Posts Tagged ‘Economic indicators’

Lets Know About Economic Indicators :)

Hello Friends here we come up with our another write up on “SMC Gyan Series”.

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Lets Know About Economic Indicators

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Topic is “Economic Indicators”.

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Economic indicators are important as they provide an accurate account of nation‘s economy at various points of time.

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There are various types of economic indicators that deal with different periods of time and there are others that deal with separate administrative divisions like states for example.

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They are important in context of analyzing nation’s economy.

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In this Blog, we would know what are major economic indicators ?

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Major Economic Indicators :

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1. Industrial Production:

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Measures the change in the production of the nation’s factories, mines and utilities, industrial production.

Also measures the country’s industrial capacity utilization.

2. Gross Domestic Product (GDP):

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Indicates the pace at which a country’s economy is growing or shrinking.

3. Purchasing Managers Index (PMI):

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This index includes data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export and import orders.

4. Producer Price Index (PPI):

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Measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries.

The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods.

5. Consumer Price Index (CPI):

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Measures the average price level paid by urban consumers (80% of the population in major currency countries) for a fixed basket of goods and services.

6. Durable Goods:

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Measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

This figure is a useful measure of certain kinds of customer demand.

7. Employment Cost Index (ECI):

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ECI counts the number of paid employees working part-time or full-time in the nation’s business and government establishments.

8.Retail Sales:

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It is the indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.

9. Housing Starts :

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Measures the number of residential units on which construction is begun each month.

Thus to conclude Economic indicators is a tool for an investor for knowing the economic world.

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It also simultaneously a tool to smartly make money out of the sensitive movements of the financial & commodities market.

🙂

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Note : For More Latest Industry, Stock Market and Economy News and Updates, please click here

Economic Indicators

Hello Friends here we come up with our another write up on “SMC Gyan Series”.

Topic is “Economic Indicators”.

In this Blog, we would know what are major economic indicators ?

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Economic Indicators

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Major Economic Indicators :

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Industrial Production:


Measures the change in the production of the nation’s factories, mines and utilities, industrial production.

Also measures the country’s industrial capacity utilization.

.

Gross Domestic Product (GDP):

Indicates the pace at which a country’s economy is growing or shrinking.

.

Purchasing Managers Index (PMI):

This index includes data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export and import orders.

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Producer Price Index (PPI):


Measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries.

The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods.

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Consumer Price Index (CPI):


Measures the average price level paid by urban consumers (80% of the population in major currency countries) for a fixed basket of goods and services.

.

Durable Goods:


Measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

This figure is a useful measure of certain kinds of customer demand.

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Employment Cost Index (ECI):


ECI counts the number of paid employees working part-time or full-time in the nation’s business and government establishments.

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Retail Sales:


It is the indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.

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Housing Starts:


Measures the number of residential units on which construction is begun each month.

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🙂

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Thus to conclude Economic indicators is a tool for an investor for knowing the economic world.

It also simultaneously a tool to smartly make money out of the sensitive movements of the financial & commodities market.

.

🙂

Note : For More Latest Industry, Stock Market and Economy News and Updates, please click here

ECONOMIC INDICATORS… “Leading the World” Final Part

Hello Friends here we come up with an extension of our previous blog,

ECONOMIC INDICATORS… “Leading the World” Part 2.

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Economic Indicators - Leading the World Final Part

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In previous Blog, we had touched upon the classified categories of Economic indicators in details and about Time Era.

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Now in this final part we would know what major economic indicators are!!

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Major Economic Indicators :

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· Gross Domestic Product (GDP):


Indicates the pace at which a country’s economy is growing or shrinking.

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· Industrial Production:


Measures the change in the production of the nation’s factories, mines and utilities, industrial production also measures the country’s industrial capacity utilization.

.

·Purchasing Managers Index (PMI):


This index includes data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export and import orders.

.

