MACROECONOMICS

Macroeconomics is the other side of the coin called economics, microeconomics being one of
the two sides. It implements the economic theory by widening its approach, to focus on issues of
the economy as a whole unit rather than the individual units. The recent change in tax regime by
the Indian government i.e. the introduction of GST is one such example of things that fall under
macroeconomics. So let us go ahead and understand what macroeconomic theory is about.

Macroeconomics takes the larger aspect of economics on its back. It is the study of economics in
regard to aggregates of an economy. It is the part of economic theory that conceptualizes the
behaviour of aggregates of the economy and considers macro phenomenon triggered by
collective units of an economy.

It deals with generalized concepts like national income, GDP, national consumption expenditure
etc. One such example is GST, which completely reformed the government budget and altered
the consumption expenditures of the economy because of change in prices. We regularly hear
terms like GDP when comparing the economic states of countries.

Macroeconomics is the study of the performance, structure, behaviour and decision-making

of an economy as a whole. Macroeconomists focus on the national, regional, and global
scales. For most macroeconomists, the purpose of this discipline is to maximize national
income and provide national economic growth. Economists hope that this growth translates to
increased utility and an improved standard of living for the economy’s
participants. Macroeconomics involves the sum total of economic activity, dealing with the
issues such as growth, inflation, and unemployment. Macroeconomics is the study of
economies on the national, regional or global scale.

Macroeconomics is a branch of economics that studies how an overall economy—the market

systems that operate on a large scale—behaves. Macroeconomics studies economy-wide
phenomena such as inflation, price levels, rate of economic growth, national income, gross
domestic product (GDP), and changes in unemployment. Macroeconomics deals with the
performance, structure, and behaviour of the entire economy, in contrast to microeconomics,
which is more focused on the choices made by individual actors in the economy (like people,
households, industries, etc.).

 Macroeconomics is the branch of economics that deals with the structure,

performance, behaviour, and decision-making of the whole, or aggregate, economy.
 The two main areas of macroeconomic research are long-term economic growth and
shorter-term business cycles.
 Macroeconomics in its modern form is often defined as starting with John Maynard
Keynes and his theories about market behaviour and governmental policies in the
1930s; several schools of thought have developed since.

Macroeconomics is the branch of economics that studies the behaviour and performance of
an economy as a whole. It focuses on the aggregate changes in the economy such as
unemployment, growth rate, gross domestic product and inflation.

Description: Macroeconomics analyses all aggregate indicators and the microeconomic

factors that influence the economy. Government and corporations use macroeconomic
models to help in formulating of economic policies and strategies.

Macroeconomics (from the Greek prefix makro- meaning "large" + economics) is a branch
of economics dealing with the performance, structure, behavior, and decision-making of
an economy as a whole. This includes regional, national, and global economies.

While macroeconomics is a broad field of study, there are two areas of research that are
emblematic of the discipline: the attempt to understand the causes and consequences of short-
run fluctuations in national income (the business cycle), and the attempt to understand the
determinants of long-run economic growth (increases in national income).

Macroeconomic models and their forecasts are used by governments to assist in the
development and evaluation of economic policy.

Macroeconomists study aggregated indicators such as GDP, unemployment rates, national

income, price indices, and the interrelations among the different sectors of the economy to
better understand how the whole economy functions. They also develop models that explain
the relationship between such factors as national
income, output, consumption, unemployment, inflation, saving, investment, energy, internatio
nal trade, and international finance.
 GROSS DOMESTIC PRODUCT
National output is the total amount of everything a country produces in a given period of
time. Everything that is produced and sold generates an equal amount of income. The total
output of the economy is measured GDP per person. The output and income are usually
considered equivalent and the two terms are often used interchangeably, output changes into
income. Output can be measured or it can be viewed from the production side and measured
as the total value of final goods and services or the sum of all value added in the economy.

Macroeconomic output is usually measured by gross domestic product (GDP) or one of the
other national accounts. Economists interested in long-run increases in output study economic
growth. Advances in technology, accumulation of machinery and other capital, and better
education and human capital are all factors that lead to increase economic output over time.
However, output does not always increase consistently over time. Business cycles can cause
short-term drops in output called recessions. Economists look for macroeconomic
policies that prevent economies from slipping into recessions and that lead to faster long-term
growth.

Bull Markets and GDP

The stock market affects gross domestic product (GDP) primarily by influencing
financial conditions and consumer confidence. When stocks are in a bull market, there
tends to be a great deal of optimism surrounding the economy and the prospects of
various stocks. High valuations allow companies to borrow more money at cheaper
rates, allowing them to expand operations, invest in new projects, and hire more
workers. All of these activities boost GDP.

In this environment, consumers are more likely to spend money and make major
purchases, such as houses or automobiles. With stock prices in bull mode, they have
more wealth and optimism about future prospects. This confidence spills over into
increased spending, which leads to increased sales and earnings for corporations,
further boosting GDP.

