Only market can’t take stock of growth

Class 9 winners of the HT Scholarship Programme 2018 tell us if they think the stock market should be the sole indicator of a nation’s economic health

Corruption, loans affect economy
VEDITA MIHIR BAPAT
Arya Vidya Mandir, Bandra East

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The stock market portrays the economic health of a company. It stimulates investors to boost the capital that compounds production, thereby increasing its stock price. One would feel that if the company is doing well, the income of people rises. By sedimentation, the distribution of resources should percolate to each strata of society, raising the gross domestic product (GDP). This general belief is, however, clouded by the political and regulatory mechanism of each state. Corruption leads to unrealistic loans given to companies, creating an illusion of expansion. Adding jobs is a by-product of this good feeling. Non-payment of taxes and money laundering are a curse for an honest entrepreneur. This affects the small-scale companies. The vicious cycle of bad loans, inflated stock market, and a façade of economic growth paves the way for a debt crisis.An over-populated country with a large working population that was promised a shining GDP plummets to the mercy of a hungry recession, gobbling up employment and lives of the common man. So, an honest stock market may reflect the economy, but it appears to be a myth.

Stocks show faith in companies
VRINDA DAS
Dhirubhai Ambani International School

The stock market is a collection of exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place. Now, the stock market itself is a great indicator of the general sentiment and faith people have in the companies.

This could indicate a general positive trend in the economy itself. However, is this enough in isolation to substantiate assumptions made about the economy? No.

Let’s look at it this way: If the economy is the human body, the stock market is a way for us to know the temperature. However, this temperature could be the way it is owing to various reasons — perhaps because of checking after having a glass of hot milk, being in a warm blanket for too long, and not necessarily a fever. That’s the thing — although it may provide a general sentiment of what the economic growth of the nation or economy might be, it does not include vital information directly. Other indicators such as GDP growth rate and inflation are important to consider while drawing conclusions about the economy.

It is important to understand that the stock market may tell you that you have a high temperature, but it is not necessarily a reliable indicator of whether you have a fever or not!

Govt policies affect growth
BHAGYASHREE PRABHUTENDOLKAR
Thakur Vidya Mandir High School, Kandivli

I once read the headline “Nation’s economy progressed due to rise in stock market” and grinned with pride. But when I turned the page and saw the unwelcoming issues of unemployment, I realised the contrast between the so-called growth of national economy and employment. In the flash of an eye, you shall be surprised to see the net asset value drowning in discontent, or the miserable Rupee losing its value against the mighty dollar, or share prices dipping. Stock market is nothing but a game of gambling and fate. Then why should equity markets solely determine any nation’s economic growth? The changing government policies, the effect of natural calamities on finance, tourism, international trade as well as unemployment should also be taken into consideration. Stock market depends on the gains and losses of industrialists; while the industry may also incur loss due to criminal activities of frauds. This fluctuating market can’t solely determine a nation’s economy.

Economy needs a balance diet
AARYAN VINAY POTDAR
Podar International School (IB & CIE), Khar

For me, economic health can be easily compared to a person’s well-being. A fully functioning human like a nation, needs a sharp mind — a stable government; a strong heart — a bullish faith in a promising future; daily exercise— fluctuations in the stock and commodity market; balanced diet — a middle ground between economic growth and development; and a night’s sleep — a recessionary lull to appreciate the imminent boom.

The stock market, either forming a bubble or completely crashing, is only a temporary indicator of the economy’s health. With limitations such as misinformation, unofficial transactions and prevalence of price rigging, it can never certainly determine the well-being of a nation. Trading shares would maintain liquidity akin to how pumping blood would ensure survival. But its unpredictability distorts stock market as a measure. Similar to how health needs the unification of organs, the nation needs multiple factors that determine economic development.

Jobs, housing matter a fair share
ASMI FARAD MOMIN
B.K. Birla Public School

We generally believe the stock market affects us in a way that a large increase in stock prices is equivalent of economic growth, whereas large decrease in stock prices is indicative of a future recession. Traditionally, stock prices reflect profitability which is obviously linked to a positive economic activity. When the stock prices are booming, the investors are wealthy and tend to spend more, which leads to economic expansion and vice versa.

Sometimes, wrong or unrealistic expectations from the investors affect the economy of the nation which is not immediately reflected in the stock market and there is a significant lag. This leads to wrong predictions of stock market trends and economic activity. Hence, if the investors anticipate a positive economic growth then the expected profits will improve and the stock prices will increase. Thus, investors have a significant role in predicting the future real economy. But there are other multiple factors affecting the economic growth too. For instance, production of goods and retail sales; construction and housing; and banking and finance. Lastly, economic health also depends on the past activity in the stock market as well as currents trends in the economy.

Thus, stock market does indicate the economic health of nation, but cannot be the sole indicator.

