CHAPTER 5: ECONOMIC ANALYSIS

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LEARNING OBJECTIVES

After studying this chapter, you should know about:

  • Principles of Microeconomics and Macroeconomics
  • Key economic variables for carrying out fundamental analysis
  • Sources of Information/data of economic variables for carrying out economic analysis
  • Role of economic analysis in equity research
  • Understanding the nature of cyclical and secular economic trends
  • Methods of measuring national income and their practical applications
  • Relationship between macroeconomic variables and investment decisions
  • Business cycle identification and impact on industries

Economics is the study of how people make choices under conditions of scarcity and the impact of those choices for people at an individual level and society at macro level. Economic analysis of human behavior begins with the assumption that people are rational - they have well-defined goals and try to achieve them as best they can.

In trying to achieve their goals, people normally face trade-offs: resources both material and human are limited and making one choice would generally mean letting go of something else. It requires prioritization of needs and wants and allocation of limited resources to the desired goals.

📑 Chapter Navigation

Economic Foundations

Analysis Framework

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Foundation (Ch 1-4)

Analysis (Ch 5-8)

Advanced (Ch 9-13)

Annexures (Ch 14-16)

5.1 Basic Principles of Microeconomics

Microeconomics is the study of the behavior of individuals and their decisions on what to buy and consume based on prevalent prices which in turn signals where the economy has to direct its productive activities.

The philosophy of Microeconomics is that prices and production levels of goods and services in an economy are driven by consumer demand. Accordingly, Microeconomics focuses on the drivers of decision making, as well as the ways in which individuals' decisions affect the overall supply and demand of particular goods and services, in an economy, and in turn their prices.

Theory of the Firm

Microeconomics also deals with the "theory of the firm." Extending the concept of individuals, here it deals with how firms adopt different strategies to increase their profits. It deals with the decision making process at the level of:

Detailed Applications of Microeconomics:

  1. Understanding Free Market Economy - How supply and demand interact without government intervention
  2. Price Determination Mechanisms - How equilibrium prices are established through market forces
  3. Individual and Firm Behavior - Response patterns to price changes and market conditions
  4. Resource Distribution - How goods and services are allocated among economic participants
  5. Sector-wise Analysis - Understanding how different sectors respond to microeconomic factors

5.2 Basic Principles of Macroeconomics

Macroeconomics is the study of "the big picture" in the economy. While microeconomics focuses on individual households and firms, macroeconomics deals with the economy as a whole.

The focus of macroeconomics is on factors that influence aggregate supply and demand in an economy such as unemployment rates, gross domestic product (GDP), overall price levels, inflation, savings rate, investment rate etc. Most of these factors are highly affected by changes in public policies.

Key Macroeconomic Variables:

Primary Indicators:

  • Gross Domestic Product (GDP) - Total value of goods and services produced
  • Gross National Product (GNP) - GDP + Net factor income from abroad
  • Consumer Price Index (CPI) - Measure of inflation at retail level
  • Wholesale Price Index (WPI) - Measure of inflation at wholesale level
  • Index of Industrial Production (IIP) - Measure of industrial activity
  • Interest Rates - Cost of borrowing money
  • Exchange Rates - Value of domestic currency vs foreign currencies
  • Foreign Direct Investment (FDI) - Long-term foreign investment
  • Foreign Portfolio Investment (FPI) - Short-term foreign investment
  • Fiscal Deficit - Government expenditure exceeding revenue
  • Current Account Deficit/Surplus - Trade balance with rest of world
  • Capital Account - Capital flows including FDI, FPI, loans

Two Major Policy Influencers:

Policy Type Authority Tools Impact Areas
Fiscal Policy Government Taxation, Government spending, Budget allocation Aggregate demand, Employment, Income distribution
Monetary Policy Central Bank Interest rates, Money supply, Reserve requirements Inflation, Liquidity, Credit growth
Keynesian Economics: The late John Maynard Keynes laid great emphasis on macroeconomic analysis. His work, captured in the book "General Theory of Employment, Interest and Money", is quite revolutionary and brought drastic changes in economic thinking. Keynes emphasized that governments could actively manage economic cycles through fiscal and monetary policy interventions.

