2. Contents
1) Acknowledgement
2) Introduction: Macro-economic Indicators
3) Indicators
A) Inflation
a) CPI
b) WPI
B) Interest Rates
a) Repo Rate
b) Reverse Repo Rate
c) Cash Reserve Ratio
d) Statutory Liquidity Ratio
e) Marginal Standing Facility
C) Purchasing Managers’ Index
a) Service Sector
b) Manufacturing Sector
D) Index for Industrial Production
E) Foreign Institutional Investor
F) Foreign Direct Investment
G) Currency
H) Credit and Deposit Growth
I) Consumer Outlook Index
J) Gross Fixed Capital Formation
K) Balance of Payment
4) Impact of Indicators on Stock Prices
3. Acknowledgement
On the completion of my project on Macro-economic Indicators for Stock, I would like to convey thanks to Mr.
Amit gupta, my mentor who gave his valuable guidance for completion of my project. He helped me to
understand the details of the project.
4. Macro-economic Indicators
Macro-economic indicators are statistics that indicate the current status of the economy of a state depending on a particular area of the
economy (industry, labor market, trade etc.). They are published regularly at a certain time by the governmental agencies and the private sector.
Different indicators are GDP, unemployment rate, inflation (CPI & WPI), interest rates, money supply, credit and deposit growth, business cycles,
foreign exchange, purchasing managers’ indexes (PMI), private and public consumption, gross fixed capital formation (GFCF), foreign domestic
investment (FDI) and foreign institutional investor (FII), consumer outlook index(COI), currency, etc. Most of the indicators are interlinked.
5. Indicators
1) Inflation
The rate at which the general level of prices for goods and
services is rising, and, subsequently, the purchasing power
is falling
a) CPI
The Consumer Price Index is a measure of changes, over
time, in retail prices of a constant basket of goods and
services representative of consumption expenditure by
resident households.
b) WPI
The Wholesale Price Index is the price of a representative
basket of wholesale goods.
Over the time both WPI and CPI has decreased. This is due
to reviving of Indian economy from slowdown.
2) Bank Rates/ Interest Rate
The interest rate at which nation’s central bank lends
money to domestic banks. Often these loans are very short
term duration. Lower bank rates can help expand the
economy, when unemployment is high, by lowering the cost
of funds for borrowers. Conversely, higher bank rates help
to reign in the economy, when inflation is higher than
desired. The bank rates can also refer to the interest rates
that banks charge customers on loan. It is a monetary policy
instrument to control the money supply in the economy.
a) Repo Rate
Repo rate is the rate at which the central bank of a country
(RBI in India) lends money to commercial banks in the event
of any shortfall of funds.
b) Reverse repo rate
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
CPI
CPI
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
WPI
WPI
6. Reverse repo rate is the rate at which the RBI borrows
money from commercial banks within the country.
c) Cash Reserve Ratio (CRR)
Cash reserve ratio(CRR) is a specified minimum fraction of
the total deposits of customers, which commercial banks
have to hold as reserves with the RBI.
d) Statutory Liquidity Ratio (SLR)
SLR refers to amount that the commercial banks are
required to maintain in the form of gold or government
approved securities (bond and shares of different
companies) before providing credit to the customers. The
RBI in August reduced SLR in the wake of government
narrowing fiscal deficit to 4.1% of GDP for 2014-15 and
keeping the rates unchanged. The move was aimed at
helping banks meet the liquidity coverage ratio norms as
they gear up to meet the stringent higher Basel-III
framework requirement.
e) Marginal Standing Facility (MSF)
MSF is the rate at which scheduled banks could borrow
funds overnight from RBI against government securities.
The MSF is pegged 100bps above the repo rate.
