Love it or loathe, you just can’t ignore the market

The Bombay Stock Exchange is one such marketplace and has over 5,000 listed companies. Some 30 of the most traded and profitable companies are pulled out and their prices make up what is called the ‘Sensex’.

The aggregate price movement in these 30 shares becomes the increase or decrease in the Sensex over the day. Just as the Sensex is a window into the health of a market with 5,000 companies, it also is a window into the economic prospects of a country.

The question immediately is: Is the price experience of 30 companies a good reason to panic an entire nation? The answer is an unqualified yes!

For three reasons. One: the market is the most efficient aggregator of information, there is no signal (every comment, every small piece of information) that escapes its attention and all signals then get translated into prices real time. It is the only mechanism that is constantly evaluating the events and their impact and translating these into prices. Two: the market is the most visible benchmark of the Indian economy, it is a window into the strength or weakness of Indian business and its prospects. It also remains the easiest way to express happiness or displeasure with government policy, corporate performance, and governance issues.

Three: these 30 companies are the biggest companies in India and any impact on them impacts lakhs of raw material suppliers and distributors. Their fortunes in turn, impact smaller economic players. Their experience will usually be the experience of the rest of the goods and service producers in a country.

The markets are important, the Sensex is important. And not just because someone has made or lost money, but because it is sending you the most honest — if sometimes exaggerated — signals on which way people think things are headed.

And the world has found out by trial and error that market signals are the only signals that finally work. In fact, the market movement is like a daily election of economic performance and policy.

The political election is over, now the market is voting. The Congress and its allies may have won the political election but winning the market vote may be a much tougher battle. Today’s steep climb shows, however, that it is not impossible.