Post News Network
Equity market is considered as the mirror of any economy. It reflects the financial health of present time and gives indication of its future health. Most of the time, market is ahead of the curve as it takes into account the future earning potential of a company and accordingly trade more than its underlying value. As trading depends upon the perception of buyers and sellers on value of a company, it is always dynamic in nature. Apart from company specifics; general health of the economy, global financial situation, market expectations and last but not the least, sentiments and emotions of market players play crucial role in the equity market.
Importance:
Equity market plays a very important role in any nation’s economy. It not only indicates the overall economic situation of the country, it also helps in channelising investor’s money into creation of capital asset in an economy. Whenever a company wants to raise funds for further expansion, they can do so through listing their shares in the stock exchanges. So, in this way, equity market provides a crucial gateway for companies to access funds, which is the most important input in a business establishment. Further, it gives a platform to investors for buying and selling of shares. This way, they can participate in the growth story of the company and economy. Apart from wealth creation for individual stock investors and supporting growth of the industry and commerce, equity market is also an important place for the government. Government usually receives the first sign of approval or disapproval to its policies from the equity market. Though not always rational, market mostly gives honest opinion regarding a policy decision concerning financial matter through its rise or fall. For a central bank, it is one of those vital barometers of country’s financial health which provides cues for its all monetary decisions. For example- fall in corporate earnings or margin pressure can be indicative of the fact that interest rates are high.
Indian equity market:
Bombay Stock Exchange (BSE) and National Stock Exchange are the two stock major stock exchanges of the country cornering bulk of the trading volume. While BSE has been in existence since 1875; NSE, on the other hand, was founded in 1992 and started trading in 1994. Sensex is the index of BSE comprising 30 companies and Nifty is the index of 50 companies. Despite several initiatives of the government, equity participation by retail investors remains at pretty low level in the country as people consider equity as a risky asset. As normal investors are less aware about the functioning of the stock market, they stay away from share trading. Also, taxation and higher brokerage are other factors for lesser participation of retail investors in domestic equities. However, as per a Morgan Stanley report, domestic households are expected to put in a whopping $300 billion (about Rs 19 lakh crore) in equities over the next 10 years. “With regulations and demographics now more favorable for investors, investor education having increased, and a less risk averse population, the qualitative environment favours equity investing,” the global brokerage major said. Indian equity markets have witnessed stiff upside in the last 20 years. From a little over 2000 levels in 1993, Sensex has risen to 20,000 level in 2013. Currently, it is hovering around 26,500 level. This has matched the phenomenal rise of Indian GDP from $260 billion to $1,842 billion during this period. Given the healthy growth trajectory India is now in, market indices will see significant growth going ahead.
