globel economy & indian stock market

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PRESENTATION ON

GLOBAL ECONOMY & INDIAN STOCK MARKET A REVIEW

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Serial No.Topic

1 INTRODUCTION OF GLOBAL ECONOMY

2 A BRIEF REVIEW ON THE GLOBAL ECONOMY

3 A REVIEW ON INDIAN STOCK MARKET

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BIBLIOGRAPHY

CONTENTS


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INTRODUCTION:-The world economy comprises of the economies of all the countries in the world. The period

before 1980s witnessed the individual economies with limited interaction among them. Howeverthe world economies used to interact among themselves to the extent of export and import ofgoods and services. Global economy transcended from the mere export and import of goods toinvestment across the countries, capital deployment, global deposits receipts, technology transfer

free movement of human resources, expanding the marketing operation and so on. Theglobalization also helps the free flow of factors of production like capital, human resources andmanagement expertise across the countries.

So a global or transactional economy is one which transcends the national borders unhindered byartificial restriction normally imposed by the government on the flow of goods, services and

factors of production across the national boundaries. Thus, globalization turns the individual andseparate economic unit into a single integrated economic unit.

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A brief review on the global economy:-The world economy has entered a dangerous period. Some of the financial turmoil in Europe hasspread to developing and other high-income countries, which until earlier had been unaffected.

This contagion has pushed up borrowing costs in many parts of the world, and pushed downstock markets, while capital flows to developing countries have fallen sharply. Europe appears tohave entered recession. At the same time, growth in several major developing countries (Brazil,India and, to a lesser extent, Russia, South Africa and Turkey) is significantly slower than it wasearlier in the recovery, mainly reflecting policy tightening initiated in late 2010 and early 2011 inorder to combat rising inflationary pressures.

As a result, and despite a strengthening of activity in the United States and Japan, global growthand world trade have slowed sharply.

Indeed, the world finds itself, in January 2012, living a version of the downside scenariosdiscussed as a risk just 6 months ago when the June edition of Global Economic Prospects (GEP)was released. As a result, forecasts have been significantly downgraded in this edition of GEP.

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*The global economy is now expected to expand 2.5 and 3.1 percent in 2012 and 2013 (3.4 and

4 percent when calculated using purchasing power parity weights), versus the 3.6 percent

projected in June for both years.

*High-income country growth is now expected to come in at 1.4 percent in 2012 (-0.3 percent

for Euro Area countries, and 2.1 percent for the remainder) and 2 percent in 2013, versus a June

forecast of 2.7 and 2.6 percent for 2012 and 2013 respectively.

*Developing country growth has been revised down to 5.4 and 6 percent versus 6.2 and 6.3

percent in June.

*Reflecting the growth slowdown, world trade, which expanded by an estimated 6.6 percent in

2011, will grow only 4.7 percent in 2012, before strengthening to 6.8 percent in 2013.

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*Whatever the actual outcomes for the world economy in 2012 and 2013, several factors are

clear. First, growth in high-income countries is going to be weak as they struggle to repairdamaged financial sectors and badly stretched fiscal balance sheets. Developing countries willhave to search increasingly for growth within the developing world, a transition that has alreadybegun but is likely to bring with it challenges of its own.

*Recent data suggest that the moderation in the global economy appears to have slowed,though the risks to the outlook remain on the downside. The condition of the major economiesare given below:-

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The sovereign debt crises in a number of European countries worsened further in 2011 andaggravated weaknesses in the banking sector. From late 2009, fears of a sovereign debt crisisdeveloped among investors concerning some European states, intensifying in early 2010. Thisincluded euro zone members Greece, Ireland, Italy, Spain and Portugal, and also some non-eurozone European Union (EU) countries. Iceland, the country which experienced the largestfinancial crisis in 2008 when its entire international banking system collapsed, has emerged lessaffected by the sovereign debt crisis.

*Renewed tensions in sovereign-debt markets, high oil prices and decelerating world outputgrowth have all contributed to a sharp loss of confidence towards the end of 2011 and thesubsequent output contraction in the EU.