·Producer Price Index (PPI):


Measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries.

.

The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods.

.

Consumer Price Index (CPI):


Measures the average price level paid by urban consumers (80% of the population in major currency countries) for a fixed basket of goods and services.

.

Durable Goods:


Measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

This figure is a useful measure of certain kinds of customer demand.

.

Employment Cost Index (ECI):


ECI counts the number of paid employees working part-time or full-time in the nation’s business and government establishments.

.

Retail Sales:


It is the indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.

.

Housing Starts:


Measures the number of residential units on which construction is begun each month.

.

🙂

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Thus to conclude,

Economic indicators is a tool for an investor..

for knowing the economic world & simultaneously smartly making money out of the sensitive movements of the financial & commodities market.

.

🙂

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Note : For More Latest Industry, Stock Market and Economy News and Updates, please click here

Economic Indicators – Leading the World Part 2

Hello Friends here we come up with an extension of our previous blog, ECONOMIC INDICATORS… “Leading the World” Part 1.

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🙂

Economic Indicators - Leading the World Part 2

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In previous Blog, we had touched upon the aspect like

what are Economic Events & Indicators and important sources of data provider for calculating & determining economic indicators.

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However in this Blog, we would try to know about the classified categories of Economic indicators in details and what is Time Era.

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Classified Categories:

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1. Leading indicators:

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These indicators are to forecast trends of the overall economy.

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The indicators included in the figure are:

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interest rate spread, M2 money supply, average manufacturing work week,

manufacturers’ new orders, S&P 500, average weekly unemployment claims,

vendor performance, housing permits, consumer expectations and

manufacturer’s new orders for non-defense capital goods.

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2. Lagging indicators:

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An indicator to generate transaction signals or to confirm the strength of a given trend.

It is a measurable economic factor, for example, corporate profits or unemployment that changes after the economy has already moved to a new trend.

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3. Coincident indicators:

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It provides information on the current state of the economy.

For example, coincident indicators move up when GDP is growing and down when GDP is shrinking.

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This indicator varies directly with, and at the same time as, the related economic trend.

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The four economic statistics comprising the Index of Coincident Economic indicators are

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– Number of employees on non-agricultural payrolls,

– Personal income less transfer payments,

– Industrial production,

– Manufacturing and

Trade sales.

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Time Era:

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Knowing when each piece of information will be released is important to successful trading.

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The economic calendars are found on many websites.

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These figures helps to decide how to trade using these events, it can help explain unanticipated price actions during those periods.

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These indicators play a vital role in determining the trend or movement of the stock market & the commodities futures.

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It has been seen many times that when a positive data of these indicators like GDP or Industrial Production comes into picture & looks promising,

the trade of currencies like Euro, USD, INR; precious metals like Gold, Silver, base metals of Copper, Zinc, Lead show a positive move & short-term rally immediately.

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Stay Tuned for more and more on this 🙂

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However For More latest Industry,Stock Market and Economy News Updates, Click Here

ECONOMIC INDICATORS… “Leading the World” Part 1

Hello Friends here we come up with our another write up on “SMC Gyan Series”.

 

Topic is ECONOMIC INDICATORS… “Leading the World”.

Here, we would go through the Brief of like what are Economic Events & Indicators and important sources of data provider for calculating & determining economic indicators.

🙂

 

ECONOMIC INDICATORS… “Leading the World”

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Economic Events & Indicators are statistics that precede an economic event.

 

The goal is to track the economy & derive a forecast for future performance.

 

Economic indicators have tremendous potential to generate volume and to move prices of commodities futures as well as the financial markets including Forex.


Tools of Construction: This would include separate sections of statistical methods including

– Calculating indices and re-basing them,

– Differences between arithmetic and geometric averages,

– Standard deviations,

– Regression analysis,

– Correlation and causation,

– Margins of error in statistics calculations and

– What this means for interpretation, subsequent revisions and why they happen.

