Decade of weak fundamentals

Financial sector has changed to a marked extent from the way it operates, its constituent participants, coupling and decoupling of economies, rules and regulations, and its impact on the economy, which is inseparable in today's time.

Earlier financial arena was considered as separate universe and the people involved were considered some kind of superhuman or aliens. The main reason behind was the lack of information. At that time retail investors or simply say layman were unaware of the financial markets, products, its modus operandi, its uses, benefits etc. Because of lack of awareness, financial market participants played with markets by making fool of people.

Over the years, plethora of changes happened in the world economy, which changed the outlook of financial market entirely. With adoption of Liberalization, Privatization and Globalization policy by India in 1991, India reached an altogether a very different level of growth, which even wouldn't got affected by the worst financial crisis of millenium, whereas its counterparts i.e., developed nations just had a dip into the crisis.

Several new policies and amendments to the existing acts took place, in order to make the financial sector easy to understand and transparent for common man. With infusion of more information into the market, financial market in today's time can be compared to McDonald's where even a kid knows which burger to eat and what are its constituents.

Presently, even a kid is speaking the language of investment so do their parents since former is an outcome of the impact on the latter. Right from the TV commercial to print media and from hoardings to sponsoring of talent shows and reality shows on TV, helped the financial sector in reaching the brain of every living person on thsi earth.

One can think at this stage of time is that, its a good thing that everyone is getting aware of the environment around him. I totally agree with such thinking, but there is always an other side of coin, which nobody wants to see.

Benefits:
1. More information about financial products, increase the market for financial sector.
2. Better utilization of funds because of more faster routing of savings to investments.
3. Increased growth and GDP, since funds from surplus sector (household savings) will easily get tanslocated to the deficit area (production and manufacturing).
4. Increased market depth which leads to decreased transaction costs, which will further attract more investors, thereby turning into a vicious circle of investment.
5. Development of market, to give better returns to investors.

The above mentioned benefits are sufficient enough to support the doctrine of impact of increased financial information on the economy. But there is other side as well, which could be:

Non-benefits:
1. Every Tom, Dick & Harry, now considers himself to be investment manager, which gives negative signals in the market.
2. Uninformed investors create misunderstandings in the market by creating havoc.
3. Market will become more emotional than logical and rational.
4. Half knowledge is always harmful, both for the informant and the informee.
5. Returns by mere speculation is addictive situation, which will force participants (investors) to choose illegal paths of earning high returns and it will further increase the incidence of frauds in the economy.
6. Though the market depth will increase, but its just a buoyant situation and more of like a bubble and the clear indication is that when market falls, this bubble squeezed out and when market starts rising, it will again inflate.
7. Such emotional rallies in the market is very confusing for the needy investors and other participants which give market a wrong direction thereby degrading the returns of all.

The above benefits of non-benefits of increased financial market awareness, outweigh each other on one or the other aspect. As laureates declared this decade as "decade of liquidity", I rather declare it as "decade of weak fundamentals", leading to more nervousness of the market.