*After negative growth rates in the last quarter of 2011, a GDP contraction is forecast also forthe beginning of this year (2012) in the EU and the euro area. Both zones have thus entered atechnical recession. All in all, GDP is projected to stagnate in the EU and contract by 0.3% in theeuro area this year, and to grow by 1.3% in the EU and by 1.0% in the euro area in 2013.

*The overall deficit in the EU is set to decrease from 4% of GDP in 2011 to some 3% in 2012

and, at unchanged policies, further to 3% in 2013. 8

EUROPEAN ECONOMY


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*Government debt-to-GDP ratios are forecast to increase in most EU Member States

over the forecast horizon. In the euro area, increasing interest payments and lowgrowth are contributing to push up debt ratios. The aggregate debt ratio of the EU isforecast to reach 86% of GDP this year and 87% of GDP in 2013 (slight upwardrevisions relative to the autumn forecast). The corresponding euro-area figures are92% and 93%.

*Inflation is estimated to slow gradually and to fall below 2% in 2013. Energy pricesand indirect taxes have been the main drivers of consumer price inflation in recentquarters.

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* The economy of the United States started 2012 on a positive note. Job creation exceededexpectations, stock market indices registered solid gains, credit conditions eased notably, whilealso consumer confidence and spending increased markedly.

*Economic activity is expected to grow by 2.1 per cent in 2012 and 2.3 per cent in 2013, a slightupgrade from the previous forecast and above the 1.7 per cent recorded in 2011.

*However, the economy is not out of the woods yet. Despite falling labour participation, theunemployment rate remains much higher than it was before the crisis and, in April, job creationslowed again to below the level needed to absorb the natural increase of the labour force. Thenumber of workers without a job for more than six months continues to increase.

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ECONOMY OF UK


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*The US has the largest and most technologically powerful economy in the world. In 2008, soaring oil pricesthreatened inflation and caused a deterioration in the US merchandise trade deficit, which peaked at $840billion. In 2009, with the global recession deepening, oil prices dropped 40% and the US trade deficit shrank,

as US domestic demand declined, but in 2011 the trade deficit ramped back up to $803 billion, as oil pricesclimbed once more.

*In 2010 and 2011, the federal budget deficit reached nearly 9% of GDP; total government revenues fromtaxes and other sources are lower, as a percentage of GDP, than that of most other developed countries. Thewars in Iraq and Afghanistan required major shifts in national resources from civilian to military purposesand contributed to the growth of the US budget deficit and public debt - through 2011, the direct costs ofthe wars totaled nearly $900 billion, according to US government figures.

*GDP - real growth rate1.5% (2011 est.)3% (2010 est.)-3.5% (2009 est.).*Unemployment rate9% (2011 est.)9.6% (2010 est.)* Budget surplus (+) or deficit (-)-8.9% of GDP (2011 est.)Inflation rate (consumer prices)

3% (2011 est.)1.6% (2010 est.)

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US ECONOMY


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The pace of economic growth in China appears to be gradually reviving,Output growth in China is expectedto move back towards the top end of a 7-8% annual growth range in 2013.

*Chinas economic growth in 2011 slowed to 9.2% from the 10.3% of 2010, while inflation went up to 5.3%,well above the governments original target of 4%.

*In view of the dim external and domestic growth environment, Chinas economic growth in 2012 has beenvariously slated to be around 8.5%, the lowest growth in ten years, while inflation will be brought down

further to around 4%. Some are even more downbeat about the 2012 growth prospects.

*Chinas economic growth mode started to change in 2011, with external demand (exports minus imports)contributing a smaller share to its overall GDP growth, in line with government efforts to render Chinaslong-term growth more dependent on domestic demand.

*Export growth in 2011 actually came down to 20%, from the 26% of 2010. Chinas trade surplus in 2011

also narrowed to US$150 billion, down from US$180 billion of 2010.

*Officially, Chinas total public debt is about 50% of its GDP, which is not high by international standards andcertainly quite low for such a fast-growing economy.