Effect of increase interest rates on businesses
The businesses borrow money from banks to run and expand their
operations. When the banks make borrowing more expensive,
companies might not borrow as much and will pay higher rates of
interest on their loans. Less business spending can slow down the
growth of a company, resulting in decreases in profit. To arrive at
stocks’ price divide the future discounted cash flow by the number
of shares available. This price fluctuates as a result of the different
expectations that people have about the company at different
times. Because of those differences, they are willing to buy or sell
shares at different prices. If a company is seen as cutting back on its
growth spending or making less profit- either through higher debt
expenses or less revenue from consumers- then the estimated
amount of future cash flows will drop. All else being equal, this will
lower the price of the company’s stock. If enough companies
0
5
10
15
20
25
6/1/2013
7/1/2013
8/1/2013
9/1/2013
10/1/2013
11/1/2013
12/1/2013
1/1/2014
2/1/2014
3/1/2014
4/1/2014
5/1/2014
6/1/2014
7/1/2014
Reverse repo Repo CRR
MSF SLR Bank Rate
7. experience declines in their stock prices, the whole market, or the
indexes that many people equate with the market, will go down.
Effect of increase in interest rate on consumers
Bank rates are the rates that banks charge their costumers to
borrow money. Individuals are affected through increases in credit
card and mortgage interest rates, especially if they carry a variable
interest rate. This has the effect of decreasing the amount of money
consumers can spend. People still have to pay the bills, and when
those bills become more expensive, households are left with less
disposable income. This means that people will spend less
discretionary money, which will affect business’ top and bottom
lines. The changes in the bank rates affect the behavior of
consumers and the stock market is affected. Because of different
expectations of consumers about company, they are willing to buy
or sell at different prices. Investing in stocks can be viewed as too
risky compared to investment. When Central Bank raises interest
rate, newly offered government securities, such as Treasury Bills
and Bonds are viewed as the safest investments and usually
experience a corresponding increase in interest rates. The risk free
rate of return goes up, making these investments more desirable.
3) Purchasing Managers’ Index (PMI)
PMI are economic indicators derived from monthly surveys
of private companies. The index is based on five major
indicators: new orders, inventory levels, supplier deliveries
and the employment environment.
Service sector
During January, 2013 the service sector rose from 55.6 to 57.5
mainly because rising volumes of incoming work and the level of
unfinished work also rose. During February the index declined to
54.2 indicating a continued expansion of this sector. During this
period cost inflation persisted for almost four years. During March
the index declined to 51.4 indicating further expansion of business
and slower growth in the new business led to easing with regards to
output but the rate of expansion was weakest. During April, the
index fell further to 50.7 signaling slower activity growth which
reflected weaker gains and market conditions were also challenging.
Cost inflation also increased. During May the index rose to 53.6 as
expansion was solid and inflation eased. The reading for June fell to
51.7 indicating modest rise in the activities. Output growth
decelerated because of weaker gains and subdued economic
conditions. The rate of charge inflation was moderate. In July the
index fell to 47.9. A difficult climate and falling new business were
the main reason for lower output volumes. In August the index fell
to 47.6 indicating further contraction of service output. A solid
decline was reflected in new business levels and tough economic
conditions. The index was all time low 44.6 in September as output
dropped sharply, marked by drop in new business. The decline was
linked to weaker demand and a difficult economic climate. In
8. October the index rose to 47.1 indicating fourth successive
contraction of this sector the sharpest decline was noted at Hotels
& Restaurants. In November the index further rose to 47.2 pointing
towards weakest rate of contraction. In December the index fell to
46.7. The latest fall in output was solid due to decrease in incoming
new work. The news of upcoming elections has also contributed to
the latest drop in new orders. In January, 2014 the index rose to
48.3 as the rate of contraction was marginal and weakest. Tough
economic conditions, political issues and lower new order levels are
the main reason behind the fall in output. In February the index
further rose to 48.8, where output declined which was liked to
lower levels of incoming new work and economic instability. The
index fell to 47.5 in March. The index rose to 48.5 in April indicating
a slower contraction of output. A difficult economic climate,
combined with elections and further drop in new orders had all
contributed to the latest fall in business activity and output.The
index rose from 50.2 in May to 54.4 in June was at a 17-month peak.
