Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Stock market and risks involved for individual investors
Despite gloom in the economy, financial markets are scaling new highs. The situations calls for diligence on the part of individual investors. The deals with this issue.
What influences investors’ decision
- Investors may not necessarily be always sensible or even capable of perceiving the larger picture.
- Nobel laureate Daniel Kahneman argues that humans usually use the ‘first system’ of ‘fast thinking’ to hurriedly act and perceive their environment.
- Consequently, they are susceptible to the ‘priming effect’, ‘framing bias’, ‘anchoring effect’, ‘overconfidence bias’ and ‘availability heuristic’.
- These phenomena, thus, play their part in pervading optimistic market conditions.
- As a result, investors often end up ignoring or overlooking uncertainties and risks involved in their decision.
- At the same time, investors’ decision choices could be significantly influenced by ‘nudging’.
- It is a deliberate tactics and method of behaviour modification by which it is the ‘choice architect’ that decides who does what and who does so, as argued by the Nobel laureate, Richard H. Thaler.
- The present surge in the Indian stock market is indeed nudging individual investors to trade more.
What makes individual investors vulnerable
- National Stock Exchange data indicate following trends:
- The share of the non-institutional individual investors in equity trading volume has risen to one half of the total turnover. in 2021.
- It was around a third in 2016.
- In contrast, the share of Foreign Institutional Investors (FIIs) in the total trading volume has shrunk to just about a tenth, it used to be one fifth in 2016.
- Trading in the stock market, the sudden rise, the intraday moves, etc., are, thus, attributable largely to individual traders now.
- However, despite their large trading volumes, individual investors have actually contracted their holding of the market capitalisation.
- The FIIs currently own around half of the free float of all Indian companies.
- Apparently, the retail investors have constantly sold their stake to end up holding less than 20% shares now.
- Trading, thus, seems to be the mainstay of retail investors and this is what makes them more vulnerable to the vagaries of the market.
Market is ignoring macroeconomic factors
- Centre for Monitoring Indian Economy Pvt. Ltd. data of the listed companies reveal a rise in their profit, due to rationalisation and cost-cutting.
- Investors might be tempted to ignore macroeconomic factors and invest in such stock believing that it is the profit that impels the stock prices.
- In reality, however, share price is expected to ascend if a company declares to cut its wage bill.
- This probably explains why stock markets around the world have been on the rise amidst the novel coronavirus pandemic; demand may have declined but profits have been least impacted.
- At the larger economic level, however, real wages have plunged.
- Clearly, the market has not entirely decoupled itself from the economic indicators.
- Established wisdom suggests that corporates cannot sustain contraction in the economy for long.
- Sustained decline in demand caused by waning disposable household income would catch them soon.
- Robert J. Shiller attributes this phenomenon of creating a possible bubble to irrational exuberance.
- When bubbles burst, they cause a kind of financial earthquake, in turn destabilising public trust in the integrity of the financial system.
- Critically, as the past portrays, individual investors, with all their vulnerabilities, suffer the most devastating consequences.
- Retail investors are as well susceptible to overreaction when negative news hits the market.
Consider the question “What are the factors driving the financial markets up despite the weak macroeconomic foundations? What are the risks involved in such situation for the individual investors?”
Conlcusion
History of financial markets is replete with bubbles and bursts. Most affected in such burst are the individual investors. Informed decisions based on information and risks involved should form the basis of investment by individual investors.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: What is rule of law?
Mains level: Paper 2- Rule of law and role of judiciary
What makes the Rule of Law different from the Rule by Law? It is the idea of justice and equity that separates the two. The article explains the principles that emerge as the basis of the Rule of law and the role of the judiciary in ensuring their constitutionality.
Understanding law
- Law, in its most general sense, is a tool of social control that is backed by the sovereign.
- However, such a definition of law can be used not only to render justice, it can also be used to justify oppression.
- Therefore it is argued that a law cannot really be classified as a “law” unless it imbibes within itself the ideals of justice and equity.
- So, any law backed by a sovereign must be tempered by certain ideals or tenets of justice.
- Only a state that is governed by such law, can be said to have the Rule of Law.
- The British colonial power used the law as a tool of political repression, enforcing it unequally on the parties, with a different set of rules for the British and for the Indians.
- It was an enterprise famous for “Rule by Law”, rather than “Rule of Law.
