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The Interplays between Stock Markets and a Nation's Economy

By Rohan A T

Economies around the globe has faced a major hit owing to the covid19 pandemic outbreak and the resulting lockdown and businesses operating across various industry verticals has also faced the brunt of this adverse economic impact. The IMF even forecasted that the global economy could shrink by 4.4 percent during the height of the first surge in early 2020 leaving millions jobless across the world. With the economy, stock markets across the world have also seen a downward spiral during the first wave of the pandemic. Even though, the rollouts of vaccines and the ease of covid19 restrictions have helped the economy to bounce back, the second wave of the pandemic is causing concerns in the global economy as well as the stock markets again.

In India, both the Sensex (882 points) and Nifty (14,359) closed on a low again and many economists fear that this downward trend will not stop until the second wave of the pandemic could be stopped successfully. With state-wide lockdowns looming in various states and with many states already issuing lockdowns, many believe that things will get worse before it gets better. This also means that businesses that have been pushed to the brink of bankruptcy will face a tough time ahead to stay afloat in the market and many millions across the country are also waiting the impending layoffs. The FDIs is also taking a hit in India and the poor performance of many stocks and the sluggish economic activity at large is correlating with each other. So, in this scenario, lets take a closer look at how the stock markets and its performance impact the economy of a country and more importantly, let’s see how stock market help an economy.

With lockdowns likely to be all of our near future and with the country struggling to curb the increasing corona virus infections in the country, the Indian economy as well as the stock market is going to take a hard hit before it will show signs of improving before the year ends

  • Increasing the Economic Activity: This is one of the most important and obvious way in which a stock market will help the economy of a country and if the stock market of a country is doing well, that generally means that the economy of that specific country is doing well and the increasing performance of the stock markets will largely be a good thing for the economy of that country. This increasing economic activity and the increasing flow of money in the economy will help the people of that country also.

 

  • Promoting Investments: This is yet another advantage that a stock market will offer to the economy of a country. Stock markets provides many across the world an outlet to invest in and with more and more younger people looking to invest their hard-earned money in various companies, the importance of stock markets in helping the economy of a country is important on multiple levels. So, essentially stock markets promote investments and this is crucial for the development of a nation’s economy.

 

  • Raising Capital: This is one of the primary reasons behind the running of a stock market and with stock markets, companies have a platform to raise capital to carry on with their business operations as well as expansion plans. This will offer companies the much-needed finance to operate in the industry which will also help them to contribute to the economy both directly and indirectly. This will also help organizations to provide employment for many and this also plays a crucial role in the overall development of a nation’s economy.

 

With lockdowns likely to be all of our near future and with the country struggling to curb the increasing corona virus infections in the country, the Indian economy as well as the stock market is going to take a hard hit before it will show signs of improving before the year ends.

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