NEW DELHI: The crippling deceleration in the stock market may dampen the business sentiment and cause a slowdown in India’s growth story through its negative wealth effects, a press release issued by PHD Chamber said here on Thursday.
The negative wealth effects cause slowdown in consumption, which impacts the manufacturing, labour market, employment, and common man. More than 500000 (five lakh) jobs were lost during Oct-Dec 2008, the post-Lehman market crash. The economic growth during 2008-09 also fell to 6.7%. During the peak of the global economic crisis – the Sep-Dec 2008 period, markets tanked around 50% and economic growth fall to around 6%, the release said.
Significant positive correlation has been observed between SENSEX & GDP Growth, and SENSEX & Private Consumption Growth. These are 0.63 and 0.55, respectively.
Since the beginning of the current year-2011, the stock market has been declined very sharply by more than 15%. If the trend continues it may impact the FY 2012 real GDP growth as we are near the completing of FY 2011.
Although the retail participation in stock market is less than five percent in India, but still it impacts the sentiment through spill over effects on various segments of the economy.
People should spend more and consume more during booms, which triggers the labour market activity, manufacturing growth, and markets. The post-Lehman growth is mainly markets driven and positive sentiments in markets should continue to make the growth momentum sustained, the release added.
The elevated inflation and possibility of further interest rate hikes have impacted the market sentiment during the recent months.
Government should take supply side measures to contain higher inflationary expectations and should not depend only on the tight money measures as these are going to impact India’s growth story, the Chamber release said.
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