Comprehensive Uses of Macroeconomics:

  1. Economic State Assessment - Domestic Production, Consumption, Price levels, Growth, Quality of life
  2. Income and Employment Analysis - Understanding drivers of income, savings, investments and employment
  3. Policy Formulation - Helping governments and central bankers formulate policies for long-run growth with stability
  4. International Trade Understanding - Exports, imports, balance of payment, exchange rate dynamics
  5. Global Economic Linkages - How inter-linkages across economies work and affect each other

5.3 Introduction to Various Macroeconomic Variables

5.3.1 National Income - Comprehensive Measurement Methods

National income of an economy is defined through a variety of measures such as gross domestic product (GDP) and gross national product (GNP). Computation of these numbers is a humongous task in terms of data-collection and its processing.

Three Methods of National Income Computation:

1. Product Method (Value-Added Approach)

Definition: National income measured as aggregated flow of goods and services from different sectors: agriculture, industry and services.

Key Principles:

  • Calculate money value of all final goods and services produced
  • Exclude intermediate goods to avoid double counting
  • Focus on value addition at each stage
  • Sector-wise computation: Agriculture + Industry + Services

Formula: GDP = Primary Sector Output + Secondary Sector Output + Tertiary Sector Output

Example: In India, service sector constitutes 60% of GDP at factor cost

2. Income Method (Factor Income Approach)

Definition: National income measured as aggregate income of all factors of production in the economy.

Four Categories of Income Earners (Robert Kiyosaki's Classification):

  • Employees - Earn wages and salaries
  • Professionals - Earn income based on their services
  • Entrepreneurs - Earn profits (including undistributed corporate profits)
  • Investors - Earn return on their capital and rent on their land

Formula: National Income = Wages + Salaries + Professional Income + Profits + Interest + Rent

3. Expenditure Method (Demand Side Approach)

Definition: National income calculated from the consumption end - all goods and services produced are bought by someone.

Three Categories of Consumers:

  • Individuals - Private consumption
  • Corporates - Investment expenditure
  • Government - Government spending

Formula: GDP = C + I + G + (X - M)

Where: C = Consumption, I = Investment, G = Government Spending, X = Exports, M = Imports

Important Note: In practice, all three counting methods produce similar results with minor differences for several reasons including errors in the statistics.

Critical Uses of National Income Statistics:

1. Economic Welfare and Growth Measurement

Per Capita Income = National Income / Total Population

Per Capita Income (not National Income) is a better measure of standard of living because while National Income may increase, faster population growth may reduce per capita income, indicating declining living standards.

2. Income Distribution Analysis

Income method helps understand how National Income is distributed among:

3. Policy Guidance

Statistics on saving, consumption and investment help policy makers take required measures to accomplish desired goals. National Income computation proves to be a valuable guide to policy makers.

5.3.2 Savings and Investments - Detailed Framework

Comprehensive Savings Framework:

Savings = Income - Expenses

Three Constituents:

  • Personal Savings - Savings of individuals and households
  • Corporate Savings - Undistributed profits retained by companies
  • Public Savings - Government savings (rarely positive - governments usually run budget deficits)

National Saving = Personal Savings + Corporate Savings + Public Savings

Critical Distinction: Savings ≠ Investment

Savings are to be channelized towards productive venues called investments. When savings are turned into investments, they take the shape of financial instruments:

  • Equity - Ownership stakes in companies
  • Bonds - Debt instruments
  • Government Securities - Government borrowing instruments
  • Others - Various financial products

Government and Central Bankers continuously focus on facilitating conversion of savings into investments through creation of efficient Financial Markets.

5.3.3 Inflation and Interest Rate - Comprehensive Analysis

Inflation is defined as the general increase in price levels of goods and services in the economy leading to erosion of purchasing power of money.

Detailed Types of Inflation:

Type Cause Mechanism Policy Response
Demand Pull Inflation Demand exceeds supply Too much money chasing too few goods Reduce demand or increase supply
Cost Push Inflation Increase in input costs Higher production costs passed to consumers Address supply-side constraints

Comprehensive Inflation Measurement:

Wholesale Price Index (WPI)
  • Measures inflation at wholesale level
  • Based on basket of products at wholesale prices
  • Used for policy making and business decisions
Consumer Price Index (CPI)
  • Measures inflation at retail level
  • Based on basket of products consumed by households
  • More relevant for individual purchasing power

Interest Rate and Inflation Relationship - Detailed Transmission:

Transmission Mechanism:
  1. Higher Inflation → Central bank raises interest rates
  2. Higher Rates → Increased motivation to save (higher returns)
  3. More Savings → Less consumption → Reduced demand
  4. Higher Rates → Expensive credit → Reduced investment
  5. Sector Impact → Real estate and auto severely affected (loan-dependent sectors)
  6. Reduced Discretionary Income → Lower demand across all sectors

5.3.4 Unemployment Rate - Economic Cycle Correlation

Unemployment Rate refers to the eligible and willing-to-work unemployed population of the country in percentage terms.

