Gdp & equity m arket

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UNDERSTAND INDIAN STOCK MARKET

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Gdp & equity m arket

  1. 1. A Presentation on GDP (Gross Domestic Production)
  2. 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. 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. 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. 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. 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. 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. 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. 9. GDP Growth Calculation, Cont.. Take Another Example Where Growth in Unit Production is 5% and Average Inflation is 5%
  10. 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. 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. 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. 13. Drivers of Indian GDP Rising Demand/ Growth in Consumption Production/Supply
  14. 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. 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. 16. GDP & Equity Performance of Equity Market is Directly Related With Country’s GDP.
  17. 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. 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. 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. 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. 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. 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. 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. 24. Conclusion Indian Equity Market Will Give 15% To 20% Returns In A Long Term
  25. 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

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