The end of elections, planned increases in marketing budgets,
forecasts of stronger demand and ongoing improvements in India.
The index fell to 52.2 in July this was mainly because of inflationary
pressure in the economy on a supply-side.
Manufacturing Sector
In January, 2013 the index declined to 53.2 from 54.7. The growth
softened because of power shortage which restricted production
and led companies to utilize warehouse stocks. As a result, new
total business and export orders increased. The index rose to 54.2 in
February, signaling a further improvement in business condition.
The higher levels of new orders and power shortages both fed
through to the latest rise in unfinished business. In March the index
was 52. The PMI was lowest as export orders expanded with the
rate of growth easing to the slowest due to power shortages which
also impacted vendor performance. Persistent power shortages
hampered production. The PMI in April fell to 51 reflecting the
weaker contribution from all five of its sector. Persistent power
shortages continued to hamper output. Similarly the index in May
fell to 50.1 due to persistent power outages which resulted in
weaker gains from incoming new work. The index for June was
50.3.The total new orders fell. The economic conditions were
fragile, resulting in lower demand. Reduced output levels and
production fell, amid evidence of tougher economic conditions and
persistent powercuts. In the month of July, the index dropped to
50.1 as output fell, amid evidence of falling new orders, tough
economic conditions and raw material shortages,suggesting that the
depreciation of rupee meant vendors were reluctant to import raw
materials. The index reduced to 48.5 in August, indicating a
deterioration of business conditions with both output and new
orders falling at faster rates. The depreciation of the rupee against
the US dollar had led to reluctance among vendors to import raw
materials. In September the index rose to 48.6 indicating a marginal
and slower deterioration of business conditions.A depreciation of
the rupee versus the US dollar had resulted in higher prices paid for
inputs and limited firms’ ability to price competitively. The PMI
remained unchanged in October indicating falling levels of
production, as business climate within an economy remained
tough.The weaker rupee had boosted foreign demand in the latest
month.The weaker rupee had led to higher prices paid for imported
raw materials and that additional cost burdens were partly passed
9. on. In November the index rose to 51.3 indicative of a slight
improvement in operating conditions. Due to powercuts, there was
difficulty in meeting the existing orders through stocks. The slight
drop was registered in PMI for December due to raw material
shortages at vendors and powercuts. In January, 2014 the index
rose to 51.4 signaling improvements in operating conditions during
the period. The PMI was further rose to 52.5 signaling a solid and
stronger improvement in business conditions. Pre-production stocks
fell in the latest month as raw material shortages at vendors’
unitsresulted in longer supplier delivery times. In March the index
dropped to 51.3 suggesting competitive pressures and shortages of
some raw materials hampered growth. The PMI for April remained
unchanged from March.Growth of output waned on the back of
competitive pressures and power outages.The index rose marginally
from 51.4 in May to 51.5 in June and the index was 17-month peak
of 53 in July, due to greater domestic and foreigndemand.
Conclusion:
The main reason for decline in index was persistent powercuts,
which hampered production and depreciation of rupee due to
which the vendors were reluctant to import raw materials. The
depreciation of currency increases the cost of imports for
automobile companies. Huge imports during 2013 by automobile
manufacturers increased the demand for US$ leading to further
weakening of rupee. This increased cost of imports increased the
prices of the automobile leading to fall in sales and profitability
margins. Decrease in profitability margins decreases the EPS and
makes the stock unattractive. This puts downward pressure on the
stock’s price thereby making it unattractive to invest.Source: HSBC
0
10
20
30
40
50
60
70
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Manufacturing Services composite
10. 4) Index of Industrial Production (IIP)
The IIP is an index for India which details out the growth of
various sectors in an economy such as mining, electricity
and manufacturing. It measures the short-term changes in
the volume ofproduction of a basket of industrial products
during a given period with respect to that in a chosen base
period.
The IIP numbers have direct co-relation to the stock market. It
decides the market movement. The rising IIP numbers indicate
growth in GDP. Thus, making economy an attractive destination for
foreign investment. The products included are manufacturing,
mining and electricity.