Bear Markets and GDP

When stock prices are low, it negatively affects GDP through the same channels.
Companies are forced to cut costs and workers. Businesses find it difficult to find new
sources of financing, and existing debt becomes more onerous. Due to these factors
and the pessimistic climate, investing in new projects is unlikely. These have a
negative effect on GDP.
Consumer spending drops when stock prices decrease. This is due to increased rates of
unemployment and greater unease about the future. Stockholders lose wealth with
stocks in a bear market, denting consumer confidence. This also negatively affects
GDP.

The stock market's effect on GDP is less discussed than the effect of GDP on the stock
market because it isn't as clear. When GDP rises above consensus or expectations of
GDP rise, corporate earnings increase, which makes it bullish for stocks. The inverse
happens when GDP falls lower than consensus or expectations of GDP decline.

What is Gross Domestic Product (GDP)?

Gross domestic product, or simply GDP, is an economic term used to
describe the total amount of goods and services produced by a country at a
given period. GDP is usually measured per year and it includes measurement
of earnings minus the costs of production. Earnings from exportation after
the costs of importation has been deducted is included in measuring GDP.

GDP is a primary indicator of an econom y’s overall health. As observed by

economists and financial experts, any growth or decline in GDP ha s a
corresponding result in the position of the stock market. When business
sectors report an increase in earnings and production, the econom y will
reflect a positive movement in the GDP. Similarl y, when the yield of goods
and services is low, the econom y turns sour as a consequence.

A nation’s currency is often dictated by the overall health of its economy. Gross Domestic
Product (GDP) is an important indicator of economic health as it represents the market value
of goods and services produced annually by that country. It measures the spending by the
nation’s government, consumers and international trade and investment and is announced
quarterly or annually. A high GDP figure means the economy is strong, but a drop in GDP
shows a weakening economy.

What is the general effect of GDP on the stock market?

Having greater equity shows a sector or business is doing well. When most
businesses present increased profits and downturn in liabilities, the
country’s GDP will expect a significant growth, indicating that its economy
is in great condition and that business is good within its sectors. In effect,
investors gain confidence in companies so they trust in the stock market
more.

Gross Domestic Product (GDP) is that the quantitative live of the overall
financial movement in an econom y. In signi ficantl y more particular terms,
GDP speaks to the money related estimation of the considerable number of
products and services created or produced in an econom y inside a timeframe
and inside a country’s land limit. Gross domestic product is measures that
help in estimating the execution of an econom y.

INFLATION
Effect of Inflation on Indian companies and the NSE stock market you may have often
noticed how the Governor of India Changes RBI Policy of India to revise its rates in times of
high inflation in the economy. These new rates are almost always followed by improvement
in the stock market prices. The market responds to some stimuli very swiftly, and will often
rise when it anticipates a sudden increase in the purchasing power of the general population.
In the same manner, when no such announcements are made by RBI, the market takes
precautions, and either the stock prices plummet, or stop increasing. Factors like globalisation
also play a part, and since Top Performing Indian companies that have an extensive
international presence often have to suffer since inflation rates vary from one country to
another. Learn to identify such factors, and you will soon find yourself being able to gauge
the NSE share market trends better, and predict outcomes with greater accuracy. Educate
yourself when it comes to all the things that drive the stock market, and you will surely
achieve greater success. A general price increase across the entire economy is
called inflation. When prices decrease, there is deflation. Economists measure these changes
in prices with price indexes. Inflation can occur when an economy becomes overheated and
grows too quickly. Similarly, a declining economy can lead to deflation.

Central bankers, who manage a country's money supply, try to avoid changes in price level
by using monetary policy. Raising interest rates or reducing the supply of money in an
economy will reduce inflation. Inflation can lead to increased uncertainty and other negative
consequences. Deflation can lower economic output. Central bankers try to stabilize prices to
protect economies from the negative consequences of price changes.

Changes in price level may be the result of several factors. The quantity theory of
money holds that changes in price level are directly related to changes in the money supply.
Most economists believe that this relationship explains long-run changes in the price
level. Short-run fluctuations may also be related to monetary factors, but changes in
aggregate demand and aggregate supply can also influence price level. For example, a
decrease in demand due to a recession can lead to lower price levels and deflation. A negative
supply shock, such as an oil crisis, lowers aggregate supply and can cause inflation.

Inflation is not good for any economy because it affects all the segments, misrepresenting
prices and threatens the clear relationship that is essential to exist between value and price of
a product or service. It exhibits a negative relationship with stock markets. It curbs consumer
savings and spending. When spending’s decreased, it automatically ruined the corporate
profits. It adversely affects the domestic currency value in the foreign exchange markets.