Cyclical Pattern and Economic Impact:

Economic Phase Unemployment Trend Mechanism Economic Impact
Economic Slowdown Rising unemployment Production cuts → Job losses Reduced spending power
Economic Expansion Falling unemployment Increased production → Job creation Increased spending power

5.3.5 Foreign Capital Flows - Comprehensive Analysis

Aspect Foreign Direct Investment (FDI) Foreign Portfolio Investment (FPI)
Nature Active investment with management control Passive investment without management participation
Duration Long-term and stable Short-term, volatile ("hot money")
Benefits • Capital inflow
• Job creation
• Technology transfer
• Managerial skills
• New products/services
• Infrastructure development 		• Capital inflow
• Market liquidity
• Price discovery
• Market development
Risks • Potential market dominance
• Repatriation of profits
• Strategic sector concerns 		• Sudden capital flight
• Market volatility
• Systemic risk to economy
• Currency instability
Regulatory Limits Sector-specific caps and approval requirements Upper limits on individual and combined holdings in Indian companies

5.3.6 Fiscal Policies - Comprehensive Impact Analysis

Fiscal Policy contains measures of the Government which deal with its revenues and expenses. Fiscal measures are important because they influence aggregate demand, supply, savings, investment and overall economic activity.

Government Revenue Sources (P/L Measures):

Government Expenditure Categories:

Key Fiscal Indicators:

Fiscal Deficit

Fiscal Deficit = Government Expenditure - Government Revenue

Expressed as percentage of GDP

Primary Deficit

Primary Deficit = Fiscal Deficit - Interest Payments

Shows government's borrowing requirement excluding interest burden

Revenue Deficit

Revenue Deficit = Revenue Expenditure - Revenue Receipts

Indicates whether government can meet its current expenses from current income

Current Account Balance - Detailed Analysis:

Current Account Components:
  • Trade Balance - Exports minus Imports of goods
  • Services Balance - Net earnings from services
  • Investment Income - Interest and dividend flows
  • Transfer Payments - Remittances, grants
Impact of High Current Account Deficit (CAD):
  1. Currency Weakening - Increased demand for foreign currency
  2. Expensive Imports - Higher costs for capital goods and commodities
  3. Reduced Productivity - Expensive inputs affect competitiveness
  4. Credit Rating Impact - Affects sovereign rating and borrowing costs
  5. Inflation Pressure - Imported inflation through currency depreciation

Types of Fiscal Policy Stance:

Policy Type Condition When Applied Economic Impact
Neutral Fiscal Policy Income = Expenditure Stable economic conditions Maintains status quo
Expansionary Fiscal Policy Spending > Income Recession/slow growth Stimulates economic activity
Contractionary Fiscal Policy Spending < Income Overheating economy Cools down excessive growth

5.3.7 Monetary Policies - Comprehensive Framework

Monetary Policy administered by central bank deals with money supply, inflation, and interest rates for promoting economic growth and managing price stability.

Complete Toolkit of Monetary Policy Instruments:

Tool Definition Mechanism Impact on Liquidity
Repo Rate Rate at which central bank lends to commercial banks Higher repo rate → Expensive borrowing for banks Contractionary
Reverse Repo Rate Rate at which central bank borrows from commercial banks Higher reverse repo → Banks prefer parking with RBI Contractionary
Cash Reserve Ratio (CRR) Minimum % of deposits banks must hold as cash with central bank Higher CRR → Less money available for lending Contractionary
Statutory Liquidity Ratio (SLR) Minimum % of deposits in cash equivalents (gold, G-Secs) Higher SLR → Reduced lending capacity Contractionary

Policy Transmission Challenges:

There is no sure shot formula to handle economic issues. Given variations in GDP composition, growth rate, and demographic features, the same policy action may have different outcomes in different economies. A policy action to correct one problem may create unintended consequences.

Example: RBI's attempt to control high inflation in India (2011-2013) by increasing interest rates did not achieve desired results because food prices remained high due to supply-side issues.

5.3.8 International Trade and Exchange Rate - Comprehensive Framework

Balance of Payment (BoP) Structure:

Balance of Payment is a statement showing all transactions of a country with the rest of the world.