The Index of Industrial Production (IIP) rose by 3.4% in April, 2014,
as compared to the 1.5% growth in April, 2013. This was led by a
sharply higher-than-expected growth of capital goods. The IIP
growth was also supported by a moderate expansion in basic goods
and intermediate goods. However, the impact of same was offset by
a contraction in output of both consumer durables and consumer
non-durables in April, 2014.The pace of contraction of the IIP Index
for March 2014 is unchanged at 0.5%, with an improved
performance of basic goods (to 4.4% from 4.0%), intermediate
goods (to 1.6% from 0.6%) and capital goods (to -11.6% from -
12.5%) offset by a downward revision in growth of consumer non-
durables (to 5.0% from 7.2%). Notably, industrial growth has fallen
short of the growth displayed by the core sector industries for 18
consecutive months.
Reason for decreasing IIP
The reason for decrease in IIP is the sharp drop in main constituents
(manufacturing, mining and capital goods sector). The slow growth
in these sectors is the main reason for the lower IIP.
Rupee depreciation led to expensive imports for manufacturers,
thus increasing their cost of production which was ultimately passed
on to consumers. Another reason for decreasing IIP numbers is
persistent powercuts which reduced the production.
-40.00
-20.00
0.00
20.00
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Basic Goods Capital goods
Intermediate goods consumer goods
consumer durables consumer non-durables
IIP general
11. 5) Foreign Institutional Investor
FIIs are those institutional investors which invest in the
assets belonging to different countries than that where
these organizations are based. They exert strong influence
on the total inflows coming into the economy.Foreign
investors pulled out $8bn from domestic debt market.
Reasons for Negative FIIs
Policy constraints impacting investments
Tight Monetary Policy in response to rising inflation which
took toll on investment as well as consumption
Growing external headwinds
Uncertainty created by currency volatility
Sluggish growth in industrial sector
The worst sell-off happened in June, 2013 when FIIs pulled out
$5.3bn in a single month after the news in the market that the US
Fed could announce tapering by the end of the year. The
announcement sent the rupee on a downward spiral, increasing the
cost of hedging and reducing arbitrage opportunities in debt.
Arbitrageurs borrow from countries where interest rates are lower
and invest in countries where the rates are higher.
For traders in debt, the forward premiums went up so much with
the rupee’s fall that the arbitrage turned negative and nearly
impossible to do; that’s why there has been a huge pullout. The
rupee lost 12.37 percent in 2013 as it slipped from Rs 55 at the
beginning of the year. It even hit a record low of Rs 68.84 on August
28, 2013.
Reasons for Revival
FIIs increased since Narender Modi’s announcement as
Prime Minister mainly on a hope of a stable and reforms
oriented government
Appreciation of currency
2014 could be better as the fear of tapering has already been
discounted and the rupee is showing signs of stabilizing. However,
as the foreign premiums are still high, it is deterring foreign
investors; therefore, the revival could take a few more months.
-5.00
0.00
5.00
10.00 Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
IIP (y-o-y Growth) %
IIP (y-o-y Growth) %
12. Unfortunately, the real money investors have not yet come into
India. The forward premiums for short-term investors are still very
high and it could take a few months to ease.
Foreign investors were net buyers in December 2013 at Rs 5,370
crore. According to domestic Indian fund managers, foreign
investors are likely to come back a little later in the year.
After the actual Fed tapering announcement, foreign investors have
actually bought Indian debt. Interest rates have gone up to the
point where the attractiveness of debt has increased and investors
chase higher yields.
6) Foreign Direct Investment
FDI is a direct investment into production or business in a
country by an individual or company of another country,
either by buying accompany in a target country or by
expanding operations of an existing business in that
country.FDI dipped 3%to $22.03bn in 2013-2014.
Reasons for FDI Outflow
Fiscal position
Slowdown in the world
Currency depreciation
Government policy of divestment
A decline in FDI would hurt the rupee, which had depreciated to a
record low of 68.85 against the US dollar on August 28 last year. It
has strengthened since then to about 60 level.
