9 factors that can affect the performance of your stock
If you have invested in the stock market, then you might be familiar with the feeling of suspense that follows it, waiting for the stock to rise in price. Information on different stocks can be obtained from BankBazaar. There may be times when the stock that you invested in increased in price by a lot. Sometimes, you might have noticed that the stock price does not increase as you may have expected. It could be possible that the price dropped during a fall in the market as a whole. It could be possible that the company was not performing well. The reason could be anything. Here, in this article, we will explain some of the factors that can affect the performance of your stock. This list may not be an exhaustive list.
Basic stock market trends
Basic stock market trends can affect buying and selling behaviour and thus, the performance of a stock. If a stock tends to increase in price, more people will try to buy the stock, driving the price higher. Similarly, if a stock tends to decrease in price, more people will prefer to sell their stock. Additionally, if the stock market as a whole is experiencing a downward trend, the number of people trying to sell their stock will increase. Therefore, look out for such major trends.
If there are more middle-aged investors, then there will tend to be more number of people who wish to buy stocks for the future. If there are more retirement-age investors, then the number of people who sell tends to be higher. This could typically be explained by the fact that people who have reached retirement age prefer to withdraw their savings to make use of them while middle-aged people will want to save for the future.
The interest rates being set by Reserve Bank of India can have major implications for the stock market. When interest rates are lower, more firms tend to find borrowing to be feasible and thus will invest more in growth. This, in turn, makes them more profitable and boosts the economy. This also boosts the shares of the company. If the interest rates are higher, borrowing tends to reduce. Firms look to reduce the number of employees in order to cut down on labour costs. This causes a slump in the economy and this reflects in the price of the stock. This must not be confused with the concept of automation. Automation is done in order to improve future profits and to help scale up as required.
News of disastrous events like a major transport accident, an oil spill, or a terrorist attack can impact the stock market. Even a sudden and major increase in global oil prices can adversely affect the stock market. Therefore, it would be best to look out for such news. Being aware of these changes can help you make decisions regarding what to do with your stock investments in such cases.
If a particular stock’s price is increasing by a lot suddenly, it could mean that the stock is on its way to becoming overvalued. Overvaluation of a stock happens when there is false investor confidence in a particular stock owing. In such cases, it is almost quite certain that the price of the stock will fall in the future. Therefore, it is necessary to take steps to avoid buying overvalued shares.
Changes in global markets
The Indian stock market is not immune to changes that occur in the global stock market. When there is a strong change globally, a sudden increase or decrease in the performance of the global stock markets, there will be an impact on the Indian market as well. News of any major event around the world can also affect the stock market. The volatility of global markets will also play a role in deciding which way the Indian stock market will trend. Click here to learn more on stock investment
Inflation can impact the stock market too. If there is an increase in inflation, the prices of basic necessities go up. Therefore, people are forced to spend more to acquire those items. In such cases, people have less money left in hand and this will impact their desire for investment. They may choose not to. Thus, inflation could be an issue.
Basic investor psychology
There is a phenomenon called the bandwagon effect. This effect describes a scenario in which people do something just because a number of other people they know do it. This applies to purchasing and selling shares in the stock market as well. If a person notices that a number of people they know are investing in a particular stock, then it is possible that they might also be tempted to invest in that stock. When a large number of people exhibit such tendencies, they have the capacity to influence the stock market.
In this context, liquidity refers to the investor interest in a particular stock. The more investor interest a particular stock has, the more likely it is that the stock will respond to news. Therefore, it is important to be aware of current news just in case.
Here, some of the factors that influence the stock market were discussed. It is important to know about these factors in order to be better prepared while investing in the stock market. These factors are not exhaustive and there are other factors that influence a stock but these are the major ones. In addition, it would be wise to watch company results with regard to financial quarters and financial years. These will give you a good idea of the performance of the stock. This, in turn, will drive investor behaviour. Therefore, ensure that you have a clear idea of what stocks you are investing in in order to avoid major losses.