Stock Market- barometer of the

economy

Presented by,
Kumar. Anand
Rama. Devi
Saumyashree
Smithu. Desai
 Stock market is a term used to describe all transactions
involving the buying and selling of stocks issued by a
company

 Stock market Index is used to give information about the price

movements of stocks.

 A stock market index is created by selecting a group of stocks

that are representative of the whole market or a specified
sector of the market.
Stock market indices are useful for a
variety of reasons

 They provide a historical comparison of returns on

money invested in the stock market against other
forms of investments such as gold or debt.
 Indices help to recognize broad trends in the market
 It is a lead indicator of the performance of the overall
economy or a sector of the economy
 The investor can use indices to allocate the funds
rationally among the stocks

 Technical analysts use indices to predict future

market
 Stock is a share of ownership in the assets and
earnings of a company
 Shareholders are entitled to a particular percent of the
firm’s profit after tax
 Value of the share is enhanced in the Stock Exchange
where lot of buyers demand for them.
 Reflects that more wealth is generated
 If the same demand grows year after year, it indicates
that the economy of the nation is on the growing path
Role of stock exchanges in the
economy

 Raising capital for businesses

 Mobilizing savings for investment
 Redistribution of wealth
 Facilitates capital formation
The Wealth Effect

Stock prices  Household Consumption

wealth  GDP 
spending 

 An increase in stock prices will raise GDP

 While a decrease in stock prices will decrease

GDP
 Shares and securities traded in the Stock Exchanges
act as a barometer of the economy.

 If the shares of most of the large companies go up on

value steadily over a period it indicates that the
economy is healthy.

 More and more investment pours into the shares from

people observing this bullish trend of Stock markets.
SENSEX Vs FDI inflows
Financial year(April- Total FDI inflows(in US Sensex
March) $ million)
2003-04 4322 4492.29

2004-05 6051 5704.29

2005-06 8961 7000-11,000

2006-07 22,826 12,000-14,000

2007-08 34,835 15,000-21,000(8th Jan

08)
2008-09 26,506 15,644.44

Source-http://dipp.nic.in/fdi_statistics/india_fdi_index.htm
The market as the barometer for
economic performance

 Economic growth
 Low inflation
 Low interest rates
 Good employment figures
 Good governance
 Political stability
Conclusion
Although stock market is an economic indicator, it
should be used in conjunction with other leading
indicators such as interest rate, rate of inflation and
money supply
THANK YOU