Factors that affect stock price fluctuations.

Factors that affect stock price fluctuations.

 

Market Fluctuation

Ever thought why the price of stocks fluctuate so much. It's so much that whenever you see lots of ups and downs in any graph you think it's representing the stock market. 

A stock market is a place where you see a new trends every day, the prices fluctuate so much that the variation can be seen each second.

But what causes the stock market to fluctuate so much?

The volatility is due to various forces which influence the stock market, these are:

• Demand and supply: 

If any industry is rapidly growing then, everyone thinks that it will give huge returns in future, so the demand for that share increases resulting in the price to increase and vice verse.

• Investors sentiment:

The stock is totally controlled by investors sentiments I.e feelings. If they are willing to take risk than, they tend to invest more and if they are not willing to take the risk then they will not invest.

• Economic factor:

Whenever the economy grows, it will increase the consumption in the economy. When people start to consume more, they will spend more money hence there will be more cash flow in the market. This will help to increase the company's earnings and hence the stock price will go up. On the other hand, when the economy is falling, it has a reverse effect on the market.

 So, whenever the economy is up investors will be encouraged to invest more in the stock market. But when the economy is falling then, they have a negative impression on the markets and stops investing, moreover, they start withdrawing money from the market.

• FII:

The foreign institutional investors refer to foreign companies which invest in Indian markets. They tend to invest more in growing economics. They invest hugely, so whenever they withdraw their investments from the market it affects the stock price negatively.

• Geo-political factors:

Unfavourable conditions like political conflict, war, terrorism, foreign policies have a negative effect on the whole business. Thus in times like this investors tend to avoid the stock markets and the stock price goes down. (If you want to know why investors tend to avoid stock market click here.)

• Foreign trade rates:

Whenever the rate of foreign currency varies it directly affects the domestic stock market. Companies that are involved in import and export business will be affected the most. Moreover, the stock price increases of those companies which have a foreign presence if the rupee value depreciates.

• Interest rate-outlook:

Whenever the RBI's interest rate increases, it negatively affects the company's business because of the businesses' cost of borrowing increases resulting in a decrease in profits, causing the share price to fall.

• Trade balance:

It reflects the difference in import and export of the country. If the countries export are more than imports then it is called trade surplus. This reflects a healthy state of the economy and positively impacts the economy.

On the other hand, if the imports are more than exports, it is called a trade deficit. If it remains the same for a long period of time than it may lead the country into debt. And this it negatively impacts the stock market.

So, these are the different factors which impact the stock price fluctuations. However, the stock market also impacts the economy.

~by Suddha.