*Overall, starting with 2012, Chinas economy is saying good -bye to its double-digit rates of growth. As theeconomy is already large and fast maturing, it should not continue with such breakneck growth anymore

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ECONOMY OF CHINA


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GDP Growth: Real GDP growth fell sharply in the quarter ended December 2011 to 6.1 per cent. This was the lowestgrowth since the global financial crisis in the same quarter of 2008. The GDP growth has been falling for thepast four quarter because of the consistent and substantial fall in the growth of the industrial sector,particularly mining. In this financial year we are expected to achieve GDP growth rate ranging between 5.5 to6%.

INFLATION:

Inflation, as measured by the WPI, slipped to 6.6 per cent in January 2012. This was on account of a drop ininflation in primary articles. We expect headline inflation to average at 8.7 per cent in 2011-12. Inflation isexpected to ease to 5.7 per cent in 2012-13 after remaining above eight per cent in the preceding two years.

INDUSTRY & INVESTMENTS: We expect industrial production to grow by a healthy 6.8 per cent in 2012-13. This will be driven by a sharpacceleration in the electricity generation growth to 13.1 per cent from 7.4 per cent in 2011-12. We expectoutput of manufactured products to grow by 5.7 per cent in 2012-13, driven by around 10 per cent growthin production of automobiles, machinery and basic metals.

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INDIAN ECONOMY


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PUBLIC FINANCE: *Indias gross fiscal deficit ballooned to Rs.4.3 lakh crore by January 2012 and surpassed thebudget estimates for the fiscal year 2011-12. This was because of a sharp rise in subsidy bill,

lower-than-expected mop up of taxes and lack of action by the government on thedisinvestment front.*We expect government expenditure to remain high in the last two months of 2011-12. The taxreceipts, however, are unlikely to show any major pickup. Although the government is expectedto make some progress on the disinvestment front, the amount raised on this account will notbe sufficient to curtail the fiscal deficit. We expect GFD to continue to expand and amount to six

per cent of GDP in 2011-12.

CAPITAL MARKET: *Indian corporate raised Rs.24,894 crore from the primary capital markets in December 2011.This was lower than the amount raised in the preceding month. The CMIE Overall Share PriceIndex (COSPI) rose by 4.9 per cent in February 2012, over a 13.6 per cent rise in the preceding

month.*FIIs pumped in Rs.25,217 crore in the Indian equity markets in February 2012 while mutualfunds continued to remain net sellers during the month. AUMs of the mutual fund industry roseby a healthy 7.8 per cent to Rs.6.6 lakh crore in January 2012 as compared to the precedingmonth.

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The Economic growth scenario:-The GDP growth rate of the different economies are given in the following table:-


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Structure of Global Production:- Sector-wise value added by region

Region

Agriculture Industry Services Total Industry-

Agricultureratio

Africa 16.5 40.7 42.8 100.0 2.5

Asia 7.4 38.0 54.6 100.0 5.1

Europe 2.2 27.9 69.9 100.0 12.7

Latin America & theCarribean 5.9 34.5 59.6 100.0 5.8

North America 1.1 22.4 76.5 100.0 20.4

Oceania 3.4 28.2 68.4 100.0 8.3

World 4.0 30.1 65.9 100.0 7.5


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Factors :-There are some crucial factors of the world economy are discussed below:-

1. OIL PRICE:-

*World market prices of primary commodities declined markedly in the second half of 2011,but were on the rise again in early 2012, especially oil prices. After rising by 40 per cent to reachan all-time high average yearly price of $111 per barrel (p/b) in 2011, the Brent crude oil priceincreased further, oscillating around $120 p/b in April 2012.

*The surge was triggered by bans imposed by the EU and the United States on oil imports fromthe Syrian Arab Republic and the Islamic Republic of Iran,2 as well as by speculation aboutescalating geopolitical tensions in the region.

* Metals prices are expected to fall moderately in 2012 as industrial output slows in China andthe euro area faces recession. Food prices have come down from the highs of 2011, but remain

elevated. Further easing is expected in the second half of 2012 and 2013.

