Section | Title | Description |
---|---|---|
5.1 | Basic Principles of Microeconomics | Covers demand and supply, market equilibrium, consumer behavior, and pricing. |
5.2 | Basic Principles of Macroeconomics | Introduces GDP, inflation, interest rates, employment, and government policies. |
5.3 | Introduction to Various Macroeconomic Variables | Discusses critical indicators like IIP, CPI, WPI, fiscal deficit, trade balance. |
5.4 | Role of Economic Analysis in Fundamental Analysis | Explains how macro and microeconomic data influence investment decisions. |
5.5 | Secular, Cyclical, and Seasonal Trends | Differentiates between long-term trends, business cycles, and short-term patterns. |
5.6 | Sources of Information for Economic Analysis | Lists reliable data sources like RBI, CSO, SEBI, IMF, World Bank, etc. |
Microeconomics is the study of individual economic units such as consumers, firms, and industries. It examines how these agents make decisions to allocate limited resources, and how their behavior affects supply, demand, and price levels in a particular market.
Macroeconomics is the branch of economics that deals with the study of the overall functioning of an economy. It focuses on aggregate indicators such as national income, inflation, unemployment, interest rates, and fiscal and monetary policies. These principles help in understanding how the economy grows, contracts, and responds to internal and external shocks.
Central banks like the Reserve Bank of India (RBI) maintain monetary stability, manage inflation, and promote economic growth through policy interventions. Their tools include interest rate management, liquidity adjustments, and exchange rate monitoring.
Macroeconomic variables are key indicators that reflect the overall health, structure, and functioning of an economy. Understanding these variables helps investors, policymakers, and analysts make informed decisions regarding economic trends and financial strategies.
National income is the total value of all goods and services produced by a country’s economy in a specified period, usually a year. It includes GDP, GNP, NNP, and helps in assessing a country’s standard of living and economic performance.
Savings represent income not spent on consumption, while investment refers to the allocation of funds into productive assets. A higher savings rate supports greater capital formation and economic growth.
Consumer Price Index (CPI): Measures retail inflation by tracking changes in prices of a basket of goods and services.
Wholesale Price Index (WPI): Tracks price changes at the wholesale level.
Interest Rate: The cost of borrowing money, controlled by central banks, which influences inflation and liquidity.
Indicates the percentage of the total labor force that is unemployed and actively seeking work. A high unemployment rate suggests underutilization of human resources.
FDI (Foreign Direct Investment): Long-term investment in a country’s productive sectors by foreign entities.
FPI (Foreign Portfolio Investment): Short-term investment in financial assets like stocks and bonds. These flows affect currency stability and market liquidity.
Fiscal policy refers to government spending and taxation strategies used to influence economic conditions. Expansionary fiscal policy stimulates growth, while contractionary policy curbs inflation.
Monetary policy is conducted by central banks to control money supply and interest rates. It affects inflation, consumption, investment, and exchange rates.
International trade involves the exchange of goods and services across borders. Exchange rates influence trade competitiveness. A trade deficit occurs when a country imports more than it exports, affecting currency value and external debt.
Globalization increases interconnectedness of economies through trade, investment, and technology. It boosts growth and innovation but may lead to job displacement, income inequality, and dependence on global supply chains.
Economic analysis plays a vital role in evaluating investment opportunities through fundamental analysis. It provides a macro-level view of market dynamics, guiding analysts to understand how economic conditions affect businesses, industries, and stock performance.
Macroeconomic indicators such as inflation, GDP growth, and interest rates influence:
Trends are crucial for understanding how industries, companies, and the economy behave over time. Recognizing whether a trend is long-term, cyclical, or seasonal helps analysts and investors make more informed and strategic decisions.
Secular trends are long-term movements that can last for years or even decades. These are usually driven by deep-rooted changes such as technology shifts, demographic changes, or structural reforms. They are not dependent on the economic cycle.
Cyclical trends follow the phases of the business cycle — expansion, peak, recession, and recovery. These trends are medium-term and affect sectors that are sensitive to economic activity.
Seasonal trends occur during specific periods in the year due to recurring events, weather, or cultural patterns. They are short-term and predictable.
Economic analysis relies on data that is accurate, reliable, and timely. Analysts use a combination of domestic and international sources to evaluate the state of the economy and assess investment implications.