Macro factors impacting company valuations
- GDP growth on a quarterly and annual basis
- Inflation rate at CPI and WPI level
- Index of Industrial Production
- Core sector growth
- Interest rates in the economy
- Imports, exports and trade deficit
- Fiscal deficit and current account deficit
- Exchange rate movements
- Monetary policy drivers; Repo rates, Liquidity, CRR, SLR etc.
- Fiscal policy drivers; Direct taxes, indirect taxes, government spending etc.
Micro factors impacting company valuations
- Personal income levels on per capital basis
- Household demand and retail inflation
- Propensity to consume among households
- Propensity to save among households
- Investment patterns; Gold, equity, mutual funds etc.
- Cost of living and household budgets
Sources of Information for Macroeconomic Analysis
- Website of the Ministry of Finance
- Website of the Ministry of Commerce
- Budget documents available on indiabudget.nic.in
- Economic Survey available on indiabudget.nic.in
- Economic research papers published by reputed universities
- RBI data bank and RBI circulars
- Global websites like sec.gov.us for global macros
- Reputed data sources like Bloomberg, Reuters etc
- World Gold Council
- Website of the International Monetary Fund
- Website of the World Bank / Asian Development Bank
- Independent data providers like CMIE
Economic Factors Affecting Business
The exchange rate comes into the picture in the case of export and import. Due to this, it affects international payment and the price of goods, affecting the economy.
Interest rate is a major factor that affects the liquidity of cash in the economy. With an increase in investment, cash flow in the country decreases and results in a reduction in the country’s liquidity. Conversely, a decrease in investment cash flow in the country increases and increases the country’s liquidity.
A higher return on investment will attract investors. But, if the interest rate on loans increases, cash flow in the country decreases, resulting in a decrease in the nation’s liquidity. In contrast, with the decline in interest rate over a loan, cash flow in the country increases and increases the country’s liquidity. So, the interest rate affects the economy.
The tax rate is a crucial part of the economy. The tax rate affects the price of goods and their sales, affecting the economy.
Labour and cost or wage are always the important economic factors affecting the economy. As a result, many countries have started outsourcing labor from other countries. The company begins its plant or production where labor is cheap.
The increase in the demand price of goods or services increases inflation and money supply.
Demand / Supply
Demand or supply of goods or services affects the economy as with the increase in demand price of goods or service increase, which results in inflation. With inflation, the money reserve in the economy increases with the rise in the supply of goods or services. The price of the same decreases. Demand and supply depend on each other.
Law and Policies
With change or modification in the law, the economy of the country changes. For example, if the government makes a law that should ban liquor in the country, it will affect companies dealing with it, their employees, and shopkeepers, which affects the economy at a broad level. Similarly, any policy made by the government will affect the economy.
Wages paid to labor or employees are a direct cost to the company added to the cost of goods or services through which it affects the economy. Another way wages affect the economy is by increasing wages, consuming power, and improving consumer spending.
Government activity also affects the economy. So, for example, if the government promotes any industry like insurance or medical or technology, it will encourage that sector that boosts its economy, overall supporting it.
A recession affects consumers’ purchasing power, forcing companies to drop their goods or services.