The Indian economy is expected to expand by 6.5% in 2024 (Source: JP Morgan). The economy is expected to develop at a pace of 6.1% during the following five years, making it the third biggest in the world by 2027. By 2030, its present yearly GDP of $3.5 trillion is predicted to treble to $7 trillion. It is important to know what affects the stock market to make the best of the growing industry.
Also read: Long-term investing: A smart strategy for lasting wealth
Overview of the Indian stock market
Except for a volatile period following the general election, Indian equities have continuously surpassed their Emerging Market (EM) counterparts. The country’s equity markets reached fresh record heights in 2024.
As investors are becoming more optimistic about the prospect of long-term economic development, the blue-chip NSE Nifty 50 has increased by more than 200% from the bottom in March 2020, bringing the entire market capitalisation to more than $5 trillion.
After poor first quarter (Q1) profits and sluggish economic expansion, which dropped to a 15-month low, investors have remained wary of current data points and volatility trading, even if equities have persisted to increase. This cyclic pattern of highs and lows is characteristic of the stock market. Therefore, it becomes necessary for investors to understand the factors that shape market trends to increase returns.
Also read: NSE vs BSE: Understanding the Key Differences.
What factors affect the stock market?
Let us understand what factors affect the stock market.
Company-specific factors
The value of stocks often declines as a result of investors ignoring businesses with subpar financial results. On the other side, businesses with extraordinarily strong financials prefer to attract traders and investors.
The stock price may rise as a result of this enhanced demand. It is important to remember, too, that a business that expands significantly more quickly than its competitors may also draw attention and worry.
Economic factors
The economy is one of the factors that shape market trends to a great extent. These factors have a strong influence on the stock market.
Tax rates
The taxing policy of an economy influences the stock market of a country. If the tax rates promote investment in the stock market, the stocks perform well due to enhanced investor confidence and interest.
Inflation
A creeping or slow rate of inflation is important for economic growth. However, if inflation rises to a huge level, the disposable income will shrink. This will lead to a poor performance of the stock market. Deflation on the other hand always weakens the markets.
Political and geopolitical factors
When elections or fragile regimes are unpredictable, markets frequently respond. Furthermore, any significant shifts in the national political environment may have a short-term impact on stock market developments.
For instance, the general election unpredictability has caused Indian markets to be extremely unpredictable as of 16 May 2024, which has caused foreign institutional investors (FIIs) to sell off their assets.
Market-specific factors
The price of a stock is heavily influenced by supply and demand. When the demand for a stock exceeds its supply, it indicates that numerous individuals wish to purchase it rather than sell it.
As a result, investors are ready to pay more, which raises the stock price. On the other hand, a supply excess occurs when more investors are willing to sell securities than purchasing them, which causes the stock price to decline as sellers choose lower prices to sell their shares.
Investor sentiment
Stock prices are heavily influenced by public sentiment, which is one of the key factors that shape market trends. Whether the value of shares grows or decreases is typically determined by investor confidence in the future of the stock.
The chairwoman of the Securities and Exchange Board of India (SEBI), expressed reservations on 11 March 2024. The reservations were over the overestimation of small and mid-cap equities. She mentioned the possibility of a market bubble and potential market meddling. The small-cap 250 index fell by about 10% in just three trading days as a result of this comment, which rattled investor trust in small caps.
Also read: 37 Financial Mistakes to Watch Out For.
Bottomline
The stock exchange is a dynamic setting where there are many factors that shape market trends. You can make wise financial selections if you are aware of these aspects. Stock prices may vary due to supply and demand-driven market volatility.
It is critical to consider stock market investment sensibly and with a firm grasp of these elements. The market is prone to fluctuations even if it has the potential to generate riches. Understanding the factors that affect the stock market can help you make better decisions and navigate market swings effectively.
FAQs
- What are the factors affecting the stock market?
Numerous variables influence market patterns in the dynamic environment of the stock exchange. If you know these factors, you can make prudent financial decisions. Market volatility caused by supply and demand can affect stock prices. Market movements are greatly influenced by the state of the economy, particularly the activities of institutional investors and governmental regulations.
- Which factors affect the NIFTY 50?
Market trends in the ever-changing environment are influenced by a multitude of factors. You can make wise financial decisions if you are aware of these aspects. The financial performance and market sentiment all have an impact on NIFTY50 prices. NIFTY50 prices may be impacted by supply and demand-driven market volatility.
- How to know Nifty up and down?
A bearish state is indicated by a CCI between -200 and -50. An overbought situation is indicated by values over 200. An oversold one is indicated by values under -200. A CCI of -50 to 50 indicates an equilibrium state. A bullish state is suggested by a CCI between 50 and 200.
- Why is NIFTY50 an all-time high?
Nifty achieved the all time high of 26,277.35 in September. There are a multitude of interconnected factors. However, the main reasons which seem to achieve this high are the economy’s growth prospects and strong investor confidence.
- Which PE ratio is good?
A price-to-earnings ratio allows you to determine if an asset is an acceptable offer or overpriced for its value by showing how much investors are ready to pay for every rupee of the earnings. Investors prefer a lower P/E ratio.