Four principles of rule of law
- Clarity and accessibility: Laws must be clear and accessible, the people at least ought to know what the laws are.
- Another implication of this principle is that they should be worded in simple, unambiguous language.
- Equality: An important aspect of equality before law is having equal access to justice.
- This guarantee of equal justice will be rendered meaningless if the vulnerable sections are unable to enjoy their rights because of their poverty or illiteracy or any other kind of weakness.
- Another aspect is the issue of “gender equality”.
- Participation of people: The third principle, the “right to participate in the creation and refinement of laws”.
- The very essence of a democracy is that its citizenry has a role to play, directly or indirectly, in the laws that govern them.
- In India, it is done through elections.
- The idea that people are the ultimate sovereign is also to be found in notions of human dignity and autonomy
- Strong independent judiciary: The fourth principle stemsp from the idea that the judiciary is the “guardian” of the Constitution.
- The judiciary is the primary organ which is tasked with ensuring that the laws that are enacted are in line with the Constitution.
Independent judiciary and role of media
- The judiciary cannot be controlled, directly or indirectly, by the legislature or the executive, or else the Rule of Law would become illusory.
- At the same time, judges should not be swayed by the emotional pitch of public opinion either, which is getting amplified through social media platforms.
- Judges have to be mindful of the fact that the noise thus amplified is not necessarily reflective of what is right and what the majority believes in.
- Therefore, media trials cannot be a guiding factor in deciding cases.
- It is, therefore, extremely vital to function independently and withstand all external aids and pressures.
- While there is a lot of discussion about the pressure from the executive, it is also imperative to start a discourse as to how social media trends can affect the institutions.
Conclusion
The importance of the judiciary shouldn’t blind us to the fact that the responsibility of safeguarding constitutionalism lies not just with the courts. All the three organs of the state, i.e., the executive, legislature and the judiciary, are equal repositories of constitutional trust.
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From UPSC perspective, the following things are important :
Prelims level: Heat Dome
Mains level: Rising events of heatwave
A US city has recorded the highest temperatures as high as 46-degree Celsius part due to the historic heatwave that lasted as a result of a phenomenon referred to as a “heat dome”.
What is a Heat Dome?
- To understand what causes a heat dome, one should liken the Pacific Ocean to a large swimming pool in which the heater is turned on.
- Once the heater is on, the portions of the pool close to the heating jets will warm up faster and therefore, the temperature in that area will be higher.
- In the same way, the western Pacific ocean’s temperatures have increased in the past few decades and are relatively more than the temperature in the eastern Pacific.
- This strong change in ocean temperature from the west to the east is what a team of scientists believe is the reason for the heat dome.
- This occurs when the atmosphere traps heat at the surface, which encourages the formation of a heatwave.
- To compare, the reason that the planet Venus is the hottest in the Solar System is that its thick, dense cloud cover traps the heat at the surface, leading to temperatures as high as 471 degrees Celsius.
Is this heat wave a result of climate change?
- It cannot be said for sure if the heatwave is a direct result of global warming.
- Scientists are usually wary of linking climate change to any contemporary event mainly because of the difficulty in completely ruling out the possibility of the event having been caused by some other reason.
- Similarly, scientists who have been studying the climate tend to agree that the heat waves occurring today are more likely to be a result of climate change for which humans are responsible.
Answer this PYQ in the comment box:
Q.Consider the following statements:
- Jet streams occur in the Northern Hemisphere only.
- Only some cyclones develop an eye.
- The temperature inside the eye of a cyclone is nearly 100C lesser than that of the surroundings.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 2 only
(d) 1 and 3 only
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Purchasing Managers’ Index
Mains level: India's manufacturing slowdown
India’s manufacturing industry has slid back to a decline in June, as per the IHS Markit Manufacturing Purchasing Managers’ Index (PMI).
Purchasing Managers’ Index
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Global Cybersecurity Index
Mains level: Cyber security challenges for India
India has made it to the top 10 in Global Cybersecurity Index (GCI) 2020 by ITU, moving up 37 places to rank as the tenth best country in the world on key cybersafety parameters.
Global Cybersecurity Index
- GCI assessment is done on the basis of performance on five parameters of cybersecurity including legal measures, technical measures, organizational measures, capacity development, and cooperation.
- The performance is then aggregated into an overall score.