Impact on Sensex, Nifty

Any unexpected rise in the inflation, CPI in India, is considered worrisome for the corporates
as it takes several months for them to pass on higher input costs to consumers. Even the
customers feel pinch when goods and services become pricier. They also tend to hold less
cash in such a scenario, as inflation eats away their savings. The investors with less cash
holding tend to invest less in the stock markets during such period. They also get confused
since impact is likely to impact the economy and stock prices, however not at a same rate.
At times any rise in inflation is also considered good as it can help in stimulating growth as
seen in developed countries like the US. But it can also impact corporate profits through
higher input costs as firms stop hiring. It’s therefore much required of an investor to take
wise decisions during periods of high inflation. Different groups of stocks seem to perform
better during periods of surging inflation.
Inflation is a situation of consistently rising prices in the economy. A growing economy like
India is likely to have a certain level of inflation, but when the price rise is more than
expected, it becomes a concern. RBI increases interest rates to stem higher-than-expected
inflation or rise in prices of goods and services. Higher rates increase the costs in the
economy and reduce overall spending, bringing down demand and, hence, slowing price rise.
Other than its influence on interest rate policy, which can impact stock prices, inflationary
prices also affect corporate revenues and profit. However, the precise impact on revenues is
hard to ascertain given other factors like volume and impact of inflation on raw material
prices.
Also, inflation takes away from your annual purchasing power. If the inflation is 5%, then
your ₹ 100 at the end of the year will be worth ₹ 95. Hence, when calculating your real return
from investments, always consider the impact of inflation. Say, you expected a 12% annual
return from equity and the inflation is 5%, then your real return is 7%. Similarly, if your fixed
deposit gives 8% per annum, the real return net of inflation will be 3%.

INTEREST RATES
One of the factors that affects stock prices is expected earnings which, in turn, is affected by
interest rates as companies operate with some borrowings in their balance sheet. If the repo
rate continues to go up, banks will raise loan rates, sooner or later. This will lead to higher
loan repayment cost for corporates. Rising costs reduce the net profit, which reflects in stock
prices.
When this is applied to equity stocks in aggregate, it translates to a negative impact. Hence,
when the interest rate cycle is on an upward trend, equities are unlikely to give high returns.
The reverse happens when interest rates are cut.
Global currencies are intertwined with their country’s interest rates. As a general rule, as rates
rise, so does the currency. Central banks leading the nation’s monetary policy a key
influencers of interest rates and will use them as a way to control their currency’s value and
inflation in general. A high rate of interest encourages people to invest their cash in that
country and to do so they would need to convert to the local currency – leading to an increase
in the value of the local currency. However, if inflation becomes too high as a result, it may
drive the value of the currency lower. Interest Rate in common terms signifies a fee that you
will be charged for borrowing money, expressed as a percentage of the total amount of the
loan. Usually, our spending decisions are likewise guided by the interest burden that we
would be bearing.

Being familiar with the relationship between interest rates and the stock markets can help
investors understand how changes might have an effect on their lives, and how to make better
investment decisions.

How the Interest Rate Impacts Stocks

The interest rate that moves markets is the federal fund’s rate. In the US, the Federal Reserve
increases or decreases interest rates to fight inflation or ensure it is less difficult for
companies to borrow money. Investors have to figure out how to evaluate the impact of rate
changes in stock prices. The Fed Funds Rate is the interest rate charged to the world’s largest
banks when they lend money to each other overnight. Also known as the overnight rate, the
federal fund’s rate is the way the Fed attempts to handle inflation. Other countries’ central
banks do the same thing for the similar reason, e.g., in India RBI controls this rate and RBI
announcements also have an impact on the Indian stock market.

Shares represent parts of a business and businesses are funded by loans. As a result, a rate
rise will certainly itself decrease profitability by making their debt more expensive, cutting
into their profits. They will spend more to service their debt, which means that the capital
available for investment decreases.

So in whole, a rate rise will probably generally signify businesses are less profitable due to
increased borrowing rates.

MONETARY POLICY

The Monetary Policy often refers as the “Credit Policy” or “RBI’s Money Management
Policy”. In order to manage the demand and supply of money flow, RBI applies some of the
money managing instruments. The policy reviewed bi-monthly by the Monetary Policy
Committee. If we broadly classify the monetary policy, there are two
types: Expansionary and Contractionary.
Expansionary Monetary Policy increases the money supply by lowering interest rates. It
expands the overall economic activity, applicable mainly in recession.

Contractionary Monetary Policy helps to slow down economic growth. It basically tames the
inflation rate. By increasing the interest rates the specific monetary policy control the
excessive money flow.

The Indian stock market plays a significant role in the Indian economy. When inflation or
recession arises, RBI slows down or infuses money in the market, the stock market also
highly moves. Apart from this, with changing rates, price fluctuations happen in the stock
market. The investment policy and capacity also fluctuate as a result of the RBI monetary
policy. The central bank works as the financial head of the Indian economy. Though RBI
cannot control the stock market directly, indirectly it regulates the Indian Stock
Market through the monetary policy.

Central banks can use unconventional monetary policy such as quantitative easing to help
increase output. Instead of buying government bonds, central banks can implement
quantitative easing by buying not only government bonds, but also other assets such as
corporate bonds, stocks, and other securities. This allows lower interest rates for a broader
class of assets beyond government bonds. In another example of unconventional monetary
policy, the United States Federal Reserve recently made an attempt at such a policy
with Operation Twist. Unable to lower current interest rates, the Federal Reserve lowered
long-term interest rates by buying long-term bonds and selling short-term bonds to create a
flat yield curve.

The monetary policy is a tool with which the Reserve Bank of India (RBI) controls the
money supply by controlling the interest rates. They do this by tweaking the interest rates.
RBI is India’s central bank. World over every country’s central bank is responsible for setting
the interest rates.

