Private Capital Accumulation in India since the mid-1970s: Does Stock Market Matter?

Abstract

Is there any link between stock market development and private fixed capital accumulation? This paper seeks an answer to this question based on a time-series analysis of Indian data over a long time span, 1976-2020. It finds no meaningful relationship between stock market development indicators and private fixed capital formation. Thus, it questions the conventional wisdom manifested in the mainstream research works, which are by and large cross-sectional. The findings of our time-series study are not counter-intuitive. It should be noted that private capital formation depends on many complex factors summed up by J M Keynes as ‘animal spirits’. Different countries have different histories regarding the emergence of the capitalist class with different socio-economic socio-psychological and political economic complexities. Stock market has very marginal influence (if at all) on these factors. Buying and selling in the stock market are often governed by speculation and/or cornering of the market to make quick money. Accordingly, stock prices move up and down and, in many cases, it has no connection with real economic activities. This is what I observed in the present study.

Keywords: : Stock Market, Market Capitalisation Value of Stock Trading, Turnover Ratio, Stock Market Listing, Private Fixed Capital Accumulation

JEL Classification: F02, F36, E44, G11, O16