Economic Analysis

1. ECONOMIC ANALYSIS

2. • Researchers have found that about 30-35% of
stock price change is attributed from
economic factor.
• Economic analysis involves the understanding
of macro-economic environment and its
development.
• It helps to predict the course of national
economy which affects corporate profits,
investor attitudes and expectations and
ultimately security prices.

3. TYPES OF ECONOMIC FORECAST
• Short-Term Forecast: period of up to 3 yrs or
shorter periods such as quarters , half yearly
etc.
• Intermediate Forecast: refers to three –to five
– year period ahead
• Long – Term Forecast: refers to the period
more than five years

4. TECHNIQUES OF SHORT TERM
BUSINESS FORECASTING
• ANTICIPATORY SURVERY
• BAROMETRIC OR INDICATOR APPROACH
• MONEY AND STOCK PRICE
• ECONOMETRIC MODEL BUILDING
• OPPORTUNISTIC MODEL BUILDING

5. ANTICIPATORY SURVERY
• The forecaster ask the prominent people in
government and industry what their plans are
related to various sector.
• The forecaster can also look for various
publication and anticipate the most likely
situation .

6. BAROMETRIC OR INDICATOR
APPROACH
• These are the cyclical indicators classified
according to cyclical timing and economic
process.
• There are three types of cyclical indicators
according to cyclical timing:
1. Index of Leading Indicators
2. Index of Coincident Indicators
3. Index of Lagging Indicators

7. 1. Index of Leading Indicators: are those time
series of data that reaches peaks or troughs
advance of total economic activity.
2. Index of Coincident Indicators : reach their
peaks or troughs at approximately the same
time as the economy
3. Index of Lagging Indicators: reach their
turning points after the economy has already
reached its own.

8. MONEY AND STOCK PRICE
• Money supply is one of the components of
monetary policy
• Change in the money supply effect the stock price
• Changes in money supply can be either
anticipated or unanticipated by the people.
• anticipated and unanticipated changes in the
money supply affect the stock market differently.
• Anticipated change of money supply have
significant change in stock price compared to
unanticipated.

9. ECONOMETRIC MODEL BUILDING
• Econometrics is the field of study that applies
mathematical and statistical techniques to
economic theory.
• Forecaster finds the dependent and
independent variables and their relationship
• It involves the specification of system of
simultaneous equations containing both
endogenous and exogenous variables.

10. • Advantages : yield a forecast that gives both
direction and magnitudes.
• Disadvantage:
Costly
Time consuming
Useful only for short-term forecast

11. OPPORTUNISTIC MODEL BUILDING
• It is the most widely used forecasting model
• Steps in model building
1. Hypothesize total demand and income during
forecast period
2. Estimate the GNP figures by estimating the
levels of the various components of GNP
3. Estimation of net export

12. 1. Estimation of personal consumption factor
Durable goods less automobiles
Automobiles
Nondurable goods and services
5. Add all the estimation and calculate the final
GNP
6. Check for the consistency

13. CURRENT ECONOMIC SCENARIO
OF INDIA
• 3-5 yrs bullish market as macro-eco indicators
are improving
• Government to promote FDI selectively in
sectors
• A sum of ` 7060 core is provided in the current
fiscal for the project of developing "one
hundred Smart Cities’
• A target of ` 8 lakh crore has been set for
agriculture credit during 2014-15.

14. • Government in close consultation with the
RBI to put in place a modern monetary policy
framework