Updated Mar 24, 2022

what are the Factors Affect the Stock Market?

Factors Affecting the Stock Market

Introduction

The stock market in India is very dynamic. The prices are constantly fluctuating, making it risky for investors looking for a profit. Many risk-averse investors prefer to put their money into equities. But in recent years, the stock market has seen several avid investors who wish to buy and sell shares. Since the stock market fluctuates all the time, it makes for an exciting study to delve into.

When investing in the stock market, investors need to constantly check their assets to make sure they are not at a loss. Although the nature of the stock market cannot be predicted, it is worth asking about the major factors that contribute to its unstable nature. There is no saying that a single factor alone affects the stock market. In fact, it is a combination of various factors that tend to contribute to the constantly fluctuating rates of stocks and shares.

How Do Government Policies Affect the Stock Market?

Government policies largely determine the national economy and state of business. If the government has to put into practice new policies, it can have a drastic effect on the stock market. Any recent change by the government could either have an adverse impact or a profitable outcome depending on how it is executed and monitored. For example, governmental tax policies keep a close eye on the market, which means that stock prices will likely fall for investors.

How Do the Policies of the RBI and SEBI Affect the Stock Market?

The Reserve Bank of India is the leading organisation that regulates the country's monetary policies. Any increase or decrease in the repository of the RBI can affect stock prices. If the RBI raises the stock and share rates, the liquidity increases and vice-versa. Investors, in turn, are hit with higher borrowing rates and tend to sell their stocks to attain a profit. The Securities and Exchange Board of India is the body that has the right to change the policies of India's major stock exchanges, which impacts the market's performance.

How do Interest Rates and Inflation Affect the Stock Market?

Whenever there is a rise in interest rates, banks tend to decrease their lending capacity by increasing their lending rates. This makes it harder for investors to buy stocks and shares at lower prices. Inflation means a surge in the pricing of goods and services over a certain period. If the inflation rates are high, the country is on the verge of an economic crisis.

How Do Exchange Rates Affect the Stock Market?

The exchange rates of the Indian rupee as compared to other currencies keep changing. When this exchange rate hardens or becomes higher, Indian goods become more expensive in foreign markets. This affects multinational companies that also operate overseas. As the exports decline, the stock market concerning these exports also decreases, and the stock market of these companies fails.

How Do Politics Affect the Stock Market?

When it comes to planning the functioning of a country, many things can go wrong, and it is a long process to make it right. Sometimes governmental bodies have to make decisions based on what is more important. If this means that planning the budget and focusing on international relations means that stock prices have to fall, it could affect the investments for these securities.

How Do Gold Prices and Bonds Affect the Stock Market?

Usually, stocks are considered risky, whereas bonds are considered safe. Although the relationship between these two securities is hard to define, they are both used to avert an economic crisis. Governments tend to lend gold out as an asset to foreign investors to resolve their debt. This can sometimes affect the stock market as the government needs to make up this revenue.

Conclusion

There is no saying which factors are solely responsible for the stock market’s performance. Although many investors find stocks easier to invest in, they can be risky, and this means that the investor has to be prepared to lose some if not all of his money. Sometimes it is the role of the government and other central bodies to determine the prices of stocks and shares, keeping in mind the best interest of the investor and the country.