You are on page 1of 41





Prof. R.K. Raul











INTRODUCTION:The world economy comprises of the economies of all the countries in the world. The period
before 1980s witnessed the individual economies with limited interaction among them. However
the world economies used to interact among themselves to the extent of export and import of
goods and services. Global economy transcended from the mere export and import of goods to
investment across the countries, capital deployment, global deposits receipts, technology transfer
free movement of human resources, expanding the marketing operation and so on. The
globalization also helps the free flow of factors of production like capital, human resources and
management expertise across the countries.
So a global or transactional economy is one which transcends the national borders unhindered by
artificial restriction normally imposed by the government on the flow of goods, services and
factors of production across the national boundaries. Thus, globalization turns the individual and
separate economic unit into a single integrated economic unit.

A brief review on the global economy:The world economy has entered a dangerous period. Some of the financial turmoil in Europe
has spread to developing and other high-income countries, which until earlier had been
unaffected. This contagion has pushed up borrowing costs in many parts of the world, and
pushed down stock markets, while capital flows to developing countries have fallen sharply.
Europe appears to have entered recession. At the same time, growth in several major
developing countries (Brazil, India and, to a lesser extent, Russia, South Africa and Turkey)
is significantly slower than it was earlier in the recovery, mainly reflecting policy tightening
initiated in late 2010 and early 2011 in order to combat rising inflationary pressures.
As a result, and despite a strengthening of activity in the United States and Japan,
global growth and world trade have slowed sharply.
Indeed, the world finds itself, in January 2012, living a version of the downside
scenarios discussed as a risk just 6 months ago when the June edition of Global
Economic Prospects (GEP) was released. As a result, forecasts have been
significantly downgraded in this edition of GEP.

*The global economy is now expected to expand 2.5 and 3.1 percent in 2012 and 2013
(3.4 and 4 percent when calculated using purchasing power parity weights), versus the
3.6 percent projected in June for both years.
*High-income country growth is now expected to come in at 1.4 percent in 2012 (-0.3
percent for Euro Area countries, and 2.1 percent for the remainder) and 2 percent in
2013, versus a June forecast of 2.7 and 2.6 percent for 2012 and 2013 respectively.
*Developing country growth has been revised down to 5.4 and 6 percent versus 6.2 and
6.3 percent in June.
*Reflecting the growth slowdown, world trade, which expanded by an estimated 6.6
percent in 2011, will grow only 4.7 percent in 2012, before strengthening to 6.8 percent
in 2013.

*It is expected that if the crisis expands and markets deny financing to several additional European economies, outturns could be much worse, with global GDP more than 4 percent lower than in the
baseline. Although such a crisis, should it occur, would be centered in Europe, developing countries would feel its effects deeply, with developing country GDP declining by 4.2 percent by 2013.

* Perhaps more importantly, capital flows to developing countries have weakened sharply as investors withdrew substantial sums from developing-country markets in the second half
of the year. Overall, gross capital flows to developing countries decline to $170 billion in the second half of 2011, only 55 percent of the $309 billion received during the like period of

* From the above analysis we can say that the fiscal conditions are still generally better in developing countries than in high-income countries, government balances have
deteriorated by two or more percent of GDP in almost 44 percent of developing countries and some 27 developing countries have government deficits of 5 or more percent of GDP in
2012. As a result, developing countries have much less fiscal space available to respond to a new crisis.

*Whatever the actual outcomes for the world economy in 2012 and 2013, several factors
are clear. First, growth in high-income countries is going to be weak as they struggle to
repair damaged financial sectors and badly stretched fiscal balance sheets. Developing
countries will have to search increasingly for growth within the developing world, a
transition that has already begun but is likely to bring with it challenges of its own.

