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 run
an optimum size business organisation. It is not possible for individual
businessmen alone to raise such large/huge capital for investment in companies.
Such capital is 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 organization's
capital can be spelt out as two types one the Own capital, the other the Loan
capital. The Own capital consists of Share Capital and reserves, Loan Capital
consists of Loans, Secured and unsecured, debentures and Bonds.
Stock exchanges serve two purposes; one is
the open market operation, which provides liquidity for old issued shares and
securities, of existing Companies and institutions, hence is also known as
secondary market. And the second one when 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 is 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. CNX Nifty has shaped up as a
largest single financial product in India, with an ecosystem comprising:
exchange traded funds (onshore and offshore), exchange-traded futures and
options (at NSE in India and at SGX and CME abroad), other index funds and OTC
derivatives (mostly offshore).
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 Nov 2008.
Since then the
Index Nifty is in uptrend for the last 72 months from Nov
2008 to Oct 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
Feb. 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 have in the rule of UPA Govt. resulted in jobless growth.
During this wait period the Nifty made
three attempts to go up but failed. How ever 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 Feb. 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 the action that is yet to
come.
The 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 Research ( A global research company
) 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 Govt.’s policies and
not provide enough funds to its thrust areas has slowed the Economic recovery
process. Non-productive expenditure
(subsidies etc.), the size of Deficit finance is also an area of concern.
Published in Organiser weekly the RSS mouth piece magazine on
7th December 2014
