How Economic Growth Data Impacts Stock Prices

Edited transcript 
MOHIT SATYANAND: Rising tide lifts all boats. Everybody loves growing economies and with good reason. Because companies grow, economies grow. When economies grow, companies grow. And growing economies can mask a lot of temporary inefficiencies in a company. If companies are basically unsound, if their managements don’t understand what they’re doing, then it remains only temporary. But if they are able to grow out of them, then these rapidly growing economies can create enormous wealth. They create enormous wealth for all participants in an economy whether it is producers, employees or consumers. And we’re seeing that right now. We’re seeing that right now in the Indian economy where the Indian economy is the fastest growing major economy in the world. And the money keeps coming into the Indian stock market. 
And this drives a sort of what I call “tezi mein tez, mandey mein manda” (in Hindi language) kind of psychology. Because when the money is chasing stocks, people are looking at the rear-view mirror and saying stock prices have gone up in the last 6 months.

Therefore, they will keep on going up. So, more people put money in. Now at the economic level this creates a lot of benefits. Because what it does is, when that money comes in from abroad, firstly it means that for a country which is a net importer of goods and services like India, it means that it reduces the pressure on our foreign exchange. And therefore it helps to dampen inflation.

Secondly countries like ours growing, countries like ours are also perennially short of investable funds. They always need fresh capital. So this money coming in also at the margin reduces interest rates by making more investable funds available. And this again makes it easier for the economy to grow. So broad picture, a growing economy is great for investors.

UDAYAN RAY: There you have it. Good economic growth leads to good stock market performance— rising tide; it’s a wealth creation opportunity.