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Economic indicators include various indices, earnings reports, and economic summaries.

 

Examples : unemployment rate,  housing starts,  Consumer Price Index (a measure for inflation),  Consumer Leverage Ratio,  industrial production,  bankruptcies,  Gross Domestic Product,  broadband internet penetration,  retail sales,  stock market prices,  money supply changes etc;

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The important sources of data provider for calculating & determining economic indicators are like:

– Bureau of Labor Statistics,

– Census of Construction Industries,

– Bureau of Economic Analysis &

– Reserve Bank.

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The value of the indicator data is considered important if it presents new information, or is instrumental to drawing conclusions which couldn’t be drawn under other reports or data.

 

Each indicator is marked with “H”-“M”-“L” (High-Medium-Low), according to its level of importance, as commonly considered.

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Next Blog we would try to know about the classified categories of Economic indicators in details and what is Time Era.

Stay Tuned for more and more on this 🙂

 

However For More latest Industry,Stock Market and Economy News Updates, Click Here

RBI And Its Policies – Part 1

Hello Friends, last month we witnessed loads of action with the RBI’s monetary policy being laid down.

However here we bring more on the RBI policies and projections.

RBI policies and projections

RBI policies and projections

 

The Reserve Bank of India (RBI) laid the groundwork on Tuesday i.e. on 27th Oct in its monetary policy for a rise in interest rates by tightening credit to the commercial property sector, lifting its inflation forecast and warning of the threat of asset price bubbles.

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The RBI had injected in massive liquidity in the banking system in the past one year or so to help revive the domestic economy in the aftermath of the global financial crisis.

For now, the Reserve Bank has decided to keep the policy repo rate unchanged at 4.75 per cent, the reverse repo rate unchanged at 3.25 per cent and the (Cash Reserve Ratio) CRR of banks unchanged at 5 per cent of their (NDTL).


The following measures constitute the first phase of ‘exit’:

– The Statutory Liquidity Ratio (SLR), which has earlier been reduced from 25 per cent of NDTL to 24 per cent, is being restored to 25 per cent.

-The limit for export credit refinance facility, which was raised to 50 per cent of eligible outstanding export credit, is being returned to the pre-crisis level of 15 per cent.

The two unconventional refinance facilities:

(i) special refinance facility for scheduled commercial banks; and

(ii) special term repo facility for scheduled commercial banks [for funding to Mutual Funds (MFs), Non-banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs)] are being discontinued with immediate effect.

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Further, the liabilities of scheduled banks arising from transactions in Collateralized Borrowing and Lending Obligations (CBLO) with Clearing Corporation of India Ltd. (CCIL) would now be subject to the maintenance of the CRR.

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Stay Tuned for more on this in our coming blogs.

We would cover Monetary Projections of RBI and Economy scenario and indicators at the moment.

Interest Rate Futures Section – Final Part :)

Interest Rate Futures Section Final Part

Interest Rate Futures Section Final Part

Hello Friends, we are here with the Final Part of our Interest Rate Futures educational section.
We would touch upon the benefits of the Interest Rate Futures and the future scenario related to it.

Here we go :

Key benefits of Interest Rate Futures:

Directional trading

As there is an inverse relationship between interest rate movement and underlying bond prices, so if one has strong view that the interest rates will rise in near future then he can take short position in IRF contracts and can be benefited from the falling futures bond prices.

Hedging portfolio

The holders of the GOI securities are exposed to risk of rising interest rates which in turn results in the reduction in the value of the portfolio.

So in order to protect against a fall in the value of the portfolio they can take short position in IRF.

Calendar spread trading

This spread is also known as an inter-delivery spread.

It is the simultaneous purchase of one delivery month of a given futures contract and the sale of another delivery month of the same underlying on the same exchange.

For example:

Buying a September 09 and simultaneously selling a December 09 contract.
A market participant can profit as the price difference between the two contracts widens.

