of crisis for the Stock Exchange. Nifty crashed to 3199 on Lehman Bros. & AIG Crisis on October 10, 2008. Nifty was trading around 3200 in November 2008. Since then, the Index Nifty is in uptrend for the last 72 months from November 2008 to October 2014 as indicated by the trend line. The period time period from 2010 to 2011 shows intermediate down trend which infers to poor confidence in the economy. After 2011 and up to February 2014, the Nifty shows contraction and consolidation. This infers a wait and watch period with possible hope towards betterment, of the political scenario in the country.
The mis-governance, maladministration, policy paralysis, decision deficit and galaxy of scams in the rule of UPA Government resulted in jobless growth. During this wait period, the Nifty made three attempts to go up but failed. However the trend line which had started 72 months ago still remained intact. There were two oversold occasions from 2011 onwards which infers breakdown like situation.
From February 2014 and till date the Nifty moved upwards towards upper trend line—this infers revival of confidence in Economy. The rapid approach towards upper trend line also infers that the confidence is based on promises and informs about the action that is yet to come.
The 2014 budget announced steps to raise private consumption growth as well as push growth in manufacturing and construction sectors. While these steps would help in industrial recovery, the failure of monsoon has emerged as a key risk to growth.
CRISIL (global analytical company) Research expects GDP to grow 5.5% in fiscal 2015, down from the 6% forecast earlier. The downward revision in forecast is on account of weak rainfall and consequent adverse implication for agriculture growth.
Weaker monsoons will also have a spill over impact on industry and services sector growth. Similarly, private consumption demand (especially that led by farm incomes) could dampen to some extent. The steps taken in manufacturing–steps such as extended excise duty cuts in auto, and consumer durables should bring back growth as they support private consumption demand and spruce up capacity utilisation. The Budget has also given a thrust to expansion of labour-intensive sectors such as textiles, tourism, food processing, infrastructure, construction (mainly roads) and small and medium enterprises’.
However, the Government policy to continue with some of the previous Governments policies and not provide enough funds to its thrust areas has slowed the cconomic recovery process. Non-productive expenditure (subsidies etc.), the size of deficit finance is another area of concern. V K Singh