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These trends are expected to contribute to a further moderation of inflation worldwide.Volatility in commodity prices will remain a concern for net commodity exporters and importersalike. Geo-political factors may push oil prices to even higher levels, posing an added downsiderisk to the world economic outlook

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2. INTERNATIONAL MARKET:-

*Managing the macroeconomic volatility induced by financial flows presents a challenge foremerging market and developing country policymakers. Waves of capital inflows that are inexcess of an economys absorptive capacity, or highly speculative in nature, may lead toexchange-rate overshooting, inflation, credit booms and asset price bubbles.

* More importantly, volatile capital flows carry risks for financial and economic stability, with thethreat of sudden stops and withdrawals of international capital owing to heightened riskaversion potentially contributing to the spreading financial crises.

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INFLATION OUTLOOK:-

* Inflation has increased worldwide during 2011, driven by a number of factors, particularly the adversesupply-side shocks that have pushed up food and oil prices and strong demand in large developingeconomies as a result of rising incomes. Reflationary monetary policies in major developed economies havealso contributed to upward pressure.

However inflation should not be a major policy concern for most developed economies. Inflation is expectedto be moderate in the outlook for 2012-2013 with the weakening of aggregate demand, subdued wagepressures in the face of continued high unemployment and barring major supply shocks the moderatingof international commodity prices.

But is a bigger concern in a number of developing countries Inflation rates surpassed policy targets by a widemargin in a good number of developing economies. The monetary authorities of these economies haveresponded with a variety of measures, including by tightening monetary policy, increasing subsidies on foodand oil, and providing incentives to domestic production. In the outlook, along with an anticipatedmoderation in global commodity prices and lower global growth, inflation in most developing countries isalso expected to decelerate in 2012-2013.

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A review on Indian stock market:-The Indian stock market is considered one of the most promising emerging market isamong the top eight markets of the world. The stock exchange Mumbai which wasestablished in 1875 as the native share stockbrokers association has evolved over the

years into its present status as the premier stock exchange in the country. At present24 stock exchanges operates all over the India. The stock exchanges provides facilitiesfor trading securities, securities market provides a common platform for transfer ofunds from the person who has excess fund to those who need them. Securitiesmarket is regulated by the SEBI.

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Shareholding Pattern at the end of September 2011 for companies listed onthe NSE:The share holding pattern at the end of September 2011 for companies listed on the NSE can

be depicted in the following table:-

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Primary Market:-An aggregate of `8,561,863 million (US $ 191,755 million) was raised by thegovernment and the corporate sector in 2010 2011, compared to `10,083,446 million(US $ 223,382 million) in 2009 2010 (a decrease of 15.09 percent). Private placementaccounted for 90.57 percent of the domestic total resource mobilization by thecorporate sector.

Trends:- The issuers mobilize resources through public issues and private placements. Theresources that are raised by corporate and the government from domestic as well asinternational markets are presented in Table. The total resources mobilized throughcorporate and government securities in 2010 2011 decreased by 15 percent

compared to the figures for the previous year. The resources mobilized in 2010 2011amounted to ` 8,561,863 million (US $ 191,755 million) as against ` 10,083,446 million(US $ 223,382 million) in 2009 2010.

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Resource Mobilisation by Government and Corporate Sector:


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Resource Mobilisation by Government and Corporate Sector:


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Outcome of primary market: In 2010 2011, the central government and the state governmentsborrowed ` 4,794,820 million (US $ 107,387 million) and ` 1,040,390million (US $ 23,301 million), respectively. The gross borrowings of thecentral and the state governments taken together were budgeted 6.43percent lower, from ` 6,236,190 million (US $ 138,152 million) in 2009 2010 to ` 5,835,210 million (US $ 130,688 million) in 2010 2011. Theirnet borrowings also decreased by 18.55 percent, from ` 5,092,410million (US $ 112,814 million) in 2009 2010 to ` 4,147,960 million (US $

92,899 million) in 2010 2011.

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Government Securities: The trading in non-repo government securities on NSE has been declining considerably since2004 2005. The aggregate trading volumes in central and state government dated securities on

SGL declined from ` 4,217,022 million (US $ 93,421 million) in 2009 2010 to ` 4,035,492 million(US $ 90,381 million) in 2010 2011.

