Financial Integration and Real Sector Growth in BRICS Nations

by Panchanan Das
 
India - The 1980s and 1990s were characterized by substantial institutional change in financial markets that significantly increased global financial integration. These changes resulted in the emergence of new issues that were not present so far. As a result, we have seen a noticeable increase in the size and variety of studies dealing with these issues. This article is restricted to look into some interrelated issues on financial integration among the BRICS nations. BRICS is an association of five major emerging economies: Brazil, Russia, India, China and South Africa. These five countries together contributed roughly 1/5 of the GDP to the world economy with nearly 40% of the world population in 2015. Initially it was BRIC but later South Africa joined the family to be newly termed as BRICS. The immediate aftermath of the 2008 financial crisis didn’t had much effect on their economies as the emerging powers continued to grow.
Related: What is the state of the BRICS economies?

Image: REUTERS/BRICS Photohost/RIA Novosti

The BRICS countries have little in common in political terms and the degree of openness with regards to the level of globalization and liberalization. The unique and unifying factor is the scale of their economies in terms of gross domestic product (GDP) and their sustained growth rates in the past two decades. The shift from intensive technique to extensive technique way of extracting materials lead to a paradigm shift in development. Although there exists a huge number of studies that concentrate on measuring the level of financial integration and focusing on the issues related to it, there are relatively small number of studies that concentrated on these nations. However, the changing power structure of global economy calls for more attention to the emerging giants. The BRICS is a renewed global partnership for development. The BRICS member countries have converged to work on some common goal and priorities. Being the fastest growing and the largest emerging giants, the BRICS nations account more than half of the global population and contribute majorly in the world GDP growth. Daily changes, 10-year and 25-year averages of the main stock market indices like IBOVESPA, BSE Sensex, RTSi can be followed on www.glarius.com
Related: BRICS Face Their Own Challenges While Meeting As A Bloc

Mr. Panchanan Das is an Economics Professor at University of Kolkata Kolkata, West Bengal, India

Divergence Between Stock Market Performance and Real Economy Trends

by Panchanan Das
 
India - Many economists believe that significant decrease in stock prices could be source of future recession, whereas large increase in stock prices may reflect the expectation towards future economic growth. However, there were controversy issues to doubt the stock market’s predictive ability such as the 1987 stock market crashed followed by world recession and the 1997 Asian financial crisis. Daily BSE Sensex movements can be followed live on Glarius Investments Intelligence Platform. www.glarius.com

While the Sensex, as of any other stock or share price index, is conventionally treated as an indicator of economic performance of an economy, it can only be the gross indicator of an economy like India both statistically as well as conceptually. This is because the movement in share prices is guided by the expectations about the future performance of companies listed on the stock exchange. Here we enter in the field of Markets Intelligence. Movements in share prices may indicate economic health, but it could not predict properly the performance of the real sector. Glarius (www.glarius.com) has tools to monitor performances of Indices worldwide. Performance, yields of the last 25 years. Also, we have a tool to predict future movements in Indices. GLARIUS PROGNOSIS TOOL. 

There is a divergence between stock market performance and real economy trends. The stock markets seem reasonably function well even if the real sector not performing so well. This is because the Sensex is a stock market index representing the movement in the share price of major companies listed in the Mumbai Stock Exchange.

Mr. Panchanan Das is an Economics Professor at University of Kolkata Kolkata, West Bengal, India

Does the movements in the BSE Sensex Index Reflect the State of the Indian Economy?

BSE Sensex building     Source: financialexpress.com

The movement in BSE Sensex (Mumbai, India) largely depends on major macroeconomic parameters like GDP growth, inflation, fiscal deficit, foreign exchange stability, industrial output etc. affecting the expectations of future performances of the companies. Let’s say RBI (Royal Bank of India) increases interest rates because of rising inflation. This increases the borrowing cost of companies which is expected to add to their cost of production and bring down their profits. This will bring down share prices of most of the companies in the market.

Related: Sensex rallies 145 points, best weekly jump since May

Mumbai business district  Source: mumbaithemegacity.weebly.com

The Sensex is also affected by the macroeconomic indicators of the global economy. The debt crisis in the Eurozone, for example affected the Sensex after the integration of the domestic financial market to the global market. Recently, the sensitive index decreased 604 points to 26398 on June 24^th because of the Brexit effect. Stock prices and the BSE Sensex index can be regarded as a good mirror of the Indian economy. However, it must not be forgotten that Stock Markets in general are subject to a deal of emotions, opportunism and hustlers looking for an overnight profit. For serious, long-term investments it is important to look at the results and opportunities over a long period of time.

Daily BSE Sensex movements but also long-term results, average return on investments can be followed live on Glarius Investments Intelligence Platform. Glarius has developed models, graphs and tools to monitor performances of stock market indices worldwide. Also, we have developed an econometric model to predict future movements in indices such as BSE Sensex. www.glarius.com

Related: Modi's magic: Is India's economic miracle a mirage?

Mr. Panchanan Das
Associate Professor at the Department of Economics, University of Calcutta
Kolkata, West Bengal, India