6. Indian Stock Market frenzy

With the advent of new PM, Stock market has been having huge swings. There has been tremendous gains and falls in intraday trading. It is imperative for us to understand stock market and its implications on our economy.

Suppose, I want to start a new business. I don’t have enough money to start all on my own. I can’t get loan because interest rates are very high and I don’t have high value assets. So, what would I do? I would ask public to fund my venture. How is this done? This is done through stock market.

Wikipedia says ''A stock market or equity market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical facility or discrete entity) of stocks (shares); these are securities listed on a stock exchange as well as those only traded privately." and "A stock exchange is a place to trade stocks. Companies may want to get their stock listed on a stock exchange. Other stocks may be traded "over the counter", that is, through a dealer. A large company will usually have its stock listed on many exchanges across the world."

In India, There are many small and big stock exchanges of which Bombay Stock Exchange and National Stock Exchange of India are the important ones located in Mumbai. We have also an index associated with every stock exchange. For BSE, it is called as Sensex or sensitive index and for NSE, It is called as Nifty. How is this index calculated? In BSE, It is based on a free floating market capitalization method which means it will take note of the shares, Company has issued in open market. It will calculate the swings of this money of 30 major companies listed by the index committee based on their track record. The change in this market value is calculated against a base index value and thus we observe the mood swings of Sensex and nifty values every day.

We should also know, there are different ways of trading in the stock market. Most media coverage goes to intraday trading where in stocks are traded and closed within a day. Let us now look into recent statistics of these indexes,

Since, Sept 2013 when Modi was declared as PM candidate from NDA, Nifty has gone from 5550 to 7600 in July 2014. Since, Elections results were out, it has gone up by 500 points within 3 months. Similarly, Sensex has gone from 18,200 in Sep 2013 to 25,600 in July 2014. Since May, It has gone up by 2500 points. It has also reached an all-time high value of 26,100 on July 7th, 2014. Nifty has reached a high point of 7750.

There has been nearly 800 Million Dollars inflow into the market since January, 2014. Though, it is good for have stocks going up, it is mainly in form of short term investors. This investment is prone to risks since it can be taken back anytime. We need more and more long term investors who can invest in our infrastructure, start a new venture through FDI route. Stock market indexes don’t consider new and mid-sized companies in their calculations. There are separate indexes for these. So, we would get only the larger picture from main indexes. At least, Sensex indicated mood swings of domestic and foreign short term stock investors who are expected to gain around 8-10% currently by investing into our market.

Irrespective of the risks and other factors, it surely indicates the new found trust on our PM. As the trust increases, the money inflow will go into long term investments which will then increase the brand value of Rupee which will help in reducing our trade deficit. So, let the trust of people worldwide multiply on our PM with every passing day.