While setting the interest rates the RBI has to strike a balance between growth and inflation.
In a nutshell – if the interest rates are high that means the borrowing rates are high
(particularly for corporations). If corporate can’t borrow easily they cannot grow. If
corporations don’t grow, the economy slows down.
On the other hand when the interest rates are low, borrowing becomes easier. This translates
to more money in the hands of the corporations and consumers. With more money there is
increased spending which means the sellers tend to increase prices leading to inflation.

Central banks set the country’s fiscal policy to aim for economic growth. They focus on
money supply, inflation and interest rates. This policy affects taxation, government spending
and overall budget. The monetary policies set by these banks impact the market to a large
extent which is why these are important announcements for traders to follow.

ECONOMIC INDICATORS
An economic indicator is a piece of economic data, usually of macroeconomic scale, that is
used by analysts to interpret current or future investment possibilities. These indicators also
help to judge the overall health of an economy.

Economic indicators can be anything the investor chooses, but specific pieces of data released
by the government and non-profit organizations have become widely followed.

Traders follow financial calendars to ensure they don’t miss the release of relevant economic
indicators that might signal a move in the markets. These reports are released at set dates and
times and any changes to previous reports may lead to market volatility. Some of the most
followed indicators, aside from those mentioned above, include: Unemployment Rate,
Consumer Price Index (CPI), Producer Price Index (PPI), Purchasing Managers Index (PMI),
and Home Sales and Housing Starts.

Economic Indicators Definition

Economic indicators are macroeconomic numbers that provide investors with a long-term
picture of the overall direction in which an economy is going, and help to determine in which
currency or economic sector to invest.
Decision makers, such as central bankers and politicians, rely on economic indicators to
adjust their policies and ensure that the economy is on the right track.
 UNEMPLOYMENT
The amount of unemployment in an economy is measured by the unemployment rate, i.e. the
percentage of workers without jobs in the labour force. The unemployment rate in the labour
force only includes workers actively looking for jobs. People who are retired, pursuing
education, or discouraged from seeking work by a lack of job prospects are excluded.

Unemployment can be generally broken down into several types that are related to different
causes.

 Classical unemployment theory suggests that unemployment occurs when wages are too
high for employers to be willing to hire more workers. Other more modern economic
theories suggest that increased wages actually decrease unemployment by creating more
consumer demand. According to these more recent theories, unemployment results from
reduced demand for the goods and services produced through labour and suggest that
only in markets where profit margins are very low, and in which the market will not bear
a price increase of product or service, will higher wages result in unemployment.
 Consistent with classical unemployment theory, frictional unemployment occurs when
appropriate job vacancies exist for a worker, but the length of time needed to search for
and find the job leads to a period of unemployment.
 Structural unemployment covers a variety of possible causes of unemployment including
a mismatch between workers' skills and the skills required for open jobs. Large amounts
of structural unemployment commonly occur when an economy shifts to focus on new
industries and workers find their previous set of skills are no longer in demand. Structural
unemployment is similar to frictional unemployment as both reflect the problem of
matching workers with job vacancies, but structural unemployment also covers the time
needed to acquire new skills in addition to the short-term search process.
 While some types of unemployment may occur regardless of the condition of the
economy, cyclical unemployment occurs when growth stagnates. Okun's law represents
the empirical relationship between unemployment and economic growth. The original
version of Okun's law states that a 3% increase in output would lead to a 1% decrease in
unemployment.
The Unemployment rate is described as the level of unemployed workers in the aggregate
work force. Workers are viewed as jobless in the event that they as of now don’t work, in
spite of the way that they are capable and willing to do as such. The aggregate work force
comprises of all employed and jobless individuals inside an economy.

CONSUMER PRICE INDEX

The CPI on the other hand captures the effect of the change in prices at a retail level. As a
consumer, CPI inflation is what really matters. The calculation of CPI is quite detailed as it
involves classifying consumption into various categories and sub categories across urban and
rural regions. Each of these categories is made into an index. This means the final CPI index
is a composition of several internal indices.

Consumer Price Index (CPI) is one of the most important economic indicators to examine
Inflation or deflation. It indicates the current prices of a basket of goods and services from the
perspective of the consumer.

CPI data measure the prices of the basket of goods and service of the same period in the
previous year. It shows an effect of inflation on purchasing power.

A higher than expected reading should be taken as positive or bullish for the Currency of a
particular country. Lower than expected reading is negative or bearish for the currency.

The index could be the Consumer Price Index (CPI) or Wholesale Price Index (WPI) for
indicated classes of individuals like farming labourers or urban non-manual workers. Every
one of the index is made in a particular way with a specific year as the base year and they
consider the value change over a year.

WHOLESALE PRICE INDEX

Wholesale Price Index is another important indicator to examine Inflation or deflation. The
WPI indicates the current prices of wholesale goods sold by wholesalers across the country.

Unlike CPI, In WPI we measure the Current prices of goods with base year, to show the
effect of inflation on purchasing power.

A higher than expected reading should be taken as positive or bullish for the Currency of a
particular country. Lower than expected reading is negative or bearish for the currency.
The WPI indicates the movement in prices at the wholesale level. It captures the price
increase or decrease when they are sold between organizations as opposed to actual
consumers. WPI is an easy and convenient method to calculate inflation. However the
inflation measured here is at an institutional level and does not necessarily capture the
inflation experienced by the consumer.

