Where I do a little pre-emption

The birds are singing, the sun is shining, the Rupee & GDP are rising, and so are Indian stock markets, namely the Bombay Sensex and the NSE-50 (or Nifty, for short).

Along with the unprecedented increase in the stock market, the communist/socialist/”I must stamp out any good news”-ists e.t.c. will now start using the stock market as another club to hit you with some guilt.

All new articles by these characters will start off with mentioning how the Sensex is at an all-time high, make a brief mention of a mass-consumerist culture, and how the reforms have benefitted “the Few at the expense of the Many” somewhere, and terminate with guilt-inducing stories about people in Bombay slum-dwellers/Suicidal farmers or Hindutva crimes.

When they use the stock market to contrast with these other issues, they reveal the entirety of their ignorance.

Stock Markets 101 (Simplistic view)

What is the ‘Sensex’? Well it’s the short form of Bombay Sensitive Index. What is an index? It’s basically a way of measuring a percentage change in a group of somethings.

In this case, it is measuring the change in the prices of publicly-listed companies’ shares. SPECIFICALLY, THE SENSEX MEASURES PRICE CHANGES IN SHARES OF 30 COMPANIES. Nothing more, nothing less. If the Sensex is ‘up’, it means that on average, the share prices of these 30 companies is up. If it is down, then naturally the opposite holds true. That. Is. All. It measures JUST those 30 shares. These 30 shares are considered to be representative of the entire share market, based on a whole bunch of financial indicators (i..e what is the size of the company, does the public hold a large amount of shares in the company, and other factors). So therefore, it should be no surprise that Reliance industries is one of the 30 shares whose price is measured. In fact, a big jump in just Reliance’s share price will cause the Sensex to go up quite a bit. So the ASSUMPTION is that if there are price rises in these 30 shares, then in general, there must be price rises in all shares in the Stock Market. This assumption holds true for most of the time, and if it doesn’t, the company shares used to represent the market are changed.

Why is a rise in the price of shares considered a good thing? Well what are shares, and what is the Stock Exchange?

A Stock Exchange is place where people can buy & sell SECOND-HAND shares, i.e. shares already owned by other people.  

A ‘share’ is a chunk of ownership of a company. If I buy 100 shares of Reliance, I OWN a piece of Reliance. That means that if Reliance makes a profit, it can choose to give me some of it. If it decides not to, and I get pissed off, I can sell my chunk of Reliance to someone else.  If Reliance loses money, I can again sell my chunk of Reliance to someone else. Of course, if everybody thinks Reliance is stinky, I won’t be able to sell my shares for a good price. So the price of a share represents (amongst a WHOLE BUNCH of OTHER THINGS) how “good” a company is (THIS IS A VERY SIMPLISTIC VIEW). So naturally, I get happy if the price of the shares I own rises. Just like owning a house (AGAIN, SIMPLISTIC)

Now the media, being as sensationalist and as misinformed as it can be, attributes a rising share market to the general mood in the Country. It is not hard to see why this is so. If the shares prices of all the companies in the stock market are rising, it means a lot of people are viewing these companies as ‘good’ or ‘performing well’. If these companies are performing well, that means the economy is performing well. And that means all is right with the world. ALSO, if lots of people are buying shares on the market, it means people have money to buy things, which means incomes must be high, which means the economy is performing well, which means all’s right with the world.

Thusly, a rising sensex makes it to the front page headlines. Now it shouldn’t take much to realize why the above extrapolations aren’t always correct – Pakistan’s stock market is the second best performing in Asia. But there you have it.

SO – when one of our guilt-inducing brethren decides to contrast rising stock markets with suicidal farmers, what they want to say is this:

A small, select band of greedy, high-caste capitalists pigs with a sense of entitlement are making money in a way I know nothing about, and celebrating it as though it is good for the country, while farmers are dying in Vidharba.

But what they end up saying is this: 

The share prices of 30 publicly listed companies is on average higher these days than it was a few years ago, but there are farmers comitting suicide in Vidharba.

Yes. It is as stupid as that.


One comment

  1. Pingback: There should be a medal… « Voice From A 2.5-World Country

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s