*Recent data suggest that the moderation in the global economy appears to have
slowed, though the risks to the outlook remain on the downside. The condition of the
major economies are given below:-


The sovereign debt crises in a number of European countries worsened further in 2011 and aggravated
weaknesses in the banking sector. From late 2009, fears of a sovereign debt crisis developed among
investors concerning some European states, intensifying in early 2010. This included euro zone members
Greece, Ireland, Italy, Spain and Portugal, and also some non-euro zone European Union (EU) countries.
Iceland, the country which experienced the largest financial crisis in 2008 when its entire international banking
system collapsed, has emerged less affected by the sovereign debt crisis.
*Renewed tensions in sovereign-debt markets, high oil prices and decelerating world output growth have all
contributed to a sharp loss of confidence towards the end of 2011 and the subsequent output contraction in
the EU.
*After negative growth rates in the last quarter of 2011, a GDP contraction is forecast also for the beginning of
this year (2012) in the EU and the euro area. Both zones have thus entered a technical recession. All in all,
GDP is projected to stagnate in the EU and contract by 0.3% in the euro area this year, and to grow by 1.3% in
the EU and by 1.0% in the euro area in 2013.
*The overall deficit in the EU is set to decrease from 4% of GDP in 2011 to some 3% in 2012 and, at
unchanged policies, further to 3% in 2013.

*Government debt-to-GDP ratios are forecast to increase in most EU Member

States over the forecast horizon. In the euro area, increasing interest payments
and low growth are contributing to push up debt ratios. The aggregate debt
ratio of the EU is forecast to reach 86% of GDP this year and 87% of GDP in
2013 (slight upward revisions relative to the autumn forecast). The
corresponding euro-area figures are 92% and 93%.
*Inflation is estimated to slow gradually and to fall below 2% in 2013. Energy
prices and indirect taxes have been the main drivers of consumer price inflation
in recent quarters.


* The economy of the United States started 2012 on a positive note. Job creation exceeded
expectations, stock market indices registered solid gains, credit conditions eased notably,
while also consumer confidence and spending increased markedly.
*Economic activity is expected to grow by 2.1 per cent in 2012 and 2.3 per cent in 2013, a
slight upgrade from the previous forecast and above the 1.7 per cent recorded in 2011.
*However, the economy is not out of the woods yet. Despite falling labour participation, the
unemployment rate remains much higher than it was before the crisis and, in April, job
creation slowed again to below the level needed to absorb the natural increase of the labour
force. The number of workers without a job for more than six months continues to increase.

*The US has the largest and most technologically powerful economy in the world. In 2008, soaring oil prices threatened inflation
and caused a deterioration in the US merchandise trade deficit, which peaked at $840 billion. In 2009, with the global recession
deepening, oil prices dropped 40% and the US trade deficit shrank, as US domestic demand declined, but in 2011 the trade
deficit ramped back up to $803 billion, as oil prices climbed once more.
*In 2010 and 2011, the federal budget deficit reached nearly 9% of GDP; total government revenues from taxes and other
sources are lower, as a percentage of GDP, than that of most other developed countries. The wars in Iraq and Afghanistan
required major shifts in national resources from civilian to military purposes and contributed to the growth of the US budget deficit
and public debt - through 2011, the direct costs of the wars totaled nearly $900 billion, according to US government figures.
*GDP - real growth rate
1.5% (2011 est.)
3% (2010 est.)
-3.5% (2009 est.).
*Unemployment rate
9% (2011 est.)
9.6% (2010 est.)
* Budget surplus (+) or deficit (-)
-8.9% of GDP (2011 est.)

Inflation rate (consumer prices)

3% (2011 est.)
1.6% (2010 est.)


The pace of economic growth in China appears to be gradually reviving,Output growth in China is expected to move back towards the top end of a 7-8% annual
growth range in 2013.
*Chinas economic growth in 2011 slowed to 9.2% from the 10.3% of 2010, while inflation went up to 5.3%, well above the governments original target of 4%.
*In view of the dim external and domestic growth environment, Chinas economic growth in 2012 has been variously slated to be around 8.5%, the lowest growth in ten
years, while inflation will be brought down further to around 4%. Some are even more downbeat about the 2012 growth prospects.
*Chinas economic growth mode started to change in 2011, with external demand (exports minus imports) contributing a smaller share to its overall GDP growth, in line
with government efforts to render Chinas long-term growth more dependent on domestic demand.
*Export growth in 2011 actually came down to 20%, from the 26% of 2010. Chinas trade surplus in 2011 also narrowed to US$150 billion, down from US$180 billion of
*Officially, Chinas total public debt is about 50% of its GDP, which is not high by international standards and certainly quite low for such a fast-growing economy.
*Overall, starting with 2012, Chinas economy is saying good-bye to its double-digit rates of growth. As the economy is already large and fast maturing, it should not
continue with such breakneck growth anymore

