Stock Market and Economy: Intertwined
A major index which is followed by the investor is Nifty50. Why Nifty50 is only followed?? Nifty50, first electronic trading platform launched in 1996, consist of major 50 companies, who are the leaders of their market or say market maker of their industry. When anything wrong happens with these companies, Nifty 50 starts to trade lower, investor lose faith and pull out money from the market. When anything goes wrong, FII’s are the first one to pull out money from the market, thus putting pressure on the economy.
Further, when markets are in bullish zone, it will mostly influence central bank to increase the interest rates. So, we can see interest rates are affected by the ups and downs of the market.
Stocks markets also facilitate employment level in the market, which in return have affects on the living standard and also it adds number to the GDP of the economy. When stock market is at its best, it needs brokerage houses, investment banks, commercial banks, and these financial institutions will require people to work at the optimal level and thus will employ people. We saw the effect of collapse of stock market at the time of recession, in 2008. Nifty crashed down and it had a ripple effect on the economy.
When employment increases, disposable income also increases and people will have more money to spend on, which give push to consumer activities.
It is sometimes other way round too. Changes in economy also affect the index. Let’s say consumer activities have started to pick up during festive season, which in turn increase the demand for the products , thus increasing profit numbers of the companies , so the prices of the stock increases.
Higher disposable income also leaves room for higher investment into the market. Individual may invest their money into their favourite asset class for investment, depending on their financial goals and preferred choice. In case they wish to invest in share market, they numbers of gateways available to them for investing.
To trade in share market, as stated earlier, he will need a share broker, a bank account and an advisor. There are number of share brokers in the market, who helps in share market trading and stock advisors in the plat form who help an investor to put in right amount of investment at right time at the right stock. Advisors like advisorymandi.com are reliable and genuine advisors in the market.
Economic numbers, also provide boost to the stock market. When an economy is booming and is having a GDP of above long term average, such numbers instil faith among the foreign and domestic investors. As per Ernst & Young's Global Capital Confidence Barom