Stock Market

The stock market has become an essential market which plays a vital role in economic prosperity and foster capital formation and help in sustaining economic growth. Stock markets are more than a place to trade securities; they operate as a facilitator between savers and users of capital by means of pooling of funds, sharing risk, and transferring wealth. Stock markets are essential for economic growth as they insure the flow of resources to the most productive investment opportunities.

Stock market is highly sensitive to the fundamental economic changes and to future expectation prospects. The expectations are influenced by micro and macro fundamentals which may get formed either rationally or adaptively on economic fundamentals. There can be other factors which may be subjective and unpredictable and non quantifiable. It is generally inferred by the people that domestic economic fundamentals play a determining role in the performance of stock market. However, in a globalized and liberalized economy, external factors also influence domestic economy.

Globalization and liberalization in India was introduced in 1991 by the then Prime Minister, Dr. Manmohan Singh. Indian capital market has undergone tremendous changes and has evolved as a major source of raising resource for Indian Corporate after that. The total market capitalization of Bombay Stock Exchange (BSE) has increased from a measure percent of 4 in 1978-79 to 50 percent currently. Eventually Indian stock market has attracted FII’s, FDI’s, DII’s and other institutional investors as well.

In India, less than 1% people are involved in active trading, but the whole population gets affected by the positive or negative movement of Sensex as it indirectly affects the overall economy of the country. At the same time it appears that a change in overall economy of the country affects the stock market as it brings significant change in the prices of stocks.

In the past few years there have been a hyper boom... [continues]

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