Detailed BoP Components:

Account Sub-components Examples
Current Account • Trade in goods
• Trade in services
• Investment income
• Transfer payments 		• Merchandise exports/imports
• IT services, tourism
• Interest, dividends
• Remittances, grants
Capital Account • FDI flows
• Portfolio investment
• External borrowing
• Banking capital 		• Greenfield investments
• FPI inflows/outflows
• Government/corporate loans
• NRI deposits

Exchange Rate Dynamics:

Exchange Rate refers to the value of one unit of currency with respect to other currencies.

Example: $/Rs. 65 means one dollar is priced at Rs. 65

Factors Affecting Exchange Rates:
  • Relative Economic Strength - GDP growth, productivity
  • Interest Rate Differentials - Higher rates attract capital
  • Inflation Differentials - Lower inflation strengthens currency
  • Current Account Balance - Surplus strengthens currency
  • Political Stability - Affects investor confidence
  • Speculation - Market sentiment and expectations

5.3.9 Globalization - Comprehensive Impact Analysis

Globalization is the ability of individuals and firms to produce anything anywhere and sell anything anywhere across the world. It also means that resources (people and capital) will flow to places where they produce best and earn best.

Aspect Positives Negatives
Resource Allocation Optimal global resource allocation Brain drain from developing countries
Economic Development Integration of developing economies with developed world Increasing divide between rich and poor
Competition Innovation, efficiency, lower prices Job displacement in less competitive regions
Cultural Exchange Access to diverse culture, art, food Loss of local cultural identity
Economic Integration Shared prosperity and growth Contagion effect (2008 US crisis → global impact)

5.4 Role of Economic Analysis in Fundamental Analysis

Economic analysis is crucial for understanding the external environment and its impact on businesses. It helps analysts determine whether and how much a business is likely to grow or shrink based on overall economic conditions.

Top-Down vs Bottom-Up Analysis:

Top-Down Approach:

  1. Economic Analysis → Understand macroeconomic environment
  2. Sector Analysis → Identify sectors benefiting from economic trends
  3. Company Analysis → Select best companies within chosen sectors

Bottom-Up Approach:

  1. Company Analysis → Identify fundamentally strong companies
  2. Sector Validation → Ensure sector prospects are favorable
  3. Economic Confirmation → Verify economic environment supports growth

Practical Application Framework:

Economic Indicator Analysis Question Investment Implication
GDP Growth Rate Is the economy expanding or contracting? Growth sectors vs defensive sectors
Interest Rates Are rates rising or falling? Impact on banking, real estate, auto sectors
Inflation Rate Is inflation above or below target? FMCG pricing power, input cost pressures
Fiscal Deficit Does government have room for stimulus? Infrastructure, capital goods prospects
Current Account Is external balance sustainable? Import-dependent vs export-oriented sectors
Trend Type Duration Characteristics Investment Strategy
Secular Trends 5-20 years Permanent structural changes Long-term positioning
Cyclical Trends 2-10 years Temporary, reversible changes Tactical allocation
Seasonal Trends Within 1 year Predictable, recurring patterns Timing adjustments

5.5.1 Secular Trends - Detailed Analysis

Secular Trends refer to long-term changes occurring in the economy or industry that create displacement in goods or services being consumed or production methods.

Comprehensive Drivers of Secular Trends:

  1. Technological Advancement
    • Digital transformation (physical to digital)
    • Automation and AI adoption
    • Renewable energy transition
    • Example: Digitalization reducing paper consumption, increasing digital service demand
  2. Demographic Changes
    • Aging population in developed countries
    • Urbanization in developing countries
    • Changing household composition
    • Example: Healthcare demand increase due to aging population
  3. Income Level Changes
    • Rising middle class in emerging markets
    • Premiumization trends
    • Discretionary spending patterns
    • Example: Shift from basic goods to premium products as incomes rise
  4. Cultural and Preference Shifts
    • Health and wellness focus
    • Environmental consciousness
    • Work-life balance priorities
    • Example: Organic food demand growth
  5. Regulatory and Policy Changes
    • Environmental regulations
    • Industry deregulation
    • Trade policy shifts
    • Example: Carbon emission norms driving electric vehicle adoption

5.5.2 Cyclical Trends - Comprehensive Framework

A. Economic Cycle - Detailed Four-Phase Analysis

Phase 1: Expansion/Boom

Characteristics:

  • Increased consumption driven by higher income, lower interest rates, high consumer confidence
  • Higher production and employment creating virtuous cycle
  • Business confidence leads to capacity expansion plans
  • Consumers acquire long-term assets
  • Increased borrowing demand pushes up interest rates
  • Economy reaches peak with high inflation