Services, pharmaceuticals, automobiles, construction development,
telecommunications, computer software and hardware, chemicals
and power were among the sectors that attracted foreign
investment in 2013.
-60,000.00
-40,000.00
-20,000.00
0.00
20,000.00
40,000.00
60,000.00
13-Jan
13-Feb
13-Mar
13-Apr
13-May
13-Jun
13-Jul
13-Aug
13-Sep
13-Oct
13-Nov
13-Dec
Net Flow
13. 7) Currency
A system of money in general use in a particular country
Reasons for INR depreciation
Pull out of FIIs from India. The reason behind pull out was
announcement of tapering by US Fed by the end of the year. The
announcement sent the INR on a downward spiral, increasing the
cost of hedging and reducing arbitrage opportunities in debt.
Arbitrageurs borrow from countries where interest rates are lower
and invest in countries where the rates are higher.Huge imports by
the manufacturers put pressure on INR as the demand for US$ was
increased. This further weakened of INR.Inflationary pressure
during mid-2013 resulted in INR depreciation as people have to
spend more money to purchase the same amount of goods and
services. One unit of INR did not go as far as it used to and it lost
ground against other world currencies.
Impact of INR depreciation
The depreciation of currency increases the cost of imports for
manufacturing companies. Huge imports during 2013 by
manufacturing companies increased the demand for US$ leading to
further weakening of INR.The currency depreciation reduces the
Forex reserve of country.Inflation also occurred as imports are more
expensive leading to increase in cost of goods and services.But at
same time exports from IT sectors increased and many IT firms
experienced profit out of currency depreciation.
8) Credit Growth and Deposit Growth
0
5,000
10,000
15,000
20,000
25,000
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
(In Rs. Crore)
(In Rs. Crore)
56
58
60
62
64
66
68
70
1/8/2013
6/8/2013
12/8/2013
16/08/2013
21/08/2013
26/08/2013
29/08/2013
3/9/2013
6/9/2013
12/9/2013
17/09/2013
20/09/2013
25/09/2013
30/09/2013
4/10/2013
9/10/2013
14/10/2013
18/10/2013
23/10/2013
28/10/2013
31/10/2013
USD
USD
14. Credit Growth- a contractual agreement in which a
borrower receives something of value now and agrees to
repay the lender at some date in the future, generally with
interest. It also refers to borrowing capacity of an individual
or company.
During Q1 of 2013-14, liquidity conditions improved considerably
and broad money growth broadly remained in line with the
indicative trajectory. Credit growth decelerated with the slack in
economic activity and deterioration in asset quality. With capital
outflows, wide CAD and high CPI the RBI kept the repo rate
unchanged in order to restore stability in the Forex market. Credit
growth was high when US announced tapering, as a result of which
the FIIs flowed out of country. The investors moved to the banks for
loans as inflation trends lower and alternative assets such as gold or
even equities give poor returns.
The widening wedge between the deposit and credit growth has
been a key structural factor behind worsening liquidity conditions in
India. The lack of credit growth prompts the banks to increase their
investments in government securities. Falling credit growth could
persuade banks to pass on rate cuts even at an expense to their
margins.
In March, 2014the systems deposit growth continues to be higher
than the credit growth, owing to slow economic growth. The credit
grew 14.56% while deposits rose 15.5% on y-o-y basis. High interest
rates also contributed to the sluggish credit growth.The
improvement in credit growth and deposit growth was seen after
the announcement of Mr. Narender Modi as the prime minister
candidate. The news sent optimism among investors of better
economic conditions.
9) Consumer Outlook Index
The Consumer Outlook Index is a barometer of consumer
confidence, reflects current and future spending plans,
employment and inflation outlook of urban Indian
consumers. The score above 50 indicates optimism and
score below 50 indicates pessimism.Consumer Outlook
Index is a monthly measure of consumer sentiment in India.