Derivatives Market: The number of instruments available in derivatives has increased. To begin with, SEBI onlyapproved trading in index futures contracts based on the Nifty 50 Index and the BSE 30 (SENSEX)Index. On the NSE, there are futures and options based on the benchmark index Nifty 50, CNX ITIndex, Bank Nifty Index, and Nifty Midcap 50, as well as futures and options on 226 single stocks(as on October 30, 2011). On the BSE, futures and options are based on the BSE-30 (SENSEX),BSE TECk, BSE BANKEX, BSE Oil & Gas, and BSE SENSEX mini, as well as futures and options on 99single stocks (as on October 30, 2011). The mini derivative (futures and options) contracts onthe Nifty 50 and the SENSEX were introduced for trading on January 1, 2008. The total exchangetraded derivatives witnessed a value of ` 292,483,750 million (US $ 6,550,588 million in 2010 2011 as against ` 176,638,990 million (US $ 3,921,825 million) in the preceding year.

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Capital Market Turnover on Stock Exchanges in India:-

The NSE and the BSE were the only two stock exchange that reported significant trading

volumes. With the exception of the Calcutta Stock Exchange and the Uttar Pradesh StockExchange, all the other stock exchanges in India did not report any trading volumes during2010 2011. The NSE consolidated its position as the market leader by contributing 76.36percent of the total turnover in India in 2010 2011, and 79.58 percent in first half of 2011 2012. Looking at the trends in turnover in the NSE and the BSE from 2008 2009 to the first halfof 2011 2012, one finds that 2010 2011 saw a decline in turnover on the exchanges, mainly onaccount of the crisis and the uncertainties in global financial markets. The turnover on the NSEdeclined by 13.55 percent in 2010 2011 compared to the turnover in 2009 2010, and theturnover on the BSE dipped by 19.86 percent over the same period. The average daily turnoveron the NSE stood at US $ 3.14 billion in 2010 2011 compared to US $ 3.54 billion in 2009 2010.Though the average daily turnover on the BSE decreased by 17.79 percent to US $ 0.97 billion in2010 2011, it declined substantially by more than 40 percent to stand at US $ 0.58 billion in thefirst half of 2011 2012 (compared to 2010 2011). This can be depicted in the followingdiagram:-

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Trading Frequency on NSE and BSE:- The percentage of companies traded on the BSE was quite low in comparison to that on the NSEduring the period April 2010 to September 2011. In September 2011, only 55.99 percent of thecompanies traded on the BSE, while 97.71 percent of the companies traded on the NSE.

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P i k t


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Primary market: In 2010 2011, the government and the corporate sector collectively mobilized ` 7,851,973million (US $ 175,856 million) from the primary debt market, a decrease of 3.73 percentcompared to the preceding years numbers. About 74.32 percent of the resources were raisedby the government (the central and the state governments), while the balance was mobilized by

the corporate sector through public and private placement issues. The turnover in thesecondary debt market in 2010 2011 aggregated ` 72,274,164 million (US $ 1,618,682 million),14.82 percent lower than that in the previous fiscal year.

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Secondary Market:


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Secondary Market: The aggregate secondary market transactions in debt securities (including government and non-governmentsecurities) decreased by 15.74 percent to ` 72,274,164 million (US $ 1,618,682 million) in 2010 2011 from `85,780,050 million (US $ 1,900,311 million) in 2009 2010. Non-government securities accounted for ameager 2.20 percent of the total turnover in the debt market. The NSE accounted for about 7.78 percent ofthe total turnover in debt securities (in both G-sec and non-G-sec securities) in 2010 2011.

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Foreign Investments in India:


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Foreign Investments in India:-Trends in FII InvestmentThe trend in FII investments during the period from 2000- 2007- 2008 is increased significantly whileexperiencing a negative growth rate in the year between 2008-2009. After the 2008-2009 the fii netinvestment again increases and stood the figure given bellow. The FII again experiencing negative figure in

may, august and september in 2011. From the below table it is easily depicted. In September 2010, the netinvestment of ` 326,680 million by FIIs was the highest monthly net investment in 2010 2011. The total netinvestment by FIIs in 2010 2011 stood at US $ 32,226 million, and it dried up in the first half of 2011 2012at US $ 2,042 million

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globel economy & indian stock market

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