Stock Market boom is no indicator of revival but a sign of ailment of economy


When economy is in doldrums with all major parameters like GDP, Index of Industrial Production (IIP), inflation, unemployment, job loss, consumption expenditure per household and poverty level are at all time low, there is a sharp and persistent rise in the two benchmark indices of secondary stock market in India, the Sensex of the Bombay Stock Exchange (BSE) and the Nifty 50 of the National Stock Exchange (NSE) have been rising sharply. Indian stock market that started rallying since couple of years amidst acute economic crisis, continued during first phase of pandemic when economic conditions were harsher due to the nationwide lockdown, are still booming steadily while economy is in more peril during the second wave of the pandemic. Noteworthy is the fact that the quarters of vested interest are trying to show this upswing in the stock market indices as a mark of reviving economy. The various economic bodies and rating agencies are also busy in projecting how much the economy would grow in the coming years because of the recovery measures undertaken by the BJP-led central government. But the common pauperizing people wonder what relief is being brought to them by these jumping indices and how can a claim of economic recovery be made when with every passing day, rich is becoming richer and the poor poorer.
In fact, there is no connection between economic recovery and spiralling of secondary stock market indices. Let us explain briefly. When a company raises capital by issuing equity shares, those shares are being subscribed (means bought) at the determined price by many investors, mostly the corporate bigwigs, moneyed individuals and Mutual funds, Pension funds etc. This sale and purchase of new shares (called Initial Public Offer or IPOs) takes place in the primary market of the stock exchange. Once listed, these shares are then traded in the secondary market of the stock exchange. This trading means a section of the holders of the shares sell them to another section of interested buyers. The current price is determined based on speculation about the future demand of the shares. The buyer’s calculation is the share he is buying at a particular price would be in demand in future. If there is demand, the price would go up. So he would be able to sell his holdings at the higher price and book profit. On the other hand, the seller’s assumption is that the demand as well as price of the concerned share would fall and hence it would be profitable to sell (technically said offloading) them now. This is how the trading in the secondary stock market takes place. Speculation, it is relevant to point out, is a part and parcel of capitalism, now sunk in a growing insurmountable crisis endemic of the system. More acute is the crisis, more flourishes the speculation.
Now, the secondary market indices comprise of a basket of select shares which are traded (means change hands through buy and sale) frequently. Though there are many stock exchanges, maximum transactions take place in Bombay Stock Exchange and National Stock Exchange. Sensex (Sensitive index of Bombay Stock Market comprising 30 shares) and Nifty-50 (Basket of 50 shares of National Stock Exchange) are the two indices of highest reckoning in the speculative stock market. Up and down of these indices indicates average rise and fall of the values of the constituent shares. Domestic and foreign investors (through the route of Foreign Institutional Investment-FII route) are mainly trading in these shares. Now if more money is pumped in to chase the given baskets of 30 or 50 shares, the value would automatically go up. For example, if Rs 3000 chase 30 share basket, the average price would be Rs 100 per share. But if 30 thousand rupees chase the basket, average price per share would shoot up to Rs 1000. There is a term called ‘market capitalization’ which is often referred to in the parlance of bourgeois economics. This figure is arrived at by multiplying the number of outstanding share of a company by the current market price of the shares. So if there are 1000 shares of a company listed on the secondary market of the stock exchange and the quoted market price of that share on a day is Rs 50, then market capitalization of that company on that day is Rs 50,000 (1000 x 50). So, more is the infusion of money in the stock market, more would be the market capitalization figures. And the economists, commentators and financial experts tutored in bourgeois economics are prone to project this market capitalization figure as ‘soundness’ of a company which might be otherwise sick in terms of profits from productive investment (industries, realty, commercial ventures etc.). Even by market, they, in their write-ups and columns, often cleverly refer to stock market and not the common market to confuse people.
But why are there is an increased inflow of money in the secondary stock market? Because, the monopoly houses and corporate sector, who are reckoned in bourgeois economics as investors or in the language of the BJP Prime Minister, ‘wealth creators’, are shying away from productive investment as the market for selling industrial or consumer goods is squeezing consequent to rapid fall in the purchasing power of the common people assailed by non-availability of means of income. But they cannot keep their surplus capital idle as their sole objective is to anyhow reap maximum profit by deploying their capital. So, in the period of ongoing recession, they are diverting a sizeable part of the heaps of idle capital accumulated in their hands in speculative market for easy returns.
While Foreign Institutional Investors (FIIs) have been playing a major role in massive influx of foreign capital into the Indian stock market, the current boom in the market is also attributable to sizeable infusion of funds by Domestic Institutional Investors (DIIs) viz. mutual funds, insurance companies, banks etc.. Banks, which are extremely stressed with NPA (Non Performing Assets or defaulted loans) problem are also found inclined to more and more investment in speculative stock market in order to partly fill their treasury from non-credit sources. By progressively bringing down interest rate on the false pretext of providing cheaper loan to the industrial houses and corporate sectors for productive investment which, as mentioned above, is ruled out in sinking capitalism today, the government is also encouraging people to take more exposure in stock market either directly or through the conduits of Mutual Funds and Insurance Plans. Even the government which earlier parked the Provident Fund and Pension Funds in government securities (G-Secs) is now shifting those funds to stock market to boost artificial stimulation. So, the boom of the stock market is artificial and has no connection with general economy. It is no indicator of health or revival of the economy but bears sign of serious ailment, if not a collapsing condition. We appeal to the thinking people at large not to be swayed by the misleading propaganda of the ruling quarters and those on their pay-roll about fictitious claim of economic revival by pointing at climbing stock market indices.

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