Whether you areplanning to invest in stocks or already investing in the same, you must beaware of the fact that price fluctuation is an intrinsic part of stock marketing functioning. It is usually believed that it is the magic of price fluctuations that drive growth to the stocks. The effectiveness of compounding is found to work well when stock prices fluctuate. This is why the top 10 stock brokers in India recommended investing in stocks when their prices are down and selling when they are up. However, it is the consistency of investment that paves the way for desired results.
According toexperts, it is not just a coincidence but there are various reasons thattrigger the change in stock prices. If you are inclined towards stock investments, it is necessary for you to understand these factors that would help you take your investment decisions accordingly. At the same, the change in the demand for stocks also affects its price. So, in the following section, we will try to touch each & every aspect of stock price fluctuation.
So, let’s delvedeeper and understand the factors that influence stock prices.
1. Supply and Demand
Just like anyother commodity, the change in the supply and demand of stocks is known toaffect the prices of the stocks. Since the stock market’s functioning can be compared with an auction, any kind of surge in stock buyers than the actual supply of the stock would result in higher stock prices. This scenario augments the market quote for investors to sell the stocks and allures, investors, to sell when earlier they were not interested in selling the stocks. On the other side, if there are more sellers than buyers, the stock prices tend to go down.
2. Political Scenarios
According to the best stock market app India, political fluctuations tend to affect stock pricesgreatly. Any major change in the leadership of the country affects the share prices considerably. Similarly, any kind of new tax regime or rebate in certain taxes also causes the stock prices to change. You may have seen a sharp change in the stock prices during the time of the annual budget.
3. Speculations
In the phase ofdespair, which is categorized by a reduction in the price level, the bearopportunists may come across the need to make purchases to meet their promises to sell. This cause a surge in the price of the stock.
The doings ofthe speculators are also major contributing factors to stock prices. When the investorsget into a buying spree in the expectation of profit from an increase in the stock price, the price certainly rises. Similarly, the activities of the bears cause a decline in the stock price.
4. Change in the directorship of the company
As the financialefficiency of a firm is directly proportional to its stock price, any kind ofchange in the directorship of the company tends to have a say in the stock price too. For example, if a reputed director or any other top managerial level person resigns from the role, it creates a doubt in the mind of the stock owners and they sell the stocks causing a reduction in the stock price. Similarly, if a notable person becomes a part of the top management of the company, it sends out a positive vibe among investors which results in an increase in the stock price.
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5. Financial soundness of the company
The financialhealth of the business also plays a critical role in the resolve of stockprices. It is just the financial trustworthiness that basically ascertains the company’s ability to pay a dividend. If the health is sound and safe, more people will become interested in buying the shares of the company. This will trigger an increase in its stock price.
Anticipating thepredictions of a good dividend, the investors may begin heavy buying of theshares which may cause an increase in the share price. Once the price reaches its peak level, the investors may kick off selling their stocks to make quick gains. This would take the stock price down.
6. Buying attitude of Institutional Investors
If the country’s reputed institutionalinvestors such as IDBI, LIC, or ICICI decide to purchase the stocks of a specificbusiness, the regional investors will become more interested in such shares which causes an increase in the stock price.
7. Underwriter’s influence
The doings of the ‘underwriters’ of a company’sshare may also trigger changes in the price of shares. An underwriter is referredto an individual who promises the smallest subscription for a company’s shares. If the minimum subscription is not achieved, the underwriter gets into a situation to buy the shares on their own. With a hope to trigger an impressive demand for the shares of the company countersigned by them, the underwriters may begin buying up the shares via their agents. This may trigger a short-term demand in the stock market as an outcome of which the share price may increase.