The Wholesale Price Index or WPI is "the price of a representative basket of wholesale
goods. Some countries use the changes in this index to measure inflation in their economies.

PRODUCER PRICE INDEX

“Producer Price Index (PPI)” is one of the major economic indicators which is a weighted
index to measure the price changes from the perspective of the producer. If you don’t know
but the Producer Price Index (PPI) was once known as Wholesale Price Index (WPI). PPI
examines three areas of production: commodity-based (commodities markets), industry-based
(manufacturing industries), and commodity-based final demand-intermediate demand.

The producer price index, or PPI, is a group of indexes that calculates and represents the
average movement in selling prices from domestic production over time. PPI is a product of
the Bureau of Labour Statistics (BLS). The PPI measures price movements from the seller's
point of view. Conversely, the consumer price index (CPI), measures cost changes from the
viewpoint of the consumer. In other words, this index tracks change to the cost of production.

There are three areas of PPI classification that use the same pool of data from the Bureau of
Labour Statistics. These three areas are industry classification, commodity classification, and
the commodity-based final and intermediate demand (FD-ID).

BALANCE OF PAYMENTS
In a globalized world, no country is self-sufficient. Every country purchases and sells goods
and services to another. This includes both public and private transactions. The balance of
payments calculates the value of these transactions. Usually, the value of the outflows should
be equal to the total inflow of money into the country. However, this is not so because
payments are sometimes delayed or paid over a longer term. For this reason, countries can
have a deficit or surplus of BOP in the short-term. A deficit is when you owe money to the
world, while a surplus is when your cash inflows exceed your outflows.
The Balance of Payments (BOP) records all economic transactions between residents of a
country and the rest of the world. The BOP account consists of Current account, Capital
account, and Financial Account.

The current account includes flows of goods, services, primary income, and secondary
income between residents and non-residents and thus constitutes an important segment of
BOP. The primary income account reflects the amounts payable and receivable in return for
providing temporary use of labour, financial resources, or non-produced non-financial assets
(natural resources). The secondary income account shows redistribution of income between
resident and non-residents, i.e. when resources for current purposes are provided without
economic value being exchanged in return (transfers).

On the other hand, the capital account comprises credit and debit transactions under non-
produced non-financial assets and capital transfers between residents and non-residents.
Thus, acquisitions and disposals of non-produced non-financial assets, such as land sold to
embassies and sales of leases and licenses, as well as transfers which are capital in nature, are
recorded under this account.

The financial account reflects net acquisition and disposal of financial assets and liabilities
during a period. Further, it shows how the net lending to or borrowing from the rest of the
world has occurred. Conversely, it shows how the current account surplus is used or the
current account deficit is financed.

The Reserve Bank of India (RBI) has been compiling and publishing Balance of Payments
(BOP) data for India since 1948. Since then, several developments have taken place both
globally and domestically.

GEOPOLITICAL FACTORS
GEO- stands for World and POLITICAL stands for international relations influenced by
geographical factors. As a whole, it refers to the different geographic influences on political
and international relations. The interconnection between world markets helps in the
transmission of the impact quite fast as we saw in the case of the sub-prime crisis in 2008.

Geopolitical factors are like beta drivers for the market, which means due to the mixed effects
of currency and equity; performance could increase volatility in the financial market.
These factors are different than macroeconomic factors. Macroeconomic factors refer to
interest rates, inflation, GDP, etc., whereas Geopolitical factors are all about global macros
that affect the market as a whole.

Geopolitical factors refer to political or geographic events that may move the markets. Civil
unrest, an upcoming election and war are some examples where a country’s politics may
impact the markets. Geo events include extreme weather conditions or earthquakes that might
affect a country’s ability to produce and distribute their goods and services. Damages from
these events would also require unforeseen expenditure to rebuild infrastructure. Trade may
also be impacted by geopolitical events – a politically unstable country might not be
considered a good trading partner. Changes in the political system may hold back the
currency’s value until things have settled down and fiscal policy is announced. War or
catastrophic events like tsunamis affect economic growth and again may depreciate the
currency. Often the more developed a country, the quicker it may bounce back from
unexpected events. The more mature markets can roll with the knocks. For emerging markets,
these events can be devastating and negative effects may be felt for some time.

