Finance is the life blood of every business and despite the fact that USD 37 Trillion is exchanged daily, it’s skewness in distribution is responsible for some economies flush with funds and many others high and dry.
The single indicator of financial health for common investors remains the stock market. In the context of India, Bombay Stock Exchange and National Stock Exchange represent the top 30 and 50 largest companies. Since 2009, it has been the apple of both domestic and global investors. However from early September 2018, there has been a 11% correction in the stock index.
Market corrections make for jittery reactions from new investors but present a golden opportunity for seasoned investors. They realize that short term fluctuations are rationally ignored across the long term and stock markets are the only path to generate real returns post tax over the long term. What truly matters in the long run are strong economic fundamentals.
Here lies the true value of a globally recognized Management Accounting qualification such as Associate of Chartered Institute of Management Accountant (ACMA by CIMA UK), that is a perfect combination of Financial Accounting and Advanced Business Management skills. One of the areas that is under the latter concerns market analysis. We get to analyze the paying capacity of the customers and that in turn is determined by the shape of the economy over the short, medium and long term.
It is not just about reading the Financial Statements to get lagged and lead short term indicators, it is also about understanding if the industry is sustainable and is headed for an upturn or downturn based on Money Supply, Aggregate Demand, Inflation, Interest Rates, Consumer and Government Spending, Investment, Net Foreign Investment, exports and imports.
CIMA gives us the Management Accounting tools to make out a strategy map for a company or sector, irrespective of economic fluctuations. The seasoned learned investor holds or enhances his/her investment portfolio and reaps advantages while the general populace loses out.
Hence it is always necessary for investors to keep themselves educated and stop relying on emotions.