BSE, NSE do not reflect agriculture, unorganised sector
RISHI BALSE
Campion School

From India’s perspective, the two key stock market indicators are the Sensex (BSE) and the Nifty (NSE). However, they should not be considered as sole indicators of the Indian economy. Firstly, the two benchmarks capture only the top 30 and 50 companies respectively, and need to have a broader base if they are to be taken as a gauge of the economy. The Indian economy has a sizeable contribution from agriculture and unorganised companies, not captured by the stock market indices.

Stock markets are driven by internal and external factors beyond the actual state of the economy, like political and social climate of the global economy, such as US-China trade war, Brexit, etc. Other indicators of the economy, such as GDP, inflation, unemployment rates provide a much better outlook of the economy.

Lastly, retail investors are a very small percentage of the total investors in a stock market. There are large foreign investors who move money across countries based on what is more attractive elsewhere, and not solely on how the nation’s economy is faring. Stock markets are only one of the many barometers to measure the economy. It would be naïve to look at it as a sole indicator.

Market is like fever, it’s a symptom of larger disease
ADITYA BHARGAVA
Dhirubhai Ambani International School

I remember a doctor stating that fever is a symptom and not the disease itself. The underlying disease could range from fatigue to infection, perhaps a serious one. A stock market is the ‘fever’ of nation’s economy. A nation’s economy is far more than a set of corporates performing against a set model of valuation.

Economic health of a nation needs to have a longer-term perspective. It is about inclusiveness, conservation of resources, welfare, and sustainability, along with value creation. Economic growth is driven by policies and initiatives that may lead to short-term financial losses, but gains in a broader humanitarian assessment.

Economy focuses on people and resources while companies focus on value creation for stakeholders. A nation’s stand may not entirely be capitalistic, especially that of the underdeveloped and developing ones. In such cases, chasing financial parameters will result in fatigue and desperation.

A student’s knowledge is not solely reflected in his score in the exams, ignoring his creativity, innovativeness and special skills. Similarly, a nation can’t be defined solely by the performance of a few companies, as it may not reflect the well-being of a large majority.

A focus on stock market alone will certainly bring down the fever but may leave the infection untreated.

Growth is not development
SIDDHI MALIWAL
Sri Sri Ravishankar Vidya Mandir, Borivli

There are several aspects to be taken into consideration while determining the health of a nation— social, economic, political, environmental, cultural. As the others do, the economic aspect of a country is also a key factor for its growth.

A point to remember is that a nation’s economic growth is not the same as its economic development. Development alleviates people from low standards of living, whereas growth does not take into account the depletion of natural resources which might lead to pollution, congestion and disease. Thus, it is the ‘holistic development’ of a nation, and not its ‘growth’, which makes a country look like a dreamland. And this understanding becomes a part of the basis as to why stock markets alone are not enough to indicate the economic health of a nation as they consider only the growth factor. In a country like India, where a mere 2% of its population is engaged in investing in stock markets, these markets cannot be given such a priority of being the be-all and end-all of economic health. Various other sources bring loads of income to a nation. Clearly, stock markets are just not enough to perform the health check-ups of vast economies. 

Real economy controlled by all of us
KAVYANJALI YADAV
Navy Children School

Stock market is a type of investment that represents the ownership of a company. It’s hard to deny that the stock markets predict the economic status. But its reports become the ultimate reflection of what investors are willing to pay today for long-term business, which is not similar to short-term economic changes. Real economy is controlled by all of us because it is the total production in each sector of our country.

On the other hand, a major part of stocks are controlled by a few companies. So can we say that employees’ wages are stagnant compared to the changes in the stock market which points to short-term relation between share market and economy. Economy is a big spider web joining one corner of the world to another. It cannot be affected by just one factor like the stock market. Many factors such as housing data, government policies, employment are also responsible. In today’s aspect, nation’s economic wealth is not just money but literacy, health, standard of living, etc.

As economy widens this concept also widens.

Shares can mislead economy
MEHEK JAIN
Marble Arch School

Economic indicators are statistics that predict the economy. The five top indicators being: interest rates, GDP, stock market, consumer price index and employment. The stock market is not the most important indicator but one that most people look at when talking about the economy . Day-to -day swings in the stock market do not indicate anything about an economy’s long-term vitality.

Many believe that large decreases in stock prices are reflective of a future recession, whereas large increases in stock prices suggest future economic growth. Sceptics point to the strong economic growth that followed the 1987 stock market crash as reason to doubt the stock market’s predictive ability, as instead of entering into a recession, the economy continued to grow until the early 1990s. Another reason is that expectations about future economic activity are subject to human error, which in many cases cause stock prices to deviate from “real” economy. As investors do not always anticipate correctly, stock prices sometimes increase before the economy enters recession and decrease before it expands.