SECURITIES AND EXCHAGES BOARD OF INDIA

Securities and Exchange Board of India on 12 April, 1988 aboard was set up by the Govt. of
India named as “Securities and Exchange Board of India” (SEBI), as a between time
administrative body to progress, arrange and sound advancement of securities and for saving
and protecting the interest of investors and shareholders. Before getting a statutory status
through an announcement as on January 30, 1992 the Securities and Exchange Board of India
was to work inside the general definitive control of the Ministry of Finance, Government of
India. The declaration was later changed by a law of Parliament known as the Securities and
Exchange Board of India Act, 1992. Objectives were in concurrence with the formation of
SEBI, which were for the improvement of capital market. The capital market had seen an
immense advancement in the midst of 1980’s was depicted particularly by the growing help
of general society. This regularly assists the investors in the market and market itself.
Capitalisation incited different types of acts of neglect concerning associations, experts in the
market, shareholders or investors, and others related with the securities displaying. The
powerful instances of these acts of neglect in corporate segment by the self – styled exchange
lenders, casual private game plans, device of expenses and casual premium on new issues and
non-adherence of game plans of the Companies Act and encroachment of rules and controls
of stock exchanges and posting essentials delay in movement with the offers et cetera. These
demonstrations of disregard and out of the line exchanging hones have divided theorist
sureness and copied money related pro grievances. Role of SEBI The fundamental reason
behind Securities and Exchange Board of India was created is to provide a platform to
support better exchange of securities through the securities markets. It similarly means to
reinforce competition and bolster headway. This state joins the rules and controls
associations, their interrelationships, establishments, practices, instruments and approach
framework. This state goes for tending to the fundamental necessity of the three social events
which essentially constitutes the market, viz., the patrons of securities (Companies), the
monetary pros and the market middle people. To the investors, it provides to give a business
focus in which they can irrefutably suspect bringing responsibility & accountability which
they require in an effective and efficient and very simple reasonable way. To the various
investors it certainly needs to give confirmations for their rights and premiums through
adequate, correct and genuine information and revelation of information on a reliable
introduce. To the mediators, it should offer a centred, professionalized and developing
business division with attractive and beneficial nuts and bolts so they can render better help
for the examiners and budgetary patrons.

STOCK MARKET

The stock market refers to the collection of markets and exchanges where regular activities of
buying, selling, and issuance of shares of publicly-held companies take place. Such financial
activities are conducted through institutionalized formal exchanges or over-the-counter
(OTC) marketplaces which operate under a defined set of regulations. There can be multiple
stock trading venues in a country or a region which allow transactions in stocks and other
forms of securities.

While both terms - stock market and stock exchange - are used interchangeably, the latter
term is generally a subset of the former. If one says that she trades in the stock market, it
means that she buys and sells shares/equities on one (or more) of the stock exchange(s) that
are part of the overall stock market. The leading stock exchanges in the U.S. include the New
York Stock Exchange (NYSE), NASDAQ, and the Better Alternative Trading System
(BATS). And the Chicago Board Options Exchange (CBOE). These leading national
exchanges, along with several other exchanges operating in the country, form the stock
market of the U.S.

Though it is called a stock market or equity market and is primarily known for trading
stocks/equities, other financial securities - like exchange traded funds (ETF), corporate
bonds and derivatives based on stocks, commodities, currencies, and bonds - are also traded
in the stock markets.

A stock exchange is an exchange where stock brokers and traders can buy and
sell shares of stock, bonds, and other securities. Many large companies have their stocks
listed on a stock exchange. This makes the stock more liquid and thus more attractive to
many investors. The exchange may also act as a guarantor of settlement. Other stocks may be
traded "over the counter" (OTC), that is, through a dealer. Some large companies will have
their stock listed on more than one exchange in different countries, so as to attract
international investors.[8]

Stock exchanges may also cover other types of securities, such as fixed interest securities
(bonds) or (less frequently) derivatives which are more likely to be traded OTC.

Trade in stock markets means the transfer (in exchange for money) of a stock or security
from a seller to a buyer. This requires these two parties to agree on a price. Equities (stocks or
shares) confer an ownership interest in a particular company.

Participants in the stock market range from small individual stock investors to larger
investors, who can be based anywhere in the world, and may
include banks, insurance companies, pension funds and hedge funds. Their buy or sell orders
may be executed on their behalf by a stock exchange trader.

Some exchanges are physical locations where transactions are carried out on a trading floor,
by a method known as open outcry. This method is used in some stock exchanges
and commodities exchanges, and involves traders shouting bid and offer prices. The other
type of stock exchange has a network of computers where trades are made electronically. An
example of such an exchange is the NASDAQ.

A potential buyer bids a specific price for a stock, and a potential seller asks a specific price
for the same stock. Buying or selling at the market means you will accept any ask price or bid
price for the stock. When the bid and ask prices match, a sale takes place, on a first-come,
first-served basis if there are multiple bidders at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers
and sellers, thus providing a marketplace. The exchanges provide real-time trading
information on the listed securities, facilitating price discovery.

The stock market refers to public markets that exist for issuing, buying, and selling stocks
that trade on a stock exchange or over-the-counter. Stocks, also known as equities, represent
fractional ownership in a company, and the stock market is a place where investors can buy
and sell ownership of such investible assets. An efficiently functioning stock market is
considered critical to economic development, as it gives companies the ability to quickly
access capital from the public.

The stock market works like an auction where investors who buy and sell shares of stocks.
These are a small piece of ownership of a public corporation. Stock prices usually reflect
investors' opinions of what the company's earnings will be.

Traders who think the company will do well bid the price up, while those who believe it will
do poorly bid the price down. Sellers try to get as much as possible for each share, hopefully
making much more than what they paid for it. Buyers try to get the lowest price so that they
can sell it for a profit later.

