Macroeconomic Indicators & their Importance
Macroeconomic indicators like interest rates, GDP, inflation are capable of driving the market into frenzy, causing a lot of money to be lost or made in a instant.
These and other economic indicators affect our rate of return on various investments. And so it is important that every investor knows about the economic indicators.
By the end of this series, you’ll learn where to find these economic indicators, which ones move markets, how to interpret them, and above all how to use this information to make better investment decisions.
Every few months, Inflation becomes the bread and butter for newspapers and the media. Quite often it even leads to chaotic scenes in the parliament with the opposition causing a ruckus due to the high prices of everything and how it makes the common man suffer. We have all heard about inflation and have even felt its pinch on our pockets sometime or the other. But beyond its basic effect, inflation can also affect our investment in stock markets.
So, what exactly is inflation? Why is it caused and how does the Government control it? Above all how does it affect our investments and how can we protect ourselves from it?
Back in the 1980s people got an impressive return of over 12% on their deposits. The equation was simple: “Paanch saal mein paise double”. However, times have changed today. Now, the interest rate stands at a miserly 8% compared to the 12% seen earlier. Our economy has evolved a lot since those days; we are currently one of the fastest growing economies in the world. But the earlier time seemed so much better as you got higher returns!
So, what is the real deal? Was the high interest rate in 1980s a better situation than today? What is the relation between the growth of an economy and interest rates? How does the interest rate affect the stock markets? And above all what should your action plan be considering the impact of interest rate on stocks?
Stock market is a puzzle for most of us and our constant endeavor is to find a way to know where it is headed. We look for answers everywhere but fail to realize that one of the best solutions is actually always in front of our eyes. Surprised? Don’t be!
This simple solution is nothing but our own spending habits. Yes! The way we spend our money determines where the stock market is headed. Infact, taken together the total spending by everyone i.e. consumer spending has the power to drive the stock market and even the economy up or bring it down.
So, how does our spending habit exactly impact the stock market? And how could you put this simple solution to use in order to profit in the stock markets?
“Sensex tumbles 435 point on weak IIP data”…. “Sensex rallies on good IIP growth”. How many times have you woken up in the morning and read this news? Numerous we suppose. IIP data is one of the most eagerly awaited and important macro-economic data. This is because it gives you a very good picture of the supply side of the economy.
Infact, quite frequently it impacts the stock markets leading to a jump or drop in the Sensex. Unfortunately, not many of us are aware what IIP exactly is and how does it impact the stock market.
Here is all that you need to know about IIP & its impact on stock market and how you can use this knowledge to profit in the stock market.
We invest our hard-earned money in stocks hoping to make a decent return out of them. When the stocks we invest in do well, we feel good and even pat our own back. However, if they don’t do well, we are quick to pass the buck on some external factor, “Oh! It was the FIIs , they pulled the money out and before I knew it the stock was down 35%!”- a common conversation for budding investors with a sip of coffee. However understanding FII investments and their movement is not as difficult as it seems.
So, how does the FII movement affect the stock market? Why do they pump in or pull out money? And how can we go one up on the FIIs and profit in the Stock Market?
Exchange rate is something that we are bothered about only if we are going for a trip abroad or shopping online for something which is priced in dollars! We rarely think about how it affects the stocks we hold. In 2006-07 many people were invested in the ever-popular IT sector stocks. But even as they saw the stock market surging to 21000, they were baffled to see that the IT stocks that they held did not move. Experts pondered over it, discussed it and attributed this to the exchange rate and the appreciation of the rupee.
This was confusing. After all exchange rate is a mere number. How could it be the reason for IT stocks not doing well? However, the fact is that exchange rate is very important for many sectors and is infact a very good tool to analyze an economy and sectors like IT, Textiles etc.
So, what exactly does rupee appreciation or depreciation exactly mean? Why does the exchange rate keep fluctuating? And most importantly what impact does it have on the stock market?
The role that a Government plays in the development of the country is similar to that of a parent raising a child. The Government is responsible for the growth and development of the nation as well as for the welfare of the people. And the way this it achieves this is through the money that it spends i.e. Government Spending.
Government spending might not be a word that we are fully aware of but it can significantly alter the prospects of a particular sector and even the entire economy. In fact, it also helped revive our economy in 2008-09 after the sub-prime crisis led to a market crash.
So, how does the government spending impact the economy? Which sectors are benefited the most by higher spending? And how can we use this knowledge to make profitable investments?
If ever there was a Holy Grail for stock investors, then it surely would be the quarterly and annual report on the GDP! GDP report reveals all the facts about the economy, production, income, saving, investment; things which we feel are only for big shot economists and experts to deal with.
But just like investing in stock markets, understanding the dynamics of GDP is not rocket science. And understanding this economic indicator is all the more important because it reveals to us the health of our economy and has the power of shaping the course of the stock market.
So what exactly is GDP is and why is it important for us? And how can understanding it enable you to profit in the Stock market?