UNDERSTAND INDIAN STOCK MARKET

1. A Presentation on
GDP
(Gross Domestic Production)

2. Definition of
GDP (Gross Domestic Production)
Including All the Three Sectors Agriculture,
Gross = Manufacturing and Services
Domestic = Only done in Country (India)
Value of Products and Services in Currency (RS.),
Production = which have been Produced in Single Financial Year.

3. Example of GDP Calculation
For Example.. there are 100 people in India.
- Out of them 30 are working in Agriculture,
- 30 are working in Car Manufacturing Company “ABC”,
- And remaining 40 are Professionals (like Doctors, Lawyers, Engineers,
Consultants).
In Financial Year 2007-08 their Production was as Following.
-30 People had produced 1000 tons Food Grain from Agriculture.
-ABC Company had Manufactured 100 Cars.
-40 People had produced services worth Rs. 400,00,000(4 Cr.)

4. Example of GDP Calculation..
People Sector Production in Price Per Unit Production in Rs.
Engaged Units (A) (B) (A * B)
30 Agriculture 1000 Tons Rs. 10,000 Rs. 1,00,00,000
30 Manufacturing 100 Cars Rs. 300,000 Rs. 3,00,00,000
Company - ABC
40 Services NA NA Rs. 4,00,00,000
Gross Domestic Production for the Year of 2006-07 Rs. 8,00,00,000
Per Capita Income (GDP/Population) Rs. 8,00,000

5. GDP Growth Calculation
Definition
A Percentage(%) growth in Year on Year GDP (Excluding
Inflation).
Simple Formula
Net GDP Growth Rate
=
(GDP of This Year – GDP of Last Year)
100 _ Average Inflation Rate
During This Year
GDP of Last Year
Gross GDP Growth Rate
*This formula is just to simplify the understanding of GDP, it is not used in real term.

6. GDP Growth Calculation, Cont..
Last Year GDP
People Engaged Sector Production in Unit Price Per Unit Production in Rs.
Rs. 8.0 Cr.30 Agriculture 1000 Tons Food Grain Rs. 10,000 Rs. 1,00,00,000
Year
30 (ABC) Manufacturing 100 Cars Rs. 300,000 Rs. 3,00,00,000
2007
-08 40 Services NA NA Rs. 4,00,00,000
Gross Domestic Production for the Year of 2006-07 Rs. 8,00,00,000
This Year GDP
Per Capita Income (GDP/Population) Rs. 8,00,000
Rs. 8.8 Cr 30 Agriculture 1000 Tons Food Grain Rs. 11,000 Rs. 1,10,00,000
30 (ABC) Manufacturing 100 Cars Rs. 330,000 Rs. 3,30,00,000
=
Year(GDP of This Year – GDP of Last Year) NA
40 Services _ Average4,40,00,000
100* 10% Rice Rs.
Inflation
2008- GDP of Last Year Rate During This Year
YOY
09
Gross Domestic Production for the Year of 2007-08 Rs. 8,80,00,000
Per Capita Income (GDP/Population) Rs. 8,80,000
* Assuming Average Inflation @ 10% During Financial Year of 2007-08

7. GDP Growth Calculation, Cont..
This Year GDP Last Year GDP
Rs. 8.8 Cr Rs. 8.0 Cr.
=
(8,80,00,000 – 8,00,00,000)
100
_ 10
8,00,00,000
* Assuming Average Inflation @ 10% During Financial Year of 2007-08

8. GDP Growth Calculation, Cont..
Net GDP Growth Rate
= 10% _ 10%(Inflation)
Gross GDP Growth Rate
Net GDP Growth Rate
= 0%
The Net GDP Growth Shows Real Growth in
Production, Which Ignores the Price Volatility.