Investment Strategy: Growth stocks, cyclical sectors, real estate

Phase 2: Slowdown

Characteristics:

  • Higher prices and interest rates discourage consumption
  • Central banks implement tighter monetary policies
  • Growth rate decreases though still positive
  • Capacity utilization rates begin to fall
  • Early warning signs of economic stress

Investment Strategy: Defensive stocks, quality companies, reduce leverage

Phase 3: Recession

Characteristics:

  • Low capacity utilization → Manufacturers cut expansion plans
  • Cost control measures → Layoffs and unemployment rise
  • Decreased income → Reduced consumption
  • Consumer confidence declines sharply
  • Saving preference over spending/borrowing
  • Interest rates and inflation decline

Investment Strategy: Cash, government bonds, defensive sectors

Phase 4: Recovery

Characteristics:

  • Low inflation enables central banks to loosen monetary policy
  • Easy money availability and decreased prices
  • Consumers restart buying goods and services
  • Economic activity picks up gradually
  • Return to expansionary phase

Investment Strategy: Early cyclical stocks, growth sectors, emerging markets

B. Commodity Cycle - Detailed Mechanics

Commodity Price Cycle Drivers:
  1. Economic Cycle Correlation - Expansion phase → Higher demand → Higher prices
  2. Supply Response - High prices → Capacity expansion → Increased supply
  3. Price Correction - Excess supply → Price decline
  4. Supply Adjustment - Unprofitable producers exit → Supply reduction
  5. Price Recovery - Reduced supply → Price increase → Cycle restarts
Independent Factors:
  • Weather conditions (agricultural commodities)
  • Geopolitical events (oil, metals)
  • Technology changes (alternative materials)
  • Speculation and financial flows

C. Inventory Cycle - Short-term Dynamics

Inventory cycles are short-term cycles occurring within commodity cycles due to inventory adjustments:

Inventory Cycle Mechanism:
  1. Inventory Buildup - Customers reduce procurement → Supplier inventory rises
  2. Price Pressure - High inventory → Price decline to clear stock
  3. Demand Revival - Low inventory + slight demand improvement → Immediate procurement need
  4. Price Spike - Sudden demand + Low inventory → Sharp price increase
Real Example - Crude Oil (April 2020):

Huge inventory buildup in Oklahoma → Crude oil futures crashed to -$20/barrel → As inventory situation improved → Prices recovered to $40/barrel by June 2020

5.5.3 Seasonal Trends - Predictable Patterns

Seasonal Trends are highly predictable fluctuations in production and consumption due to the nature of goods and services.

Examples of Seasonal Patterns:

Sector Seasonal Pattern Reason
Agriculture Higher GDP contribution during harvest Crop cycle and weather patterns
Retail Higher sales during festivals/holidays Consumer behavior and cultural factors
Tourism Peak seasons vary by destination Weather and vacation patterns
Textiles Pre-season demand surge Fashion calendar and inventory stocking

Analytical Adjustments for Seasonality:

5.6 Sources of Information for Economic Analysis - Comprehensive Guide

Official Government Sources

Indian Sources:

  • Reserve Bank of India (RBI)
    • Monetary policy statements
    • Financial stability reports
    • Database on Indian Economy (DBIE)
    • Weekly statistical supplements
  • Ministry of Finance (MOF)
    • Economic Survey (annual)
    • Union Budget documents
    • Monthly economic reports
    • Public debt statistics
  • Central Statistics Office (CSO)
    • National accounts statistics
    • Industrial production data
    • GDP estimates and revisions
    • State domestic product data
  • Ministry of Statistics and Programme Implementation (MOSPI)
    • Consumer price index
    • Wholesale price index
    • Employment-unemployment surveys
    • Household consumption expenditure surveys

International Sources:

  • International Monetary Fund (IMF)
    • World Economic Outlook
    • Global Financial Stability Report
    • Article IV consultation reports
    • International Financial Statistics
  • World Bank
    • World Development Indicators
    • Global Economic Prospects
    • Country economic memorandums
    • Commodity price data
  • Asian Development Bank (ADB)
    • Asian Development Outlook
    • Regional cooperation strategy
    • Country partnership strategies
  • Organisation for Economic Co-operation and Development (OECD)
    • Economic surveys
    • Economic outlook reports
    • Better Life Index
  • Bank for International Settlements (BIS)
    • Quarterly review
    • Annual economic report
    • International banking statistics