The Indian stock market plays a pivotal role in the growth of Indian economy. Its every
movement puts an impact on the performance of the economy. The stock market is a place at
where investors, whether Indians or foreigners can invest or take the funds for capital
appreciation

Indian stock market has undergone incredible transforms since 1991, when the government
has adopted liberalization and globalization policies. As a result, there is an increasing
importance of the stock market from collective economy point of view. Nowadays if we talk
about economy then stock market has become a key driver of current market and is one of the
major sources of raising resources for Indian company, thus enabling financial growth and
economic growth. In fact, in the world Indian stock market is one of the emerging markets.

Stock markets play a vital role in the financial sector of every economy. An efficient capital
market drives the economic growth by stabilising the financial sector. In an efficient capital
market, stock prices adjust swiftly according to the new information available. The stock
prices reflect all information about the stocks and also the expectations of the future
performances of corporate houses.

Stock Market is also known as Stock Exchange or Share market in all over the World. It is
one of the important constituent of capital market. Stock market is an organized market for
the purchase and sale of industrial and financial security. Stock Exchange is convenient place
where trading in securities is conducted in systematic manner i.e. as per certain rules and
regulations. It is an investment intermediary and facilitates economic and industrial
development of any country in the world like India.

Stock Market in India:

Indian Stock market is also known as National Stock Exchange (NSE) of India limited. It is
the leading stock exchange of the country. This market is located in business capital of India
at Mumbai. It was established in 1992 as the first demutualized electronic exchange in the
country. National Stock Exchange was the first exchange of India to provide a modern, fully
automated screen-based electronic trading system which offered easy business facility to the
investors spread across the length and breadth of the country.

Stock Exchange is a place where stock brokers and traders can buy and sell stocks, bonds and
other securities. Stock Exchanges may also provide facilities for issue and redemption of
securities and other financial instruments and capital events including the payment of income
and dividends. Securities traded on a stock exchange include stock issued by listed
companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges
often function as continuous auction markets with buyers and sellers consummating at a
central location such as the floor of the exchange.

DEFINITONS OF STOCK MARKET

The term “stock market” often refers to one of the major stock market indexes, such as the
Dow Jones Industrial Average or the S&P 500. Because it’s hard to track every single stock,
these indexes include a section of the stock market and their performance is viewed as
representative of the entire market.

You might see a news headline that says the stock market has moved lower, or that the stock
market closed up or down for the day. Most often, this means stock market indexes have
 moved up or down, meaning the stocks within the index have either gained or lost value as a
whole. Investors who buy and sell stocks hope to turn a profit through this movement in stock
prices.

The stock market works through a network of exchanges — you may have heard of the New
York Stock Exchange or the NASDAQ. Companies list shares of their stock on an exchange
through a process called an initial public offering, or IPO. Investors purchase those shares,
which allow the company to raise money to grow its business. Investors can then buy and sell
these stocks among themselves, and the exchange tracks the supply and demand of each
listed stock.
That supply and demand help determine the price for each security, or the levels at which
stock market participants — investors and traders — are willing to buy or sell. Computer
algorithms generally do most of those calculations.

Buyers offer a “bid,” or the highest amount they’re willing to pay, which is usually lower
than the amount sellers “ask” for in exchange. This difference is called the bid-ask spread.
For a trade to occur a buyer needs to increase his price or a seller needs to decrease hers.

Definition: It is a place where shares of pubic listed companies are traded. The primary
market is where companies float shares to the general public in an initial public offering
(IPO) toraisecapital.

Description: Once new securities have been sold in the primary market, they are traded in
the secondary market—where one investor buys shares from another investor at the
prevailing market price or at whatever price both the buyer and seller agree upon. The
secondary market or the stock exchanges are regulated by the regulatory authority. In India,
the secondary and primary markets are governed by the Security and Exchange Board of
India (SEBI).

A stock exchange facilitates stock brokers to trade company stocks and other securities. A
stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place
of the stock buyers and sellers. India's premier stock exchanges are the Bombay Stock
Exchange and the National Stock Exchange.
Share market is categorized into two namely:
 1. Primary Market
 2. Secondary Market
 Primary Market:

 A company or government raises money by issuing shares in the primary market by the
process of IPO.

 The issue can be either through public or private placement.

 Issue is public when the allotment of shares is made to more than 200 persons; Issue is
private when the allotment is made to less than 200 persons.

 Price of a share can be based on fixed price or Book building issue; Fixed price is decided by
the issuer and mentioned in offer document; Book building is where the price of an issue is
found out based on the demand from the investors.

Secondary Market:

The shares bought in the primary market can be sold in the secondary market. Secondary
market operates through over the counter (OTC) and exchange traded market. OTC markets
are informal markets wherein two parties agree on a particular transaction to be settled in
future.

Exchange traded markets are highly regulated. Also called as auction market wherein all
transactions happen via the exchange.

Why Invest in the Stock Market

Stock market investing is the best way to achieve returns that beat inflation over time. There
are four other benefits of investing.

1. Stock ownership takes advantage of a growing economy.

2. Unlike real estate, it's easy to buy stocks and just as easy to sell.
3. Best of all, you can make money in two ways. Some investors prefer to let their stock
appreciate in value over time.
4. Others prefer stocks that pay dividends to provide a steady income stream.

