It is widely known that stock market investments can generate good returns. On the other hand, the opposite is also true. You could lose your money if you make mistakes with your investment decisions.
This is owing to the reality that the equity market is a very volatile environment with continuously varying equity rates. Do you know what are the factors affecting share prices in India?
In this article, let’s discuss the major factors affecting share prices in India.
Table of Contents
Factors Affecting Share prices in India
Although there are many factors that affect stock prices, some of the most important and significant factors that cause share prices to increase or decrease are quickly discussed below.
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Demand and supply
The equity market is set up to operate on the demand and supply equation, which has been around for centuries. These are the 2 main reasons that impact the pricing of a stock.
When a stock’s demand surpasses its supply, it basically indicates that the quantity of buyers outnumbers the quantity of sellers. This eventually results in an increase in the price of that specific stock as it indicates that investors are ready to pay a premium for the stock.
Likewise, the opposite is true. When a stock’s supply surpasses its demand, it indicates that there are more sellers than buyers. This reduces the stock price because it means that the sellers are planning to get rid of the stock and are ready to sell it at whatever rate the investors are happy to pay.
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Economy
When forecasting the price change of stocks, most investors appear to overlook the effects of the current economic environment. One of several significant factors impacting stock prices is the status of the nation’s economy and global economic trends.
In the event of a lower bank rate (lower interest rate), demand for money will increase, as would demand for stocks. In the case of a higher bank rate, however (high interest rate), there would be less demand for money, there would be less demand for shares.
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Government policies
The current policies are always described as having a significant on stock market share prices. As the government ‘s strategies are received positively by investors, the stock prices of related enterprises and businesses begin to increase.
Unpleasant strategies, particularly those relating to taxation, may, nevertheless, cause shareholders to lose confidence. As a response, there is a sell-off, which can easily send stock prices soaring downhill.
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Political scenario
Although this may seem to be a minor consideration, it is far from it. Investors try to avoid investing in countries that are experiencing political unrest or unrest, as such a circumstance raises the possibility of their investments being destroyed.
In addition, any significant change in the domestic political environment will influence the price action of stock market securities in the brief period.
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Dividend
Dividend declarations, while minor, have a significant impact on stock prices in India. This is something that can clearly be seen in the price trend of a specific share. When a firm declares a dividend, the share price usually rises.
The increase in the stock price is due to investors’ perception that businesses that declare dividends are fundamentally sustainable and reliable. Nevertheless, if a firms ’ dividend announcement falls short of investors’ estimates, the risk of the stock price falling rises.
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Management
Management personalities have a major impact on a company’s growth, and as a result, they have a major impact on stock prices.
Share values would be better if the leadership team consisted of trained, seasoned professionals with a proven track record.
If the business is taken over by a leadership team with a bad track record, the stock price would drop.
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Speculation
If there is a lot of speculation in the sector, or if there is a lot of speculation in a share, the value of that stock will fluctuate a lot.
The volatility in share price would be smaller if speculation was at a minimal level.
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Return on Investment
If the track record about return on investment of a company is good regarding return on investment then the possibilities of stock price increase will be much more.
If the return on investment track record of a company is not good then the possibilities of stock price increase will be less.
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Global Markets
Institutional investors (particularly FIIs) would participate in Indian markets if they offered high returns. The demand for shares would grow, and prices would rise as a result.
If the returns provided by other nations’ markets are appealing, institutional investors would sell their stocks and invest in those markets. Shares will be sold in large amounts in such situations, reducing prices.
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Regulatory
Investors would be more comfortable to participate if the stock market is regulated in a democratic way with strong regulatory oversight like SEBI. As a result, there will be more demand and stock prices will rise.
Investors would lose faith if supervision is unsuccessful and scams happen (Harshad Mehta scam, MS Shoes scam, CRB scam, Ketan Parekh scam, and the recent IPO scam). They’d become panicked and sell their stocks. As a response, rates will drop.
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Qualified Institutional Buyer
Institutional investors, including mutual funds, investment trusts, and pension funds, have an effect on stock prices. They have a sizable sum of money at their disposal.
As they begin to acquire, share prices rise, and when they sell, stock prices fall. This is of factors influencing share prices
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Brokerage firms Sentiments
Markets are said to be influenced by emotions. If brokerage firms are optimistic, further purchasing will occur, resulting in a rise in share prices.
If brokerage firms are cautious, further selling will occur, driving share prices downward.
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Trade cycle
Cyclical movements in business growth are referred to as trade cycles. During a boom, stock prices would be at their highest, and during a downturn, they would be at their weakest.
During times of recovery, stock prices would steadily rise, while during times of contraction, they would decline.
These are major factors affecting share prices in the stock market and answer to the question which factors affect share market?
Conclusion
It’s a good idea to think about these factors affecting share prices in India before you make your next trade to get a decent picture of how the trade could respond.
This is all from our side regarding factors affecting share prices. Let us know your views in the comment section.
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FAQ About factors affecting share prices
Indian stock market depends on which market?
Mostly it depends on US Markets and SGX Nifty.
How international market affect Indian stock market?
If there is any global issue and we won't be able to sell our product in Other markets then it will negatively affect the market and vice-versa.
How US market affect Indian market?
There are many companies which are doing business in the US market if anything happens positive or negative that will affect those companies.
How US elections affect Indian stock market?
If there's any government change in the USA that will directly affect many Indian firms active in the US market and it will also have an impact on government policies of India.
Do trade Cycle also affect the Share price?
Yes, Trade Cycle will also affect the share price so much.
