sensex impact on indian economy and wealth ?
The sensex in India has benn sevearly impacted in 2008 by various factors, wiping out thousands of crores in household and corporate wealth. some say it happened because the indian economy has integrated more than ever with the global economy. given this can the regulators minimize volatility in the stock market ? what actions do you recommend ?
August 5th, 2010 at 5:34 am
We would take this opportunity to put the picture in perspective first. The Sensex or the Nifty if at all would represent a barometer of the economy in general. In itself the Sensex would not impact the economy or the wealth of the people at large.
You would appreciate that it would be about 3% of the population of our country who would be directly and/or indirectly associated with the stock markets. Earn their incomes from the stock markets in a manner of speaking. So, even if there is a certain level of wealth erosion of 3% of the population due to stock prices moving down; it would hardly effect the economy and the wealth of 97% of the population.
Volatility is a part and parcel of the way stocks and indices function. After all when you check the business section of any news paper; you see the stocks previous days closing, yesterday’s opening, high, low and closing prices. It is in these price moves that the investors (both big and small) attempt to earn their incomes. And a situation without it would negate the very existence of the stock markets.
During the last stages of bull and bear phases and parts thereof, there are periods of time when the stock markets, stocks and indices experience a higher than usual level of volatility. As individual investors, we would be well advised to avoid investing and/or trading during these periods of time.
Sincerely,
Akash
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