The either case can also be possible.

Reduce the duration of portfolio:

Bonds with longer maturities are more sensitive to interest rate changes, and bond portfolio with longer duration will be more exposed to the vulnerability of the movement in interest rate.

So portfolio manager who is concerned about the rise in the short term interest rate risk would like to reduce the duration of the portfolio.

By entering into the IRF contract to NSE, the portfolio manager can reduce duration of the portfolio.

Arbitraging between cash and futures market:

Arbitrage is the price difference between the bond prices in underlying bond market and IRF contract without any view about the interest rate movement.

One can earn the risk-less profit from realizing arbitrage opportunity and entering into the IRF contract traded on NSE by initiating cash and carry trade.

Responses After launch:

After the launch of currency futures in August 2008, Interest-rate futures are the first major product to be introduced in India.

The interest rate futures began on August 31,2009 clocking trading volumes of Rs 276 crore in their first day of trade.

Market participants responded passionately to the product launch on the first day.

In around five hours of trading time available after inauguration, 1,475 trades were recorded resulting in 14,559 contracts being traded at a total value of Rs 267.31 crore.

In the beginning only two quarters has been introduced out of four, among which December 2009 was the most active with 13,789 contracts which has been traded actively.

There are nearly 638 members registered for this new product, out of which 21 are banks and there contribution to the total gross volume was 32.48 percent.

Future scenario:

BSE had received regulatory approval for interest rates futures and would launch in 8-10 weeks.

The Multi Commodity Exchange’s foreign exchange derivatives bourse has sought permission to launch trade in interest rate futures.

🙂

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INTEREST RATE FUTURES – Part 2

Hello Friends, just an extension of our previous blog on interest rates futures where we touched upon the topic of interest rates future and what is it exactly.

Now we would understand that why is there need for interst rate futures and many more related aspects in this regard.

Here we go :

Why Interest rate futures?

Why Interest rate futures?

Why Interest rate futures?

The risk associated with the interest rate is uncertain and it never has been constant in the past, infact it would not remain constant in future also.

The volatility of interest rates has increased manifold in the last couple of years and recorded 17.40% in 2008 as compared to 8.51% in 2007.

This high fluctuation in volatility increases risk and requires tools to manage those risks.

Interest rate futures are the product for managing such interest rate risk.

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Backbone of Interest Rate Future:

NSE, India’s largest stock exchange, began interest rate futures and offers the same reliable features as it provide to its other products with the following advantages:

Standardization and flexibility

•Price transparency and liquidity

•Leverage effect due to a wider collateral management

•Advance trading software and technological edge

•Centralized clearing supported by guaranteed settlement

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Who can be a part of it?

The major market participants of interest rate futures are

•Banks and Primary Dealers

• Mutual Funds and Insurance Companies

• Corporate Houses and Financial Institutions,

•FIIs and NRIs

• Member Brokers and Retail Investors.

In Final part of this topic (which we would cover in our next blog), we would throw light on the benefits of the Interest Rate Futures and the future scenario related to Interest rate futures.

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Stay Tuned 😉

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INTEREST RATE FUTURES – What’s That?

Hello Friends,

For past weeks we have been coming up with educational and informative inputs on topics like economic indicators, Positive Undertones in the Economy etc;

In this Blog now we would throw light on “Interest rate futures.

What is Interest Rates Future?

What is Interest Rates Future?

What are interest rate futures?

An interest rate futures contract is “an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today.”

Interest rate futures are useful to those who are willing to trade in future interest rates and would like to benefit from interest rate movements.

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The underlying instrument in this contract is 10 year National Coupon-bearing government of India (GOI) security, whereas the notional coupon is of 7% with semi-annual compounding interest rate.

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The GOI securities are the underlying assets which should have a maturity status between seven-and-a-half years and 12 years from the first day of the delivery month.

Interest Rate Futures are the most widely traded derivatives instrument in the world.