0
5
10
15
20
25
20-Apr-12
20-Jun-12
20-Aug-12
20-Oct-12
20-Dec-12
20-Feb-13
20-Apr-13
20-Jun-13
20-Aug-13
20-Oct-13
20-Dec-13
20-Feb-14
20-Apr-14
20-Jun-14
Credit Growth Deposit Growth
15. a) Inflation Sentiment Index tracks felt and expected by
consumers.
b) Employment Sentiment Index reflects consumers’
perception of the prevailing and expected employment
situation in India
c) Spending Sentiment Index measures consumers’ overall
spending plan on necessities as well as discretionary
purchases for the next few months.
January 2013
The Consumer Confidence Index (CCI) of India for January fell to 38,
indicating growing pessimism among Indian consumers. Data
reveals weak sentiments about future employment conditions with
resultant expectations of lowered household income contributing to
the decline. Inflation index rose 0.7 points to 23.9. The Employment
and Spending index weakened further by 0.5 points to 43.9 and 0.9
points to 23.4 respectively. The Inflation Sentiment Index improved
with the current monetary policy reforms. The Spending Sentiment
Index was at its lowest because of rising discomfort about
borrowing in Indian consumers.
February 2013
The CCI of India for February remains unchanged (38 since January)
showing no improvement in pessimism about employment and
inflation. A continued perception among Indian consumers of
weakness in the overall economy is decreasing willingness to spend.
March 2013
The CCI of India for the month of March has risen to 41.8, 1.1 point
increase over last month. This uptick indicates that in spite of being
in the slightly pessimistic range the consumer sentiment is showing
some signs of improvement, suggesting a possible reversal in the
consumer mood.
April 2013
After the recovery in March, the CCI for April fell by 0.4 points to
41.1, on account of rising concerns about job security among
consumers. The Employment Sentiment Index stood at 50.4,
registering a fall of 1.3 points. The Present Situation index which
measures consumer confidence in the current economy, decreased
slightly by 0.1 points to 44.6. The Future Expectations Index, which
measures consumer outlook for next 12 months, also declined by
0.5 points to 40, suggesting increasing pessimism about the future.
The Inflation Sentiment Index improved by 1.3 points to 27.2. The
Spending Sentiment Index witnessed a marginal uptick of 0.9 points
to 31.1.
May 2013
The CCI was 41.4 for the month of May, an uptick of 3.4 points since
the beginning of the year. The Inflation Sentiment Index rose to
26.8. The Spending Sentiment index improved to 30.5. The
Employment Sentiment Index declined to 50.2. The Present
Situation Index and Future Expectations Index have registered score
of 46 and 40 respectively.
June 2013
16. The CCI was 41.9 for the month of June, the uptick of 0.5 points
since last month. The Inflation Sentiment Index increased by 0.7
points.
July 2013
The CCI registered a score of 40.8 for the month of July, 2013, a dip
of 1.1 points from the previous month.
August 2013
The Consumer Outlook Index (earlier known as Consumer
Confidence Index of India) fallen by 0.3 points registering a score of
40.5. The number indicated the rising pessimism on the part of
consumers towards the state of the economy. The Inflation
Sentiment Index registered a fall of 0.4 points to the level of 27.2.
The spiraling rupee is one of the most important factors that is
affecting inflation sentiment and dragging it down. The Spending
Sentiment Index has improved recording a 0.3 point jump to reach
31.2 for this month. The Present Situation Index is at 42.3 after a
decline of 1.2 points. The Future Expectation Index is stable at 39.7
suggesting deepening pessimism from consumer stand point. The
Employment Index declined by 0.7 points to 49.1.
September 2013
The COI slipped by 1.4 points to 39.1, which indicates pessimism
amongst the consumer. The Inflation Sentiment Index has declined
to 24.1, lower by 3.1 points; consumers expect both prices and rates
to increase further. The Employment Sentiment Index was 49.7.
The Spending Sentiment Index remained flat at 30.7 lower by 0.5
points.
