Due to 20 Lakh Crore Special Economic Package Stock Market Will Go Up

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Before reading let me tell you, do not look stock markets for minute to minute or hour to hour for any analysis. This article has a view for the short term – which means anywhere from 2 to 6 months.

I hope you must have heard the news of Rs. 20 Lakh Crore Special Economic Package in Indian economy by our PM Mr.Modi on 12-May-20.

If you do not know read this:
https://economictimes.indiatimes.com/news/politics-and-nation/pm-narendra-modi-address-live-centre-announces-an-economic-package-of-rs-20-lakh-crore/articleshow/75699154.cms

This is not a small amount. This is almost 10% of our current GDP.

What is Gross Domestic Product (GDP)?

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a scorecard of the country’s economic health. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.

What is India’s GDP?

India Nominal GDP in 2020 (as in Apr 2020) )is USD $3.202 trillion which in terms of Rupees is 24,13,42,74,50,00,000.00 (approx).
Source: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

Well, that is Rs. 241 Lakh crores. Which is 5th rank in the world as per the International Monetary Fund (2019 estimates).

India is the fastest-growing trillion-dollar economy in the world. India has become the fifth-largest economy in 2019, overtaking the United Kingdom and France. The country ranks third when GDP is compared in terms of purchasing power parity at $11.33 trillion.

What is Purchasing Power Parity (PPP)?

Purchasing power parity is an economic term for measuring prices at different locations. It is based on the law of one price, which says that, if there are no transaction costs and no trade barriers for a particular good, then the price for that good should be the same at every location. So a computer in New York and in Hong Kong should have the same price. If its price is 500 US Dollars in New York and the same computer costs 2000 HK Dollars in Hong Kong, PPP theory says the exchange rate should be 4 HK Dollars for every 1 US Dollar.

Though in the real world that does not happen, still, PPP is a very important data to know the purchasing power of people in that country.

PPP gives and an indication of real money movement inside a country compared to other countries (for same price of goods) for a given time period. PPP also gives a real indication of the economic health of the country. For an economist, PPP is more important data than GDP itself.

Due to this 20 Lakh Crore Special Economic Package Investment, Stock Markets will go up in the near future. We can see that today itself:

NSE on 13-May-20 – After 20 Lakh Crore Special Economic Package

So be happy if you are an investor – your stocks may give good profits in some months especially if you bought them during this lock-down.

If you are equity mutual fund investor – do not stop investing – continue the Systematic Investment Plan (SIP). Just keep investing, these SIPs will give great return over the long term just like the economic recession of 2008-09.

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