- For each of the five aspects, all the countries’ performance and commitment are assessed through a question-based online survey, which further allowed for the collection of the supporting evidence.
India’s progress
- As per the ranking, India has moved up by 37 places to rank as the tenth best country in the world.
- The US topped the chart, followed by the UK and Saudi Arabia tied on the second position, while Estonia was ranked third in the index.
- India has also secured the fourth position in the Asia Pacific region, underlining its commitment to cybersecurity.
Its significance
- The affirmation by the UN body of India’s efforts on cybersecurity comes just ahead of the sixth anniversary of Digital India on July 1.
- India is emerging as a global IT superpower, asserting its digital sovereignty with firm measures to safeguard data privacy and online rights of citizens.
Back2Basics: International Telecommunication Union
- ITU is the United Nations specialized agency for information and communication technologies – ICTs.
- Founded in 1865 to facilitate international connectivity in communications networks. It is Headquartered in Geneva, Switzerland.
- It allocates global radio spectrum and satellite orbits, develops the technical standards that ensure networks and technologies seamlessly interconnect, and strives to improve access to ICTs to underserved communities worldwide.
- Recently, India got elected as a member of ITU Council for another 4-year term – from 2019 to 2022. India has remained a regular member since 1952.
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From UPSC perspective, the following things are important :
Prelims level: UDISE+
Mains level: State of higher education in India
The Union Education Minister has released the Report on United Information System for Education Plus (UDISE+) 2019-20 for School Education in India.
What is UDISE+?
- UDISE+ is one of the largest Management Information Systems on school education.
- It covers more than 1.5 million schools, 8.5 million teachers and 250 million children.
- Launched in 2018-2019, UDISE+ was introduced to speed up data entry, reduce errors, improve data quality and ease its verification.
- It is an updated and improved version of UDISE, which was initiated in 2012-13 by the Ministry of Education under the UPA govt by integrating DISE for elementary education and SEMIS for secondary education.
Why is it important?
- As per the UDISE+ website, “Timely and accurate data is the basis of sound and effective planning and decision-making.
- Towards this end, the establishment of a well-functioning and Sustainable Educational Management Information System is of utmost importance today.”
- In short, the UDISE+ helps measure the education parameters from classes 1 to 12 in government and private schools across India.
What does the 2019-20 report say?
- The total enrolment in 2019-20 from primary to higher secondary levels of school education was a little over 25.09 crore.
- Enrolment for boys was 13.01 crore and that of the girls was 12.08 crore.
- This was an increase by more than 26 lakh over the previous year 2018-19.
(1) Pupil-teacher ratio improves
- The Pupil-Teacher Ratio — the average number of pupils (at a specific level of education) per teacher (teaching at that level of education) in a given school year — showed an improvement all levels of school education in 2019-2020 over 2012-2013.
(2) GER improves
- The gross enrolment ratio (GER), which compares the enrolment in a specific level of education to the population of the age group which is age-appropriate for that level of education has improved at all levels in 2019-2020 compared to 2018-2019.
- The GER increased to 89.7 percent (from 87.7 percent) at Upper Primary level, 97.8 percent (from 96.1 percent) at Elementary Level, 77.9 percent (from 76.9 percent) at Secondary Level and 51.4 percent (from 50.1 percent) at Higher Secondary Level in 2019-20 compared to 2018-19.
- GER for girls at secondary level has gone up by 9.6 percent to reach 77.8 percent in 2019-20 compared to 68.2 percent in 2012-13.
(3) Phyical infrastructure improves, but computers and internet access remain lacking
- The report stated that just 38.5 percent of schools across the country had computers, while only 22.3 percent had an internet connection in 2019-20.
- This is an improvement over 2018-2019 when 34.5 percent of schools had computers and a mere 18.7 percent of schools had internet access.
Key takeaways
- While physical infrastructure is steadily improving, the digital infrastructure for schools has a long way to go.
- With the overwhelming majority of schools have neither computers (61 percent) nor internet access (78 percent), achieving the Centre’s ‘Digital India’ vision when it comes to online education is still some ways off.
- The vast increase in hand wash facilities is a big step towards the fulfilment of the Modi government’s ‘Swachh Bharat’ push.
- The Gross Enrolment Ratio improving at all levels of school education in 2019-20 compared to 2018-19 is a plus.
- While 93 lakh more boys enrolled in education than girls, when it comes to GER, the girls pulled ahead.
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