You are told that you should always invest for the long term. That when you are investing in a stock, you are actually investing in a business. As the business grows, so will the value of your stock. But businesses don’t grow in isolation. They grow in a healthy environment.

That environment is the economy. So when you are investing in a company you are investing in the economy. If that puts you on a high, here’s the sobering part.

Since you are an investor in the economy, you better know a thing or two about it, so that you can better understand what is happening to your stock investments and what is a good time to buy or sell.

Now that doesn’t mean you don’t invest in stocks till you figure out the Indian economy inside out. Surjit Bhalla, president of Oxus Research and one of those economists who read the pulse of the economy and of the markets with equal ease, recommends keeping an eye on three key macroeconomic indicators.

Exchange rate

A weaker rupee is usually good. But weaker than what? Not just the US dollar, but the currencies of the countries India’s exports compete with. Of late the dollar has weakened against most currencies (including the rupee’s key rival Chinese yuan). So, currently a stronger rupee isn’t all bad.

Interest rates

Higher the cost of capital, more expensive is production and consumption. What’s bad for producers and consumers can’t be good for stock markets. Generally low interest rate can co-exist only with low inflation. With inflation on a downward path, expect lower rates in coming months.

Economic growth

No guesses here. Higher growth in gross domestic product (GDP) is an unmitigated blessing. Barring an unusual event (e.g. scam, war) high GDP growth will invariably indicate high returns on stock markets. Most forecasters predict good growth in years ahead.