Factors Affecting Share Prices

It's well-known that the stock market can bring you high returns. The opposite is true, however. You could lose your capital if you make mistakes or make errors in your investment strategies. The stock market is highly volatile, with share prices constantly changing. There are many factors that influence share prices in the stock market. This information will help you better understand the stock market's movements.

Factors that affect share prices

There are many factors that influence stock prices. Here are the main ones.

Supply and demand

Stock market works on the old economic principle of supply and demand. These two factors determine the stock's price. If the demand for a stock is greater than its supply, this means that there are more buyers than sellers. This causes a rise in price for that share as it indicates that buyers are willing to spend more money to buy the stock.

It is also true in reverse. If a stock's supply exceeds its demand, this essentially means that there are more buyers than sellers. This causes the stock price to drop because it means that sellers want to sell the stock at whatever price they can get it.

Fundamental factors

Fundamental factors are often referred to as the financial performance of a company. The financial performance of a company can have a significant impact on share prices in India. Stock prices will fall if there are poor financial performances. Investors often ignore these companies. Investors and traders looking for wealth tend to gravitate to companies with exceptional financial performance. This leads to a rise in demand for the stock, driving up its price.

Economy

When predicting share price movements, investors tend to ignore the effect of the current economic environment. Share prices are affected by the state of the economy in the country and global economic developments. Stock markets not only include domestic investors but also include significant numbers of foreign institutional investors (FIIs).

FIIs are discouraged from investing in countries that show signs of slowing growth. Depending on the severity and impact of the economic environment, it may also lead to FIIs selling their shares or moving investment to other more stable economies.

Government policies

Stock market share prices are affected by the policies of the government. Investors tend to perceive favorable policies as a positive thing, and share prices in the related industries and sectors will rise. Investors can lose faith if unfavorable tax policies are announced, particularly if they concern the taxation. This can lead to a sell-off that can quickly cause share prices to fall.

Political scenario

This may seem like a simple factor, but it can be a significant risk. Investors try to avoid investing in countries that are experiencing political instability or turmoil. This increases their risk of losing capital. Any major change in the political situation can in the short-term affect the price movements of shares on the stock exchange.

Dividend declarations

Even though they are minor factors, dividend declarations can have a significant impact on share prices in India. This can be identified in the stock price chart. The dividend declaration usually causes the stock prices to rise. Investors generally view companies that declare dividends as financially sound and stable. This is why the share price rises. If a company's declaration of dividends does not meet investors' expectations, it can increase the chances of the share price falling.

Conclusion

These factors that affect share prices are only a few examples and may not be exhaustive. The overall market sentiment is another important factor that can drive share prices. This factor is not like other factors. It is entirely emotional. Share prices will rise if the market sentiment is bullish. If the market sentiment is bearish, shares prices will likely fall. These factors should be considered before you make your decision on the next trade.