Data Quality Assessment Criteria:

Criterion Evaluation Questions Best Practices
Authenticity Is the source official and recognized? Use government and international organization data
Timeliness How current is the data? Check publication dates and data vintage
Reliability Is the methodology sound and consistent? Review data collection and compilation methods
Completeness Does the data cover all relevant aspects? Ensure comprehensive coverage of the economy
Comparability Can data be compared across time and countries? Use standardized definitions and classifications

Sample Questions and Assessment

Multiple Choice Questions for Self-Assessment

Question 1

Focus of microeconomics is on factors that influence aggregate supply and demand in an economy such as unemployment rates, gross domestic product (GDP), overall price levels, inflation, savings rate, investment rate etc. State whether True or False.

  1. True
  2. False
Answer: b) False
This describes Macroeconomics, not Microeconomics. Microeconomics focuses on individual and firm-level decision making, while macroeconomics deals with aggregate economic indicators.

Question 2

Two major influencers of the public policies in an economy are __________ & ___________.

  1. Government; Central Bank
  2. Stock Exchanges; Government
  3. Central Bank; Stock Exchanges
  4. State Bank of India; National Stock Exchange
Answer: a) Government; Central Bank
Government implements fiscal policy (taxation and spending) while Central Bank implements monetary policy (interest rates and money supply).

Question 3

National income of an economy can be measured through which of the following methods?

  1. Product Method
  2. Income Method
  3. Expenditure Method
  4. All of the above
Answer: d) All of the above
National income can be calculated using Product Method (value addition), Income Method (factor incomes), or Expenditure Method (aggregate demand).

Question 4

The fiscal deficit is bridged by the government through market borrowings, both short-term and long term. State whether True or False.

  1. True
  2. False
Answer: a) True
When government expenditure exceeds revenue, the resulting fiscal deficit is financed through borrowings from the market via bonds and securities.

Question 5

Which of the following best describes the relationship between inflation and interest rates?

  1. They are completely independent
  2. Higher inflation typically leads to lower interest rates
  3. Higher inflation typically leads to higher interest rates
  4. They only move together during recessions
Answer: c) Higher inflation typically leads to higher interest rates
Central banks typically raise interest rates to combat high inflation, making saving more attractive and borrowing more expensive, thereby reducing demand and cooling the economy.

Question 6

In the expenditure method of national income calculation, GDP equals:

  1. C + I + G
  2. C + I + G + X
  3. C + I + G + (X - M)
  4. C + I + G + M - X
Answer: c) C + I + G + (X - M)
GDP = Consumption + Investment + Government Spending + Net Exports (Exports minus Imports). Net exports account for the balance between what we sell to and buy from other countries.

Comprehensive Key Takeaways

  • Microeconomics vs Macroeconomics: Individual behavior vs aggregate economy analysis
  • National Income Measurement: Three methods (Product, Income, Expenditure) provide comprehensive economic assessment
  • Savings vs Investment: Critical distinction - savings must be channelized into productive investments
  • Inflation-Interest Rate Nexus: Central banks use interest rates as primary tool to control inflation
  • Policy Framework: Fiscal policy (Government) and Monetary policy (Central Bank) drive economic management
  • Foreign Capital: FDI (stable, long-term) vs FPI (volatile, "hot money")
  • Economic Cycles: Four phases - Expansion, Slowdown, Recession, Recovery with predictable characteristics
  • Trend Analysis: Secular (permanent), Cyclical (temporary), Seasonal (predictable) require different investment approaches
  • Data Sources: Reliability, timeliness, and authenticity crucial for quality economic analysis
  • Investment Application: Economic analysis provides foundation for sector and company selection in fundamental analysis

Exam Preparation Tips

  1. Master Definitions: Ensure clear understanding of all economic terms and concepts
  2. Understand Relationships: Focus on how different economic variables interact
  3. Practice Calculations: Be comfortable with GDP calculation methods and fiscal indicators
  4. Know Policy Tools: Understand monetary and fiscal policy instruments and their effects
  5. Connect to Markets: Link economic concepts to their impact on different sectors and companies
  6. Stay Updated: Follow current economic developments and policy changes
  7. Use Official Sources: Familiarize yourself with key data sources and their publications
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Source Attribution

This comprehensive educational content is derived from the NISM-Series-XV: Research Analyst Certification Examination Workbook (June 2025 version), published by the National Institute of Securities Markets.

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