How Indian market differ from the world
So, today let’s talk about the stock market of India and how t affects the economy?
In this article, we will be going through terms such as GDP, stock market, stocks, and economy.
Do you know?
What GDP is? How it affects the economy of any country? And what stock market is?
Well, going through this article will help you know all about it.
What is GDP and how it affects the economy?
GDP stands for gross domestic product. The economy of any country depends on the real GDP. It is goods and services produced within the borders of any country.
Do you know why India is called a developing country and America as a developed country?
Because it’s GDP growth is more as compared to India.
More is the interest rate more is the Bank deposit return.
Fact: India has more than a 6.25% bank deposit rate. It can attract more foreign capital.
To know about what stock market is? You should first be aware of what stocks are?
They are the investment that makes you partner in the ownership of an organization and as a partner, you are able to get the profits as well as losses happening to an organization according to the stocks you purchase.
A stock market is a place where all the investors intending to invest meet. Once you invest, you have a percentage of profit and loss according to the value of purchase stocks.
Through this, even a normal person can invest in the well-reputed, successful companies in the world.
According to BSE data, around 3.23 crore people invest in it.
In October 1987 social market fall by 25%
How it affects the economy?
- Investor in the company allows an organization to pay off debts and raise capital. Also, it encourages them to launch new products. This results in the effect of the overall production of the country.
- If the prices of the share drop then a person losses its part of wealth. Looking at which other investors will be hesitant in investing. And as a result consumer spending will decrease.
- Most of the pension funds invest in the market. Lowering of prices will result in the decreased future pension rates.
- During times of uncertainty, people move towards government bonds instead of shares.
India as an Emerging Market
Let me explain to you first what actually is an emerging market?
It is basically a term that represents an investment in developing countries. It can also be said as the countries experiencing good economic growth i.e. a country is having high GDP.
Nifty and Sensex
There are two great stock exchanges in India:
BSE (Bombay Stock Exchange) and NSE (National Stock Exchange)
Fact: BSE is the biggest stock exchange in the world.
In order to get to know about the economic development of the county, there is a criterion of knowing the company’s financial performance. But there are thousands of companies and it is practically not possible to track the financial performance of each company at one time. So a sample is taken which represents the whole market which is called the ‘Index ’.
BSE index called as Sensex and NSE index is called is Nifty.
Sensex is also called BSE 30 because it selects the top 30 companies from all 5500 companies on the basis of its market capitalization.
Suppose there are 2 companies X and Y
X has 250 overall shares, 200 for the general public, and 50 for management.
Price per share of x=200Rs
Total value of company=250*200=50000Rs
Before 2003 the total market capitalization was considered to select the top 30 companies but now the free flow market is considered. The difference between the two is that in free flow market management shares are not considered
So free flow market capitalization=Share for general people* price per share =200*200 =40000Rs
Similarly, suppose the free-float market capitalization value of Y company comes out to be=60000
Then Total free market capitalization of market=40000+60000=100000Rs
To calculate the Sensex ‘base index’ is taken.
Suppose we are calculating an index for 10 years for a company.
For the first year, it comes out to be=10000
So, when we consider 10000 Rs as 100 Sensex points. This is called a base index.
So, our totally free market capitalization value comes out to be 1000 Sensex points or base index.
BULL AND BEAR MARKET
When Sensex Point rise it is called a Bull market. This represents that those 30 companies are bearing a profit and are in a good demand whereas when Sensex points fall it represents that a company is undergoing a loss or is not developing. This is also called as Bear market.
Similarly in Nifty top 50 company’s average is taken. In this base, value is taken of 1000 points while calculating.
Indian market different from the world
According to the reports of June 2020, it is seen that India is emerging as the best performing market in the world. Nifty 50 raise by 35.2% in three months.
Rise and fall with the dates
Interesting Fact: India is the 5th largest economic country in the world but is still counted in developing companies. We are still dependent on FII (Foreign Institutional Investment) and FDI (Foreign Direct Investment)
How global market affects the India market?
Let’s take an example of Uber. Uber owns the majority stock of the soft bank. And Uber is a cash-burning startup. Uber subsidiary ‘uber eat’ operating in India was owned by Zomato and Zomato has major stocks of infoedge which is a part of the Indian market. So indirectly Uber, a US market company is depending on the Indian market infoedge and as a result, it is also depending on Soft bank. In this way, the global market and the Indian market are dependent on each other.
INDIAN ECONOMY DURING COVID-19: To know Click here
I have mentioned all the terms related to the stock market of India and the world, and how it affects the economy of a country. I hope this information was of some use to you.