9. GDP Growth Calculation, Cont..
Take Another Example
Where Growth in Unit
Production is 5% and Average
Inflation is 5%

10. GDP Growth Calculation, Cont..
Last Year GDP
People Engaged Sector Production in Unit Price Per Unit Production in Rs.
Rs. 8.00 Cr.
30 Agriculture 1000 Tons Food Grain Rs. 10,000 Rs. 1,00,00,000
Year 30 (ABC) Manufacturing 100 Cars Rs. 3,00,000 Rs. 3,00,00,000
2007
40 Services NA NA Rs. 4,00,00,000
-08
Gross Domestic Production for the Year of 2006-07 Rs. 8,00,00,000
Per Capita Income (GDP/Population) Rs. 8,00,000
This Year GDP
Rs. 8.81 Cr
30 Agriculture 1050 Tons Food Grain Rs. 10,500 Rs. 1,10,25,000
30 (ABC) Manufacturing 105 Cars Rs. 3,15,000 Rs. 3,30,75,000
=
Year(GDP of This Year – GDP of Last Year)
40 Services NA
_ Average Inflation
100* 5% Rice YOY Rs. 4,40,00,000
2008- GDP of Last Year Rate During This Year
09 Gross Domestic Production for the Year of 2007-08 Rs. 8,81,00,000
Per Capita Income (GDP/Population) Rs. 8,81,000
* Assuming Average Inflation @ 5% During Financial Year of 2007-08

11. GDP Growth Calculation, Cont..
This Year GDP Last Year GDP
Rs. 8.81 Cr Rs. 8.00 Cr.
=
(8,81,00,000 – 8,00,00,000)
100
_ 5%
8,00,00,000
* Assuming Average Inflation @ 5% During Financial Year of 2007-08

12. GDP Growth Calculation, Cont..
Net GDP Growth Rate
= 10.1% _ 5%(Inflation)
Gross GDP Growth Rate
Net GDP Growth Rate
= 5.1%
* Assuming Average Inflation @ 5% During Financial Year of 2007-08

13. Drivers of Indian GDP
Rising Demand/ Growth in
Consumption Production/Supply

14. Reasons Behind Rising
Demand/Consumption
• Increasing Population
• Growth in Per Capita Income cause to
Improvements in Life Standard.
• Availability of Easy and Cheaper Loans.

15. Reasons Behind Growth in
Production/Supply
• Huge Productive Population (More than 60% 0f
Indian Population are in Age Group of 18yr to 45yr)
• Well Availability of Natural Resources in India
Provides Raw Material to Industry.
• FDI and Privatization has Removed the Scarcity of
Investments in Industry.
• Growth in Banking and Financial Sector Provide Easy
and Cheaper Loans to Industry.

16. GDP & Equity
Performance of Equity
Market is Directly Related
With Country’s GDP.

17. Relation Between Equity Market & GDP Cont..
• Equity is Ownership of Company.
• Company May in...
Manufacturing Agriculture Services
• Which Contributes to Country’s (India’s) GDP.

18. GDP’s Relation with Equity Market, Cont..
If India’s GDP is Increasing it Means Company’s
Contribution (Value of Production) in GDP is
Increasing
India’s GDP
Company’s Production

19. GDP’s Relation with Equity Market, Cont..
If Company’s Production/Sales is Increasing, it
Means Company’s Profit must be increased.
Company’s
Production &
Sales
Company’s Profit

20. GDP’s Relation with Equity Market, Cont..
If Company’s Profit is Increasing, it will reflect
on Company’s Share Price
Performance of Reliance Industries Ltd. In Last 7 yrs.
Price Profit
31st March, 2001 296 2,646 Cr.
31st March, 2008 2,265 19,458 Cr.
Growth in % (CAGR) 33.71% 32.98%
Data Taken from www.bseindia.com

21. GDP’s Relation with Equity Market, Cont..
Example of BSE SENEX, An Index of 30
Companies
Performance of BSE SENSEX in Last 17 yrs.
Price Earning
(Index Value) (EPS of Index)
31st March, 1991 1,167 59.99
31st March, 2008 15,644 777.94
Growth in % (CAGR) 16.49% 16.27%
Data Taken from www.bseindia.com

22. GDP’s Relation with Equity Market, Cont..
Relation Between SENSEX and its Earning
Earning SENSEX
900 18000 16.49%
800 16000
700 14000
600 12000
500 10000 16.27%
400 8000
300 6000
200 4000
100 2000
0 0

23. Expected Returns of Indian Equity
Market
Net GDP Growth Inflation Gross GDP Growth
+ =
7% - 8% 5% - 6% 12% -14%
So Average Growth of all the Companies’ Production &
Sales would be 12% to 14%
But if We Ignore Agriculture Sector,
It Comes to 15% to 20% in Manufacturing and Services
15-20% 15-20% 15-20%
Growth In Growth In Profit Growth In
Production Share Price

24. Conclusion
Indian Equity Market Will
Give 15% To 20% Returns In
A Long Term

25. Flow Chart
GDP
Growth
Growth in
Growth in Manufacturing Growth in Services
Agriculture Sector Sector Sector
Growth of Companies’ Production
Growth in
Companies’ Profit
Growth in Share
Price