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The total outstanding notional principal amount in Interest Rate Futures is 30.09 times higher than equity index futures.

Interest rates are linked to a variety of economic conditions.

They can change rapidly, influencing investments and debt obligations.

In a market environment where long term debt issuance by the government is increasing and the demand for it is growing, there is a strong need for a cost efficient hedging instrument against interest rate.

🙂

In Next Coming parts, we would try to understand why Interest rate futures are needed, what is the backbone of interest rate futures and many more related aspects in this regard. 🙂

Stay Tuned 😉

However, For More latest Industry, Gyan, Stock Market and Economy News Updates, Click Here


Economic Indicators Part 2 :)

Hello Friends, just an extension of our yesterday’s blog on economic indicators where we talked about the categories of Economic indicators and relationship between various indicators.

ECONOMIC INDICATORS WITH A FOCUS ON STOCK MARKETS AS A LEADING INDICATOR

ECONOMIC INDICATORS WITH A FOCUS ON STOCK MARKETS AS A LEADING INDICATOR

Now in this Blog, we would look upon issues like what current economic indicators reflect about the state of Indian and global economy in coming months, factors that impact the degree of correlation and general effects of the stock maket indices(economic indicators) on the economic performance of the country.

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For Indian Markets, we can refer collected data for sensex growth, GDP growth and IIP index growth for 40 quarters over the last decade i.e FY99-FY09.

On the basis of the observation, it is analyzed that there is a correlation between the indicators; however, there is a time lag of at least 3 months between the sensex performance and economic indicators performance.

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Out of the 40 time periods being observed, the time lag and the correlation has been reflected in 80% of the cases.

Therefore, on the basis of the study, we can conclude that Indian economy might witness a revival over the next 3 to 6 months.

However, the Indian stock market indices are not only the reflection of the expectation of India Inc performance; the Indian markets are highly influenced by FII inflow too.

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Thus, Indian markets not only indicate the future economic conditions of the country but the global liquidity conditions too.

Therefore, if the stock market improvements that started towards the end of the first quarter of 2009 can be further sustained, it may be an indication that economic activity levels might start to improve towards the end of 2009 / beginning of 2010 backed by the correlation theory and time lag of 6 months to 1 year.

The Leading effect of the stock maket indices on the economic performance of the country can be rationalized on the following basis:

1) Futuristic approach of stock prices

Current stock prices reflect the expected operational performance of industry. The price of a stock equals the present value of future dividends.

Hence, stock prices should rise because of higher expected corporate profits, giving the rate of return used by investors to discount future earnings.

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Since investor’s expectations about corporate profits depend on expectations about the prospective state of the economy, then stock prices should rise or fall before the actual rise or fall of general economic activity and corporate earnings.

Thus, the stock market is forward-looking, and current prices reflect the future earnings potential, or profitability, of companies.

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Since stock prices reflect expectations about profitability and since profitability is directly linked to economic activity, fluctuations in stock prices are thought to lead the direction of the economy.

If the economy is expected to enter into a recession, for example, the stock market will anticipate this by bidding down the prices of stocks.

2) Wealth Creation Effect

The “wealth effect” is also regarded as support for the stock market’s predictive ability.

Since fluctuations in stock prices have a direct effect on aggregate spending, the economy can be predicted from the stock market.

When the stock market is rising, investors’ wealth increase and they spend more.

As a result, the economy expands.

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On the contrary, if stock prices are declining, investors experience a decrease in wealth levels and spend less.

This results in slower economic growth.

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However, the factors that impact the degree of correlation are:

the variability in interest rate,

the money supply,

the rate of inflation and

the degree of confidence of market participants regarding the state of the economy.

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Thus, although the stock market is relatively reliable as a predictor, it should be used with caution and in conjunction with other leading indicators in forecasting the turning points of business cycle.

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We can also rationalize the view of 97% economists that U.S economy will be out of recession by end of CY2009.

🙂

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