6 Crucial Factors that affect Stock Prices in India

6 Crucial Factors that Affect Stock Prices in India

Many of you have often wondered about stock trading and its movements. If you closely monitor the stock market movements, you may get noticed that stock market trends do not move in a single direction.

Sometimes they are up, sometimes they are down. Indeed, it’s a big challenge to predict the fluctuations of prices in the Indian stock market as it is difficult to get the exact catch of stock market trends and position.

Needless to say, stock markets are highly volatile in nature. Therefore, stock prices are affected by several factors.

Before taking a dig deep into the stock market trends, let’s understand the demand-supply chain first.

Stock market trading works like any other market and mainly focuses on demand-supply chains. For instance, the price of a product is determined by the demand and supply of that product. Let’s understand it with a suitable example:

Many people buy watermelon during the summer as it helps them to stay dehydrated and healthy. As the summer comes, the price of watermelon suddenly increases, which makes retailers purchase watermelon at a higher price than the normal rate.

The above example defines the mechanism of stock prices. The stock market mainly works on demand and supply. Demand and supply play a significant role in determining share prices. If the demand for a particular stock rises, the stock prices start to increase which in turn attract more bidders to bid the maximum to buy the share.

If the demand for a stock increases, the price increases or vice versa.

Here, we will uncover some crucial factors that affect the stock market prices:

Company Related Factors

Any changes in the company whether it is positive factors or negative factors can directly affect a stock’s price. Such factors are increased sales revenue, debt repayment, upliftment in the cash flow statements. Positive factors are:

Company’s dividends – If a company declares dividends to its shareholders, it can directly affect the price of a stock.

Any new changes regarding the present profit or future growth of a company.

Launch of a New Product – If a company first time launches its new product such as IPO, it highly affects that company’s share price.

Negative Factors are:

Any product failure of a company can highly affect the share’s price.

If a company merges with another company, that too affects the share price.

Company’s total employee turnover and high manufacturing costs can also influence the share’s price. Other factors include the scams or scandals involving a company.

Exchange Rates

Indian stock market heavily depends on exchange rates. This is because the value of Indian rupee directly affects the share prices. As the Indian rupee hardens with respect to other currencies, the goods sold by Indian companies become expensive in foreign markets. On the other hand, softening of Indian rupee decreases the value of goods sold in foreign markets.

A strong Indian rupee is the main cause behind the upliftment of stock prices in the Indian stock market.

Stock Market Trends

You must be aware of the terms bull market and the bear market if you are experienced investors. The bull market and bear market trends cause a great stock market fluctuation.

Bull Market Trends

In the Bull market trend, investors are keenly interested in the future of the stock market. Hence they invest more money in the stock market which in turn leads to an overall increase in the stock market prices.

Bear Market Trends

In bear market trends, investors are worried about the money that they have invested in the stock market. They are uncertain about unpredictable market trends which in turn makes the stock prices fall.

Government Policies

The policies controlled by the government have a high impact on stock market trends as the policies directly affect the investor’s sentiments and the economy. If the policies deemed in the favor of investors, share price gain. On the other hand, if the policies fail to comply with investor’s investments, it negatively affects the stock market.

Demonetization in India was the best example of government policy that affected the entire stock market. When demonetization was firstly foisted in India, the stock market crashed due to lack of liquidity.

Natural Disasters

Any natural calamity such as drought, earthquakes, floods badly affect the stock price of a company. These disasters not only impact on human displacement but also lead to asset destruction which in turn reduce the stock market price. For instance, a share trading company faces many difficulties during the natural disasters which in turn lead to depreciation of revenue. Hence it is advisable to check the weather forecast before investing in any share of the company.

Political Situation

Politics can heavily influence the Indian stock market. Before the election, there is huge volatility in the stock market. The rise or fall of share price mainly depends on the expectations of voters. The movements in stock prices were observed when the NDA government was formed led by prime minister Narendra Modi.


Needless to say, stock prices of a company may rise or fall due to certain factors that even the best analysts sometimes fail to recognize the actual reasons behind the fluctuation of a share price. Do remember that each stock price is unique and so its price variations. It is impossible to predict the actual reasons behind the stock’s price. If you are seeking investment in the long run, these factors help you to make the best investment decisions.

Leave a Reply

Your email address will not be published. Required fields are marked *