GDP Growth:
Real GDP growth fell sharply in the quarter ended December 2011 to 6.1 per cent. This was the
lowest growth since the global financial crisis in the same quarter of 2008. The GDP growth has
been falling for the past four quarter because of the consistent and substantial fall in the growth of
the industrial sector, particularly mining. In this financial year we are expected to achieve GDP
growth rate ranging between 5.5 to 6%.
Inflation, as measured by the WPI, slipped to 6.6 per cent in January 2012. This was on account of a
drop in inflation in primary articles. We expect headline inflation to average at 8.7 per cent in 201112. Inflation is expected to ease to 5.7 per cent in 2012-13 after remaining above eight per cent in
the preceding two years.
We expect industrial production to grow by a healthy 6.8 per cent in 2012-13. This will be driven by a
sharp acceleration in the electricity generation growth to 13.1 per cent from 7.4 per cent in 2011-12.
We expect output of manufactured products to grow by 5.7 per cent in 2012-13, driven by around 10
per cent growth in production of automobiles, machinery and basic metals.

*Indias gross fiscal deficit ballooned to Rs.4.3 lakh crore by January 2012 and surpassed the budget
estimates for the fiscal year 2011-12. This was because of a sharp rise in subsidy bill, lower-thanexpected mop up of taxes and lack of action by the government on the disinvestment front.
*We expect government expenditure to remain high in the last two months of 2011-12. The tax receipts,
however, are unlikely to show any major pickup. Although the government is expected to make some
progress on the disinvestment front, the amount raised on this account will not be sufficient to curtail the
fiscal deficit. We expect GFD to continue to expand and amount to six per cent of GDP in 2011-12.
*Indian corporate raised Rs.24,894 crore from the primary capital markets in December 2011. This was
lower than the amount raised in the preceding month. The CMIE Overall Share Price Index (COSPI)
rose by 4.9 per cent in February 2012, over a 13.6 per cent rise in the preceding month.
*FIIs pumped in Rs.25,217 crore in the Indian equity markets in February 2012 while mutual funds
continued to remain net sellers during the month. AUMs of the mutual fund industry rose by a healthy
7.8 per cent to Rs.6.6 lakh crore in January 2012 as compared to the preceding month.

The Economic growth scenario:The GDP growth rate of the different economies are given in the following table:-

Structure of Global Production:Sector-wise value added by region
























Latin America & the







North America


















Factors :There are some crucial factors of the world economy are discussed below:-

1. OIL PRICE:*World market prices of primary commodities declined markedly in the second half of
2011, but were on the rise again in early 2012, especially oil prices. After rising by 40 per
cent to reach an all-time high average yearly price of $111 per barrel (p/b) in 2011, the
Brent crude oil price increased further, oscillating around $120 p/b in April 2012.
*The surge was triggered by bans imposed by the EU and the United States on oil
imports from the Syrian Arab Republic and the Islamic Republic of Iran,2 as well as by
speculation about escalating geopolitical tensions in the region.
* Metals prices are expected to fall moderately in 2012 as industrial output slows in China
and the euro area faces recession. Food prices have come down from the highs of 2011,
but remain elevated. Further easing is expected in the second half of 2012 and 2013.

These trends are expected to contribute to a further moderation of inflation worldwide.

Volatility in commodity prices will remain a concern for net commodity exporters and
importers alike. Geo-political factors may push oil prices to even higher levels, posing an
added downside risk to the world economic outlook

2. INTERNATIONAL MARKET:*Managing the macroeconomic volatility induced by financial flows presents a challenge
for emerging market and developing country policymakers. Waves of capital inflows that
are in excess of an economys absorptive capacity, or highly speculative in nature, may
lead to exchange-rate overshooting, inflation, credit booms and asset price bubbles.
* More importantly, volatile capital flows carry risks for financial and economic stability,
with the threat of sudden stops and withdrawals of international capital owing to
heightened risk aversion potentially contributing to the spreading financial crises.

However After much turmoil during 2011, global capital markets regained some
stability in early 2012 as concerns over an escalation of the euro area crisis
and the possibility of a hard landing of the Chinese economy eased (at least for
now), and growth prospects in the United States seemed to have improved.
During the first quarter of 2012, most emerging economies have seen less
volatility in private capital inflows, more moderated swings I exchange rates and
modest stock market gains. For 2012 as a whole, total net private capital
inflows to emerging countries are projected to be positive, though somewhat
below 2011 levels.

