Is capital Market most significant tool to measure Economic Growth or decline?
This was selected as Best Answer Hi, It definitely is when you iron out the spikes and the dips that the day can easily be attributed to the day traders and the speculators. Essentially, taking a long term view, valuations drive the market. If the company’s order books, operations and hence cash flows and profits are attractive then then the share price is bound to rise. Which also in turn reflects the economic environment in which the company operates. Every thing else, if i can call it, is a derivative of the stock market. For ex:- FII pull out money and the stock market tumbles…INR/USD weakens…Oil becomes costlier….Govt borrowings increase….bond yields jump…liquidity crunch…interest rates increase…cost of borrowings increase….capex of companies get stalled….growth stalls…welcome to recession…. Why not…it is the most significant tool, in my view.