October 2013
The COI was 39 reflecting the pessimism amongst consumers. It
declined by 0.1 points. The Present Situation Sentiment Index
improved slightly by 0.5 points to 39.6 while the Future Expectation
Situation Index weakened further by 0.4 points to 38.7 indicating
consumers being more pessimistic. The Inflation Sentiment Index is
at 22.7, the score is at its lowest as consumers expect prices to
increase in the near future. The Spending Sentiment Index increased
marginally to 31.3, a rise of 0.6 points, the score continues to
indicate deep pessimism. The Employment Sentiment Index climbed
by 0.2 points to 49.9.
If the level crosses 50 in the following months, the rise in confidence
towards employment opportunities may lend some support to the
overall Consumer Outlook Index.
November 2013
The COI was 39.8 and witnessed a moderate uptick of 0.8 points.
The Inflation Sentiment Index rose by 1.3 points with a score of 24
indicating a decline in the pessimism. The Employment Sentiment
Index is at 50.4. The Spending Sentiment Index remained flat at a
pessimistic level of 30.9.
17. December 2013
The COI registered a score of 40.2, an uptick of 0.4 points. The
Inflation Sentiment Index rose by 0.3 points to 24.3. The Spending
Sentiment Index moved up by 2.0 points to sore 32.9. The
Employment Sentiment Index again slipped into pessimism zone.
The index fell by 0.6to 49.8 due to growing pessimism around job
security. The Present Situation Sentiment Index remained flat at
40.4 while the Future Expectation Situation Index increased by 0.7
points to reach 40.1.
January 2014
The COI registered a score of 42.1, an uptick of 2.0 points. The
Employment Sentiment Index has moved back into optimistic
territory to 51.3 points with a jump of 1.5 points, indicating decline
in the pessimism around the unemployment and job security. The
Inflation Sentiment Index fell by 0.5 points to 23.8, indicating
consumers’ worries about increase in interest rates.
February 2014
The COI was registered a score of 42.6, an uptick of 0.5 points. The
overall Economic Sentiment Index improved by 1.9 points to 59.3.
The Employment Sentiment Index remains optimistic with a score of
50.4. The Inflation Sentiment Index remains flat at 23.3, still
reflecting strong pessimism. The Spending Sentiment Index remains
low. The index declined by 2.4 points to 29.6. The Future
Expectations Index, at 43.1, recorded a score that was 1.9 points
higher than the Present Situation Index.
March 2014
The COI registered a score of 42.2 and witnessed a slight decline of
0.4 points. The Employment Sentiment Index improved to 51. The
Inflation Sentiment index also improved to 25.1. The Spending
Sentiment Index declined to 29, the key reason for the overall dip in
the COI.
April 2014
The COI was registered declined to 40.6 from 42.2; this is primarily
due to the sharp fall in the consumers’ willingness to spend. The
Employment Sentiment Index improved to 51. The Inflation
Sentiment Index remains at 25.1, indicating the inflation sentiment
is stabilizing. The Spending Sentiment Index declined to its lowest-
ever level of 25.9, this is the key reason for overall decline in COI.
May 2014
The COI improved to 42 from 40.6, increase was the willingness of
consumers to spend in coming months. The Inflation Sentiment
Index moved up to 25.6, reflecting a moderate improvement in
sentiment towards inflationary condition. The Spending Sentiment
Index improved to 28.1. The Employment Sentiment Index
improved marginally to 51.7.
June 2014
18. The COI improved to 44.3 marking an increase of 2.3 points, the
improving willingness to spend accounts majorly for the positive
gains registered by the overall index. The Inflation Sentiment index
moved up to 28.2. The Spending Sentiment Index increased to 30.4.
The Employment Sentiment Index improved to 53.9, up 2.2 points,
on the hope that the new government at centre.
July 2014
COI for July 2014 indicates that the consumer spending is bound for
gradual recovery. The COI stood at 44.2, 0.1 points lower than
previous month. The Spending Sentiment Index increased to 33.4
from 30.4 in June 2014. The Inflation Sentiment Index dropped 3
points and stood at 25.5 from 28.2 in June 2014. The Employment
Sentiment Index registered a score of 52.5 as compared to 53.9 in
June 2014.
