University of Engineering & Management

JAIPUR
Project Report on
THE IMPACT OF RECENT GLOBAL ECONOMIC
SLUMP ON INDIAN CAPTIAL MARKET

SUBMITTED IN PARTIAL FULLFILMENT FOR THE

REQUIRMENT FOR THE
AWAED OF DEGREE OF MASTER OF BUSINESS
ADMINISTRATION

Under the guidance of – Submitted By-

Prof. Dr. Preeti Sharma Anurag Dadhich
(Head of Department) MBA 1 year 2 Semeter
School of Management Enroll. No. 12021001010004
 The current global economic crisis

The current global economic crisis is widely viewed as a glaring example

of limitless pursuit of greed and overindulgence at the expense of caution,
prudence, due diligence and regulation. It is true that people who break the
rules create consequences and, like a stone thrown in a pond, its ripples
move ever outward. Wall Street firms broke the financial rules and regulations
and the people of the world in general and the US in particular are being
called upon to bear the brunt of it.
Financial crises of some kind or the other occur sporadically virtually every
decade and in various locations around the world. Financial meltdowns have
occurred in countries ranging from Sweden to Argentina, from Russia to Korea,
from the United Kingdom to Indonesia, and from Japan to the United States.2
Each financial crisis is unique, yet each bears some resemblance to others. In
general, crises have been generated by factors such as overheating of markets,
excessive leveraging of debt, credit booms, miscalculations of risk, rapid outflows
of capital from a country, unsustainable macroeconomic policies, off-balance
sheet operations by banks, inexperience with new financial instruments, and
deregulation without sufficient market monitoring and oversight
 THE IMPACT OF RECENT GLOBAL ECONOMIC SLUMP

• The COVID-19 crisis is hitting developing economies at a critical

moment. Prior to the crisis, financing had already fallen short of
the spending needs to achieve the SDGs by 2030, and fiscal space
was limited by rising public debt levels and servicing costs.

• The COVID-19 crisis risks creating major setbacks in financing for

sustainable development. Domestic resource mobilisation will
suffer as economic activity is reduced. Inflows of external private
finance are projected to drop by USD 700 billion compared to
2019 levels, exceeding the impact of the 2008 Global Financial
Crisis by 60%. Fiscal space is likely to narrow further with rising
domestic spending and exchange rate movements against the USD
 LITERATURE REVIEW
The efficiency of indian capital market is one of the most controversial and well studied
propositions in the literature of capital market. Even if there have been a number of
researches and journal articles, economists have not yet reached a consensus about
whether capital markets are efficient or not. The wide range of studies concerning the
efficient market hypothesis in the literature provides mixed evidences. The studies such
as Sharma and Kennedy (1977), Barua (1980, 1987), Sharma (1983), Ramachandran
(1985), Gupta (1985), Srinivasan (1988), Vaidyanathan and Gali (1994) and Prusty (2007)
supports the weak form efficiency of Indian capital market. There have been some
studies like Kulkarni (1978), Chaudhury (1991), Poshakwale (1996), Pant and Bishnoi
(2002), Pandey (2003) and Gupta and Basu (2007), (Mishra, 2009) and (Mishra &
pradhan, 2009) do not support the existence of weak form efficiency in Indian capital
market. This disagreement regarding the Efficient Market Hypothesis has generated
research interest in this topic. Additionally, the recent market downsizing across the
globe has also contributed to it. Furthermore, this paper shall fill the gap in the capital
market literature by studying the weak form market efficiency in the aftermath of global
financial crisis.
 Methodology
•Some form of existence of perfect capital markets—no taxes, no
transactions costs and in the case of MM, also no danger of bankruptcy

•Agents have equal access to information and capital markets

•Agents and prices adjust rapidly and continuously to new information

•Decisions are made solely on the basis of expected values and standard
deviations of the returns on the portfolios

•All agents have homogenous expectations.

 Policy Response

There is not much room for further fiscal policy action as the consolidated
fiscal deficit of the central and state governments in 2008-09 is already about
11 percent of the GDP. This is likely to rise further as further necessary public
expenditures are announced in the next budget and economic activity slows
down. Any further increase in fiscal deficit to GDP ratio could invite a sharp
downgrading of India’s credit rating and a loss of business confidence. With
inflation down at less than one percent and likely to remain below five
percent in the coming months, there is room for bringing down the repo rate
further.
 Jobs Lost, Jobs Gone

The last firm employment elasticities we have are those that

were worked out by C. Rangarajan when he was the chairman of
the Prime Minister’s Economic Advisory Council. Using NSS data
for the period 1999-2000 to 2004- 05, the derived employment
elasticities were 1.52 for agriculture, forestry and fishing; 0.34
for manufacturing; 0.88 for construction; 0.59 for trade, hotels
and restaurants; 0.27 for transport; storage and
communications; 0.94 for finance, insurance, real estate and
business services; and 0.48 for total employment
 States with Accelerated Growth Suffering

In terms of the impact disaggregated by state, the following

proposition can plausibly be advanced. The growth pick up in the
10th Five-Year Plan (2002-2007) over the Ninth Five-Year Plan
(1997-2002) varied from state to state. Among non-special
category Indian states, this pick up in growth was especially
marked in Andhra Pradesh, Bihar, Goa, Gujarat, Haryana,
Karnataka, Madhya Pradesh, Maharashtra, Punjab, Rajasthan,
Tamil Nadu, UP and West Bengal. There was no significant
increase in the growth rates of the other states.
 Job Losses: Temporary or Permanent

Conceptually, India’s exports depend on the supplyside, the

demand-side and the exchange rate. It has also been argued that
since India’s exports are in low value segments, income
reduction in developed countries might actually increase the
demand for exports from India. This is an argument that might,
for instance, be advanced for garments. A global demand
contraction may also be less important than price un-
competitiveness caused by an appreciation in the value of the
rupee
 Opportunities from Crisis
In conclusion, there is does seem to be a consensus that India
has not suffered as much as other countries and that the growth
downturn is indeed no more than that - - falling far short of a
recession. The recovery in India is also certain to be faster. In the
years of high growth, there was room to ensure that “fallback
cushions” for a possible period of downturn were put in place