INFLATION OUTLOOK:*Inflation has increased worldwide during 2011, driven by a number of factors, particularly the
adverse supply-side shocks that have pushed up food and oil prices and strong demand in large
developing economies as a result of rising incomes. Reflationary monetary policies in major
developed economies have also contributed to upward pressure.
However inflation should not be a major policy concern for most developed economies. Inflation is
expected to be moderate in the outlook for 2012-2013 with the weakening of aggregate demand,
subdued wage pressures in the face of continued high unemployment andbarring major supply
shocksthe moderating of international commodity prices.
But is a bigger concern in a number of developing countries Inflation rates surpassed policy
targets by a wide margin in a good number of developing economies. The monetary authorities of
these economies have responded with a variety of measures, including by tightening monetary
policy, increasing subsidies on food and oil, and providing incentives to domestic production. In
the outlook, along with an anticipated moderation in global commodity prices and lower global
growth, inflation in most developing countries is also expected to decelerate in 2012-2013.

A review on Indian stock market:The Indian stock market is considered one of the most promising emerging
market is among the top eight markets of the world. The stock exchange
Mumbai which was established in 1875 as the native share stockbrokers
association has evolved over the years into its present status as the premier
stock exchange in the country. At present 24 stock exchanges operates all over
the India. The stock exchanges provides facilities for trading securities,
securities market provides a common platform for transfer o funds from the
person who has excess fund to those who need them. Securities market is
regulated by the SEBI.

Shareholding Pattern at the end of September 2011 for companies

listed on the NSE:
The share holding pattern at the end of September 2011 for companies listed on
the NSE can be depicted in the following table:-

Primary Market:An aggregate of `8,561,863 million (US $ 191,755 million) was raised by the
government and the corporate sector in 20102011, compared to `10,083,446
million (US $ 223,382 million) in 20092010 (a decrease of 15.09 percent).
Private placement accounted for 90.57 percent of the domestic total resource
mobilization by the corporate sector.

Trends:The issuers mobilize resources through public issues and private placements.
The resources that are raised by corporate and the government from domestic
as well as international markets are presented in Table. The total resources
mobilized through corporate and government securities in 20102011
decreased by 15 percent compared to the figures for the previous year. The
resources mobilized in 20102011 amounted to ` 8,561,863 million (US $
191,755 million) as against ` 10,083,446 million (US $ 223,382 million) in 2009

Resource Mobilisation by Government and Corporate Sector:

Outcome of primary market:

In 20102011, the central government and the state governments
borrowed ` 4,794,820 million (US $ 107,387 million) and `
1,040,390 million (US $ 23,301 million), respectively. The gross
borrowings of the central and the state governments taken
together were budgeted 6.43 percent lower, from ` 6,236,190
million (US $ 138,152 million) in 20092010 to ` 5,835,210 million
(US $ 130,688 million) in 20102011. Their net borrowings also
decreased by 18.55 percent, from ` 5,092,410 million (US $
112,814 million) in 20092010 to ` 4,147,960 million (US $ 92,899
million) in 20102011.

Secondary Market:Corporate Securities:

The exchanges in the country offer screen-based trading system. There were
10,203 trading members registered with SEBI at the end of March 2011 (Table
1-7). The market capitalization has grown over the period, indicating that more
companies are using the trading platform of the stock exchange. The market
capitalization across India was around Rs 68,430,493 million (US $ 1,532,598
million) at the end of March 2011. Market capitalization ratio is defined as the
market capitalization of stocks divided by the GDP. The all-India market
capitalization ratio decreased to 86.89 percent in 20102011 from 94.2 percent
in 20092010. The trading volumes on the stock exchanges have been
witnessing phenomenal growth over the past few years. Trading volume, which
peaked at ` 55,168,330 million (US $ 1,222,161 million) in 20092010, posted a
fall of 15.12 percent to ` 46,824,370 million (US $ 1,048,698 million) in 2010

Government Securities:
The trading in non-repo government securities on NSE has been declining considerably
since 20042005. The aggregate trading volumes in central and state government dated
securities on SGL declined from ` 4,217,022 million (US $ 93,421 million) in 20092010
to ` 4,035,492 million (US $ 90,381 million) in 20102011.

