A trained investor always keeps a track on key indicators of economy. They help the investor to foresee a bull or bear phase of a stock market. Ideally all investors would like to invest when stocks are low and will rise in times to come. These economic indicators help investors to get a hint on the movements of stock market. By using these economic indicators a trained investor can confirm their hunch that stock market will fall or rise. This helps the investor to time the market to perfection.
Stock prices will rise if a company is making profits. Trained investors see future benefits by investing in companies that is making consistent profits. But a trained investor cannot wait for annual reports of company and then invest, because as soon as the financial reports of company is positive, people immediately start buying those stocks and price goes up. By the time a lay investor gets access to financial reports the stock prices has already shot-up. So in order to time the market to perfection, we will discuss about few economic indicators which rises before industry starts to show signs of growth. By using these indicators investors can time their entry into stock market.
Few key economic indicators that a lay investors in India can follow are Gross Domestic Product, Rate of Inflation, Industrial Growth, Foreign Institutional Investors (FII), and Foreign Direct Investment,.
Gross Domestic Products (GDP)
How Gross Domestic Product has performed in the past few years of Indian history.
| Year | GDP | Year | GDP |
| 1965 | $58.8 Billion | 1990 | $317 Billion |
| 1970 | $61.2 Billion | 1995 | $356 Billion |
| 1975 | $97.0 Billion | 2000 | $460 Billion |
| 1980 | $184 Billion | 2005 | $810 Billion |
| 1985 | $230 Billion | 2010 | $1180 Billio |
Gross domestic product is calculated as discussed below:
GDP = CS + GS + CAPEX + NEX
CS = Consumer spending of nation in a year
GS = Government spending of nation in a year
CAPEX = Capital expenditure by companies for expansion
NEX = Net of Exports and Imports (Exports minus Imports)
The above formulae explain why GDP is considered such a strong indicator of economy growth. It not only considers what government is spending on economy but the total cash-in into the economy like consumer spending, capital expenditures of business and net of all exports out of country. It clearly spells out whether the standard of living of countries population is rising or not. With increase of consumer spending the standard of living of population is also increasing.
The rate at which the GDP is growing is a very important economic indicator of expected performance of stock market in times to come. Lets see how GDP grew in the past few years.
| Year | GDP | Year | GDP |
| 1965 – 70 | 0.67% p.a. | 1990 – 95 | 2.00% p.a. |
| 1970 – 75 | 7.98% p.a. | 1995 – 00 | 4.38% p.a. |
| 1975 – 80 | 11.26% p.a. | 2000 – 05 | 13.8% p.a. |
| 1980 – 85 | 3.78% p.a. | 2005 – 10 | 6.46% p.a. |
| 1985 – 90 | 5.50% p.a. |
The faster the GDP is growing the better.
Related posts:
