The stock market’s fluctuations in the pricing of financial assets sometimes appear to be incongruous what is happening in the rest of the economy is referred to as the ‘real economy’
A company’s market value should represent how much money investors expect it will make in the future. If changes in the larger economy are expected to have an impact on business performance, share values should fluctuate. However, it’s vital to note that investors will take into account not just what’s going on right now, but also what’s anticipated to happen in the future.
Before we can figure out how markets affect GDP, we need to understand what drives economic growth. Spending and investment are the primary drivers of the US economy’s GDP. GDP is usually expressed as that percentage increase from one period with the next.
Stock Market Fluctuations
The stock market is frequently used as a sentiment indicator, and it may have a positive or negative influence on GDP. In a bull market, As stock values rise, individuals and businesses have more money and confidence, which leads to more spending and GDP growth. Consumers and businesses have less wealth and optimism in a big market, less spending, and lower lead to lower GDP.
Emotions are at the heart of the stock market. It is perpetually forward-thinking. There are forecasts about what will happen in the future with every up and down in the stock market. The stock market in India fell dramatically in March when the COVID 19 crisis broke out. It was a sign of the destruction that the Corona epidemic will inflict shortly.
But it wasn’t until April, when the same market began to rise despite being closed, that Carona’s issue in the country deepened. Many expected the Nifty to drop below 5000-6000, but it eventually steadied around 9800 after 8500. The Nifty has increased by 30% since its low in April. This is because, even though FIIs are exiting the market, Indian investors have continued to invest. They continue to put money into SIP. Those with additional cash continued to invest in the market.
Since the 2008 financial crisis, investors have been extremely cautious and vigilant. If they are investing in the stock market for the long term, they will regard a drop like this as an opportunity. Ordinary individuals are investing in India today in the belief that the country’s economic boom will continue. The Indian stock market does not rely only on foreign institutional investors (FIIs) nowadays. The average man’s money, as well as institutional investors, is heavily involved in the market. Retail investors respond in the same way as the market does by anticipating what will happen in the future.