Stock Market Crash and the Economy
For the past three years, the stock market has seen an unprecented rise. From languishing in the 4000s, the stock market has risen to more than 12000. Simultaneously, the Indian economy had been growing consistently at a rate of more than 8%. Different reports indicated that India and China would be the drivers of growth of the world economy.
Many experts claim that the rise in stock market is an indicator of the growing economy. It was our robust economy that had attracted foreign institutional investors (FIIs) towards the BSE. Many reasons were given for the continued FII romance with the stock exchange. However, all, of a sudden, the markets seem to be crashing. FIIs have panicked into selling, and others are following them.
All it took was the rumour of a bill on taxing stock market investors in the same way as traders are. The FM started shouting his favourite word, whenever the stock markets falls, i.e. “Conspiracy” , and denied all reports of such a tax. **Digression: The Sensex crash couldn’t have come at a worse time for the government. It coincides with the completion of two years in power, and the middle class is upset over reservations. The Congress has done poorly in two states that had gone to polls recently. The government-bashing left has just grown stronger. End of Digression **. This did not pacify the FIIs, and the Sensex continues to fall. If the stock market is indeed a function of the economy, then does it mean that are economy can sink because of a rumour?
Experts have always linked stock market boom to the boom in Indian economy. While I am no expert, I never quiet agreed with them. I have always held the belief that stock market rise is all about sentiment. If the market sentiment is good, the stock market will do well even if the economy and industry in general don’t. It has been seen time and again that a few individuals can manipulate the stock markets for their personal gains.
The market may be one of the factors that moves the economy, but is certainly no indicator of the economy. But this does not mean that the FM can relax while the market falls. The bad sentiment from the market starts affecting other sectors very soon, spreading depression. The Finmin must ensure that a positive sentiment prevails once again in the market.
Many experts claim that the rise in stock market is an indicator of the growing economy. It was our robust economy that had attracted foreign institutional investors (FIIs) towards the BSE. Many reasons were given for the continued FII romance with the stock exchange. However, all, of a sudden, the markets seem to be crashing. FIIs have panicked into selling, and others are following them.
All it took was the rumour of a bill on taxing stock market investors in the same way as traders are. The FM started shouting his favourite word, whenever the stock markets falls, i.e. “Conspiracy” , and denied all reports of such a tax. **Digression: The Sensex crash couldn’t have come at a worse time for the government. It coincides with the completion of two years in power, and the middle class is upset over reservations. The Congress has done poorly in two states that had gone to polls recently. The government-bashing left has just grown stronger. End of Digression **. This did not pacify the FIIs, and the Sensex continues to fall. If the stock market is indeed a function of the economy, then does it mean that are economy can sink because of a rumour?
Experts have always linked stock market boom to the boom in Indian economy. While I am no expert, I never quiet agreed with them. I have always held the belief that stock market rise is all about sentiment. If the market sentiment is good, the stock market will do well even if the economy and industry in general don’t. It has been seen time and again that a few individuals can manipulate the stock markets for their personal gains.
The market may be one of the factors that moves the economy, but is certainly no indicator of the economy. But this does not mean that the FM can relax while the market falls. The bad sentiment from the market starts affecting other sectors very soon, spreading depression. The Finmin must ensure that a positive sentiment prevails once again in the market.
Comments
As regards a single crash or a single rise. I certainly hope that our markets have matured enough to recover from such crashes, but my personal opinion is that the market is over valued, and correction needs to set in.