We all know what a bumpy ride feels like, we will never get to find the ups, downs, and sudden stability, but it all just happens. The same applies to the stock market. You can buy a stock for ₹1,500 today, and the next day the same stock could be ₹3,000 or ₹500. Apart from this drastic uplift and downfall, there could also be a chance for it to stay on the same line, that is ₹1,500 or ₹1,600 and more. The bumps can be small and big, but there will always be bumps, there is no highway to a destination in the stock market. These fluctuations in the market are the aspect that brings in risks. Risk-averse investors often avoid investing in the stock market. The risk-takers, on the other hand, invest aggressively inequities in order to produce wealth in the long run. The volatile nature of the stock market makes it an appealing possibility to invest in.
The stock market’s future performance cannot be predicted. This keeps the investor awake at night, wondering whether to invest or not. But what is it about the stock market that makes it so dynamic?
For instance, you bought two RIL shares for ₹2,600 each, and in a matter of 60 days, these stocks could fall to ₹1,600 each, which is a risk involved for you. These prices can again shoot up or fall furthermore. This is an example of stock market fluctuations. So here are some reasons why these stocks fall or rise.
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1. The Aspect of Supply and Demand
There are several things that influence the market. But when you peel away everything on the exterior and look at the most fundamental aspect, it is simple: supply and demand. An imbalance between supply and demand, like any other commodity, will cause the price of the stock to rise or fall. If there is a sudden scarcity of potatoes and a large number of people line up to buy them, the price of potatoes will rise.
Similarly, if a firm is performing well and everyone wants to acquire shares of the same company, there will be a scarcity of shares, causing the stock price of the company to skyrocket. If there are too many shares available, but no one wants to acquire them, the converse occurs. In such an event, the stock price will drop.
2. The Factors that are Related to the Company
It goes without saying that if a firm has publicly traded shares, anything that happens within the company will have a direct impact on the share price. So, if the firm is on the rise, with successful product launches, greater revenue, decreased debt, and an increasing influx of investor money, the stock price of the company is certain to grow since everyone would want to acquire shares of a company that is on the rise.
However, if the firm is losing money, having product failures, or amassing debt, a majority of shareholders will desire to sell their shares, lowering the stock price. Changes in management and mergers and acquisitions are two more reasons that might cause stock values to rise and fall.
3. The Government Policies
Government policies have a significant impact on the economy and industry. In order to improve the country’s economic situation, the government must enact new policies. Any new policy change has the potential to be beneficial to the economy or to tighten the economy’s grasp. This raises the prospect of the stock market being impacted by any changes or implementation of new policies by the government. For example, a rise in corporation taxes has a significant influence on the sector since earnings would suffer while stock prices will plummet.
4. The Inflation and Interest Rates
When interest rates rise, banks hike lending rates, raising the expense for both corporations and people. Rising costs will have an influence on the business’s profit levels, influencing the company’s stock values.
Inflation is defined as a rise in the price of goods and services over time. Inflationary pressures discourage investment and long-term economic growth. Stock market enterprises may postpone investment and cease output, resulting in negative economic development. A decrease in the value of money may also result in a decrease in the value of savings. Stocks of fancy firms tend to suffer as well since no one wants to invest in them. This has a negative impact not only on one’s purchasing power but also on one’s investment capacity.
5. A Natural Disaster
Natural catastrophes have a negative impact on both people’s lives and the market. It has an influence on the company’s success as well as people’s ability to spend money. This will result in reduced levels of consumption, decreased sales and revenues, and eventually a negative impact on the company’s stock performance.
6. The Exchange Rates
One of the elements influencing share prices in India is the value of the Indian rupee in respect to the dollar or other foreign currency. A strong rupee indicates that our economy is expanding, which will lead to greater stock prices. However, when it comes to the functioning of our currency, various people face different consequences.
When the value of the rupee rises, the prices of Indian goods in foreign markets rise, resulting in lower demand, and exporters suffer, causing their stock values to fall. Simultaneously, importers may purchase items at lower costs, increasing their inventories. When the rupee falls in value, the stock prices of exporters rise, and those of importers fall.
7. The Price of Gold and Bonds
There is no recognized theory expressing the link between stock prices and gold and bonds. Stocks are typically seen as dangerous investments, whereas gold and bonds are regarded as secure investment havens. As a result, during a big economic downturn, investors choose to invest in safe securities. As a result, gold and bond prices rise while stock prices fall.
When you buy a stock, you will never know what the end result could be. But there are a major number of people who have made it big with just stocks. Following a comprehensive grasp of the above-mentioned factors, the investor should ideally have a good allocation plan in place.