Derivatives Market:
The number of instruments available in derivatives has increased. To begin with, SEBI
only approved trading in index futures contracts based on the Nifty 50 Index and the
BSE 30 (SENSEX) Index. On the NSE, there are futures and options based on the
benchmark index Nifty 50, CNX IT Index, Bank Nifty Index, and Nifty Midcap 50, as well
as futures and options on 226 single stocks (as on October 30, 2011). On the BSE,
futures and options are based on the BSE-30 (SENSEX), BSE TECk, BSE BANKEX,
BSE Oil & Gas, and BSE SENSEX mini, as well as futures and options on 99 single
stocks (as on October 30, 2011). The mini derivative (futures and options) contracts on
the Nifty 50 and the SENSEX were introduced for trading on January 1, 2008. The total
exchange traded derivatives witnessed a value of ` 292,483,750 million (US $ 6,550,588
million in 20102011 as against ` 176,638,990 million (US $ 3,921,825 million) in the
preceding year.

Capital Market Turnover on Stock Exchanges in India:The NSE and the BSE were the only two stock exchange that reported significant trading
volumes. With the exception of the Calcutta Stock Exchange and the Uttar Pradesh
Stock Exchange, all the other stock exchanges in India did not report any trading
volumes during 20102011. The NSE consolidated its position as the market leader by
contributing 76.36 percent of the total turnover in India in 20102011, and 79.58 percent
in first half of 20112012. Looking at the trends in turnover in the NSE and the BSE from
20082009 to the first half of 20112012, one finds that 20102011 saw a decline in
turnover on the exchanges, mainly on account of the crisis and the uncertainties in
global financial markets. The turnover on the NSE declined by 13.55 percent in 2010
2011 compared to the turnover in 20092010, and the turnover on the BSE dipped by
19.86 percent over the same period. The average daily turnover on the NSE stood at US
$ 3.14 billion in 20102011 compared to US $ 3.54 billion in 20092010. Though the
average daily turnover on the BSE decreased by 17.79 percent to US $ 0.97 billion in
20102011, it declined substantially by more than 40 percent to stand at US $ 0.58
billion in the first half of 20112012 (compared to 20102011). This can be depicted in
the following diagram:-

Trading Frequency on NSE and BSE:The percentage of companies traded on the BSE was quite low in comparison to that on
the NSE during the period April 2010 to September 2011. In September 2011, only 55.99
percent of the companies traded on the BSE, while 97.71 percent of the companies
traded on the NSE.

Exchange -wise Brokers and Sub-brokers in India:-

Primary market:
In 20102011, the government and the corporate sector collectively mobilized ` 7,851,973 million (US $
175,856 million) from the primary debt market, a decrease of 3.73 percent compared to the preceding
years numbers. About 74.32 percent of the resources were raised by the government (the central and
the state governments), while the balance was mobilized by the corporate sector through public and
private placement issues. The turnover in the secondary debt market in 20102011 aggregated `
72,274,164 million (US $ 1,618,682 million), 14.82 percent lower than that in the previous fiscal year.

Secondary Market:
The aggregate secondary market transactions in debt securities (including government and non-government
securities) decreased by 15.74 percent to ` 72,274,164 million (US $ 1,618,682 million) in 20102011 from `
85,780,050 million (US $ 1,900,311 million) in 20092010. Non-government securities accounted for a
meager 2.20 percent of the total turnover in the debt market. The NSE accounted for about 7.78 percent of
the total turnover in debt securities (in both G-sec and non-G-sec securities) in 20102011.

Difference between the yield generated by the G -sec & corporate securities
maturity under the different time period are depicted from the diagram below:-

Foreign Investments in India:Trends in FII Investment

The trend in FII investments during the period from 2000- 2007- 2008 is increased significantly while experiencing a negative growth rate in the year between 2008-2009. After the 2008-2009
the fii net investment again increases and stood the figure given bellow. The FII again experiencing negative figure in may, august and september in 2011. From the below table it is easily
depicted. In September 2010, the net investment of ` 326,680 million by FIIs was the highest monthly net investment in 20102011. The total net investment by FIIs in 20102011 stood at US
$ 32,226 million, and it dried up in the first half of 20112012 at US $ 2,042 million

by PHI learning pvt ltd.
Fisher Donald E. & Jordon Ronald j. SECURITY ANALYSIS & PORTFOLIO
MANAGEMENT 6th edition pearson publication.
Pathak bharti V THE INDIAN FINANCIAL SYSTEM third edition pearson publication.
edition Tata McGraw Hill Publication.