Understand Economic Ratios

 

In the below article, we will explain a few economic terms like GDF, CPI, Repo rate etc in simple terms.

Abbreviation	Meaning	Indicator
GDP	Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country's economic health	An increase in nominal GDP may just mean prices have increased, while an increase in real GDP means output increased. The GDP deflator is a price index, which means it tracks the average prices of goods and services produced across all sectors of a nation's economy over time.
PMI	The Purchasing Managers' Index or PMI is an economic indicator, which is derived after monthly surveys of different companies. The index shows trends in both the manufacturing and services sector.	A PMI reading over 50 or 50% indicates growth or expansion of the U.S. manufacturing sector as compared to the previous month, while a reading under 50 suggests contraction. A reading at 50 indicates that the number of manufacturers reporting better business is equal to those stating business is worse
IIP	The Index of Industrial Production (IIP) is an index that indicates the performance of various industrial sectors of the Indian economy. It is calculated and published by the Central Statistical Organisation (CSO) every month. It is a composite indicator of the general level of industrial activity in the economy.	The reduced Consumer Spending will lead to lower demand. The producers will respond to this low demand situation by reducing their production. A low industrial production will result in lower corporate sales and profits.
Repo rate	Repo rate refers to the rate at which commercial banks borrow money by selling their securities to the Central Bank of our country i.e., Reserve Bank of India (RBI) to maintain liquidity, in case of shortage of funds or due to some statutory measures
CPI	The consumer price index (CPI) is the instrument to measure inflation. It is used to estimate the average variation between two given periods in the prices of products consumed by households. It is a composite measurement of trends in the prices of products, at constant quality	In general, a low CPI is better than a very high one but a healthy and growing economy does experience some inflation
WPI	The Wholesale Price Index (WPI) represents the price of goods at a wholesale stage i.e., goods that are sold in bulk and traded between organizations instead of consumers. WPI is used as a measure of inflation in some economies	An increase in the WPI inflation indicates an increase in the cost of production for businesses. This can lead to an increase in the prices of goods and services, resulting in an increase in the cost of living for consumers
GTR	DTCC provides trade repository services for derivatives and securities financing transactions through its Global Trade Repository service (GTR), the industry leader in trade reporting.
CAB	The current account balance (CAB) is part of a country's financial inflow and outflow record. It is part of the balance of payments, the statement of all transactions made between one country and another
Dollar Index	The Dollar Index is a measure used to evaluate the relative worth of the U.S. dollar in a collection of major currencies. It derives its value by calculating the weighted average of exchange rates involving six currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc	A strong dollar is good for some and not so good for others. A strengthening dollar means U.S. consumers benefit from cheaper imports and less expensive foreign travel. U.S. companies that export or rely on global markets for the bulk of their sales are financially hurt when the dollar strengthens.
Nifty PE Ratio	The price-to-earnings ratio of a company is a metric that compares the market price of a stock to its earnings per share. It is also called the earnings multiple or the price multiple. Essentially, the P/E ratio of a company tells us how much money an investor in the market is willing to pay for one rupee of the company’s earnings. Calculating the P/E ratio of a company is simple. You need to divide the company’s current market price by its Earnings per share (EPS)	The Nifty 50 P/E ratio is a metric that tells you how the index is valued. Historically, the Nifty 50 P/E ratio has averaged around 20. Any value above 25 indicates that the index is costly. It may be best to book profits and enter again when the market falls in such a situation.  When the index goes above 25, the market may be headed for a correction. For instance, before the 2008 market crash, the P/E ratio of Nifty 50 was around 28. From there, it took a steep crash. Knowing when to exit the market using the P/E ratio could be a good strategy for an intelligent investor.
Nifty PB	As with Nifty PE ratio, the price-book (P/B) ratio of the NIFTY 50 Index can also help an investor to gauge the relative valuation of the Index against its own historical record or to compare against other aggregate Indices.  It is calculated by the following formula. P/B Ratio = Market Price Per Share / Book Value of Assets Per Share	typically, the market value of a company is higher than its book value and, therefore, results in a ratio higher than 1. However, the converse can also be true.
MSCI	The MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian market. With 115 constituents, the index covers approximately 85% of the Indian equity universe. The MSCI India Index was launched on Apr 30, 1993
FOMC	The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System (FRS) that determines the direction of monetary policy in the United States by directing open market operations (OMOs). The committee is made up of 12 members, including seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 Reserve Bank presidents, who serve on a rotating basis