10) Gross Fixed Capital Formation
GFCF is a component of the expenditure on GDP, and thus
shows something about how much of the new value added
in the economy is invested rather than consumed.
Reason for rise in GFCF
a) The upcoming general elections
b) Lower interest rates to stimulate economic activity
Lowering interest rates would mean increase in
investment activities thereby increasing the GDP
c) Policy and reforms
Policy and reforms in the FDI and investment result in
increased economic activity.
0
10
20
30
40
50
60
Inflation Index Employment Index
Spending Sentiment Index COI
19. 11) Balance of Payment
A statement that summarize an economy’s transactions
with the rest of the world for a specified time period
In 2011-12, the CAD expanded from 17,541 in Q1 to 21,768 in Q2.
Huge imports put pressure on the CAD. The similar trend was
witnessed from Q1-Q3 in 2012-13 (the deficit further widened from
16,932 to 31,857), but deficit decreased to 18,078 in Q4 of 2012-13
due to fall in gold imports. With ease in CAD the rupee recovered
against dollar. Further, the CAD decreased to 1,210 in Q4 of 2013-
14. The lower CAD was primarily on account of a decline in the trade
deficit as merchandise exports picked up and gold import
moderated.
The capital account decreased (yet positive) from 23,923 in Q1 to
16,586 in Q4 of 2011-12. But the capital account increased from
420,000
440,000
460,000
480,000
500,000
520,000
540,000
560,000
2012-2013 2013-2014
GFCF at Market Price
Q1 Q2 Q3 Q4
(40,000)
(30,000)
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2011-12 2012-13 2013-14
Current A/c Capital A/c BoP / Change in Reserve assets
20. 16,374 in Q1 of 2012-13 to 20,457 in Q4. The capital account was
negative (-4,769) in Q2 of 2013-14 due to outflow of FIIs from India.
In the third quarter, the FDI and portfolio investment recorded an
inflow. Within portfolio investment, the debt segment showed net
outflow which, however, was offset by net inflows of equity.
The currency of a country with positive BoP appreciates and country
with negative bop depreciates. If currency depreciates, the CAD
increases. Outflow of FII and FDI depreciates the currency.
Outflow of FII and FDI from India in 2013 depreciated the Rupee
leading to negative capital account balance.
Impact on Stock Prices
The impact of indicators on stock price
21. 1) Inflation
In a long run the inflation influences the stock price and
that too in positive direction.Unexpected inflation raises
the firm’s equity value if they are net debtor. Similarly
tightening of monetary policy can reduce inflation and
stock prices both as individuals will be left with less
money to buy goods or buy stocks.
2) Interest Rate
Increase in interest rates (i.e. RBI adopting tight
monetary policy) can reduce stock prices as individuals
will be left with less money to buy goods or stock.
3) IIP
The IIP numbers have direct co-relation to the stock
market. It decides the market movement. The rising IIP
numbers indicate growth in GDP. Thus, making economy
an attractive destination for foreign investment. The
products included are manufacturing, mining and
electricity.
4) FIIs and FDI
The FIIs and FDI bot encourage production in an
economy, thereby increasing profit margins. The FIIs are
more volatile than FDI. They directly influence the stock
price.
5) Currency Volatility
When currency depreciates the IT companies or
companies that export goods, profit from it. Thus, the
demand for their stock will increase and hence stock
price also increases. Whereas, when the currencies
appreciates the companies that rely on import of raw
materials benefits more. Their profitability improves and
demand for their stock is increased, thereby increasing
stocks’ price.
6) Credit and Deposit Growth
Higher credit and deposit growth sent a positive
sentiment among investors about improvement in
economic conditions. A better economic conditions lead
to increase in stock prices.
7) Consumer Outlook Index
A positive outlook moves the stock price in a positive
direction.
8) GFCF
GFCF is co-integrated indicating an existence of long run
equilibrium relationship between the two.