Stock market is a place where people buy/sell shares of publicly listed companies. It offers a
platform to facilitate seamless exchange of shares. In simple terms, if A wants to sell shares
of Reliance Industries, the stock market will help him to meet the seller who is willing to buy
Reliance Industries. However, it is important to note that a person can trade in the stock
market only through a registered intermediary known as a stock broker. The buying and
selling of shares take place through electronic medium. We will discuss more about the stock
brokers at a later point.

Major Stock Exchanges in India

There are two main stock exchanges in India where majority of the trades take place -
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Apart from these
two exchanges, there are some other regional stock exchanges like Bangalore Stock
Exchange, Madras Stock Exchange etc. but these exchanges do not play a meaningful role
anymore.

National Stock Exchange (NSE)

NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed
companies. It was established in the year 1992 and is located in Mumbai. NSE has a flagship
index named as NIFTY50. The index comprises of the top 50 companies based on its trading
volume and market capitalisation. This index is widely used by investors in India as well as
globally as the barometer of the Indian capital markets.

Bombay Stock Exchange (BSE)

BSE is Asia’s first as well as the oldest stock exchange in India. It was established in 1875
and is located in Mumbai. It has a total of ~5,295 companies listed out of which ~3,972 are
available for trading as on August 21, 2017. BSE Sensex is the flagship index of BSE. It
measures the performance of the 30 largest, most liquid and financially stable companies
across key sectors.

Stock market is an important segment of the financial system of any country as it reveals the
true state of economy's health and financial stability and plays a pivotal role in channelizing
funds from savers (investors) to the needy sectors. The significance of stock market can be
well acknowledged in both industries and investor's perspectives. Stock market provides
investors with alternative investment avenues to park their surplus funds and creates a pool of
these funds to make it available to listed companies for their expansion requirements. The
performance of stock markets can be easily judged by an investor by looking at its market
index.
The Indian stock market had seen various up-down since 1991, after the government
implemented the Liberalization, Privatization and Globalization Model in India. This model
has connected every country with other countries and as a result a single market is created.
And thus from the economic point of view the importance of stock market is growing as it
helps in movement of capital in rising and developed nations, prompting the development of
industry and business of the country. There is a significant role of Indian capital market in the
Indian economy growth. A small movement in the stock market affects the performance of
economy. Investors regardless of whether Indians or outsiders can contribute or take the
assets (funds) for capital appreciation in the capital market. An investor considers various
factors before and at the time of investing his funds into the stock market. These various
factors may include past performance of a company, return on index or by company, return
on assets or equity, free cash flow, internal management, various macroeconomic factors like
GDP, inflation, interest rate, unemployment rate etc.

Trends in Indian Stock Market

The stock market of India has an important position in Asia as well as in the world. Across
the world the Bombay Stock Exchange (Sensex) is one of the earliest exchanges whereas if
we look at National Stock Exchange is considered to be best in terms of advancement &
sophistication of technology. After the globalization Indian stock market pace increased too
fast and as a result it becomes a centre of attraction for investors over the world. The entire of
nineties were utilized to investigation and adjust a productive and successful framework, and
from the time of globalization, the stock market began to work proficiently and demonstrated
its new statures, at various periods of its advancement. Indian stock market has seen various
ups and downs there were times when the Indian stock market accomplishes new statures,
breaking its past records and there is time likewise when stock market dives up to its
outrageous. As stock market index is an essential piece of the economy, these ups and downs
cannot be ignored as an economy is affected by the several policies and other unavoidable
situations created in an economy.

BOMBAY STOCK EXCHANGE

Bombay Stock Exchange was established in 1875. It is Asia’s first and fastest growing stock
exchange in the world. Over the past 141 years, BSE has facilitated the growth of the Indian
Corporate Sector by providing it an efficient capital raising platform. BSE provides an
efficient and transparent market for trading in equity, currencies, debt instruments,
derivatives and mutual funds. India INX, India’s 1st international exchange, located at GIFT
CITY IFSC in Ahmedabad is a fully owned subsidiary of BSE. BSE is also the 1st listed
stock exchange of India. BSE’s popularly equity index – the S&P BSE SENSEX is India’s
most widely tracked stock market benchmark index. It is traded internationally on the
EUREX as well as leading exchanges of BRICS nations (Brazil, Russia, China, and South
Africa).

NATIONAL STOCK EXCHANGE

The National Stock Exchange (NSE) is the leading stock exchange in India and the 12th-
largest stock exchange as of march 2016 in the world by market capitalization of more than
US$1.41 trillion. It started operations in 1994 and is ranked as the largest stock exchanges in
India in terms of total and average daily turnover for equity shares every year since 1995,
according to annual report of Stock and Exchange Board of India. NSE inaugurated
electronic screen based trading in 1994, derivatives trading and internet trading in 2000. NSE
has a fully integrated business model comprising our exchange listings, trading services,
indices, technology solutions, clearing and settlement services, market data feeds and
financial education offerings. NSE offers trading, clearing and settlement services in equity,
equity derivatives, and debt and currency derivatives segments. NSE has 2500 VSATs and
3000 leased lines spread over more than 2000 cities across India. BSE and NSE account for
only around 4% of the Indian economy, which drives most of its income related activity from
the unorganized and households.