Investing In Share Markets

Investing In Share Markets? What You Need To Know Of Economic Policies…

How to invest in share markets is not only about understanding the stocks to invest in but also about the environment. The macro environment is influenced by a lot of policy announcements like the Union Budget, monetary policy, trade policy, sectoral policies etc. Here is how they impact how to impact in share markets…

How The Union Budget Impacts Investments In The Share Market…

The Union Budget is a statement of revenue and expenses of the government during the year and gives an idea of how the government will borrow and how much it will spend on various infrastructure projects. But, the Union Budget is also about tweaking of the direct taxes and indirect taxes. Here is how it impacts the share markets…

  • Higher fiscal deficit implies that the government will be extending its borrowing program. Higher borrowings are not only negative for the rating of the economy but also push up bond yields. When bond yields go up they will increase the cost of capital and so future cash flows will be discounted at a higher rate. This will reduce the current valuation of stocks and will be negative for share markets.
  • Higher allocation to rural reforms and infrastructure normally has a positive spill-off impact on the key sectors of the economy. For example, higher rural spending will be positive for the fertilizers sector, agrochemicals sector, hybrid seeds sector etc. It will also create greater rural demand for two wheelers, entry level cars and FMCG products. Hence higher rural spending will be positive for all these segments.
  • Higher infrastructure spending on roads, ports and railways add to the efficiency of operation of the economy and is positive for all sectors across the board. But higher infrastructure spending will also result in greater demand for sectors like steel and cement and is positive for these sectors.
  • When personal taxes are reduced people will have more disposable income with them. Among the lower and middle income groups this can have the effect of spurring consumption in sectors like food, FMCG products, white goods etc. All these sectors will benefit.
  • Indirect taxes can have multiple implications for the key sectors of the economy. For example if the GST on certain products is reduced then the producers can pass on these benefits to the end consumers and they stand to benefit. When customs duty on inputs is cut they will reduce the cost of production. The capital goods segment will normally benefit from this announcement. When customs duty on end-products is raised or when anti-dumping duty is imposed then the domestic industry tends to benefit. Steel is a classic example. When you understand how to invest in share markets, you need to understand all these factors.

How The Monetary Policy Impacts Investments In The Share Market…

The monetary policy lays out the interest rate trajectory for the next quarter. When the rates are trending downward, it is positive for rate sensitive sectors like banks, autos and real estate companies. These sectors tend to benefit from the policy announcement. Similarly, when the policy regulates NBFCs more tightly, it can be negative for these stocks. The monetary policy also charts out the trajectory of inflation in the next quarter. This is an important input for your cost of capital and valuation of companies overall. All these matter when you understand how to invest in share markets.

Trade Policy Also Impacts The Share Markets…

Trade policy pertains to government rules and policy on imports and exports of key items. For example a Commerce Ministry package to boost exports by the textiles sector can be beneficial for the textiles stocks. Similarly, if the government puts curbs on gold imports then that can impact the gems and jewellery sector negatively. At times the government permits free exports of products that were under restricted category. This ensures better global pricing and larger demand for these products. This can be positive for specific sectors and stocks. All these factors can make a difference to your question on how to invest in share markets.

Sectoral Policies Also Have An Impact On Share Markets…

From time to time, the government announces focused sectoral policies. For example, the government recently announced a telecom policy allowing telecom companies to increase their deferment of spectrum fees from 10 years to 16 years. This is a positive for telecom sector. The bank recapitalization package to provide capital to beleaguered PSU banks was a big boost for PSU banks as it ensured that nearly Rs.5 trillion of credit will be able to come back into the market place. These policy statements are normally government announcements to benefit a particular sector which is in trouble. When the steel sector was faced by dumping from China, the government imposed anti-dumping duties on Chinese imported steel. This vastly benefited Indian steel companies and allowed to become profitable and competitive once again.

Economic policies tend to impact share markets quite sharply. While announcements can have a short term impact on prices, structural changes can yield long term benefits. When you understand how to invest in share market, you also need to understand the implications that policies have on the share market performance.

Article written by admin

By Profession, he is an SEO Expert. From heart, he is a Fitness Freak. He writes on Health and Fitness at MyBeautyGym. He also likes to write about latest trends on various Categories at TrendsBuzzer. Follow Trendsbuzzer on Facebook, Twitter and Google+.

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