How Share Prices Rise And Fall – Factors Influencing Fluctuations

Factors Influencing The Share Prices

Every share market has two cyclic trends – Bullish and Bearish. During the former, there is an increase in the share price whereas the price declines in the later one. But many a times, during decline, prices of some shares continue to rise and similarly during the increase phase, some stocks show decline. This means there are some factors that influence the markets to fluctuate. So what causes this rise and drop in share prices?

Reasons of Increase In Share Prices Of Company

  • Positive guidance from the management (i.e. financial estimation of sales or earnings is strong) results in rise of share price. 
  • Strong reported earnings year on year OR quarter on quarter basis.
  • Launch of new product
  • When demand for a stock rises, the prices go up resulting in shortage of the stock therefore naturally more buyers bid for buying the remaining shares causing the share price go up. (Demand-Supply Model). Read more on golden tips on investing in share market

Fall In Stock Prices – Most Common Reasons

Factors Inside The Company

  • Company’s earnings are in bad shape. In every quarter, there is decline in the company revenue.
  • Dividends offered by the company are reduced or cut. Increase in debts.
  • Company’s own management people sell off their company’s stock.
  • Scams in company leading to legal court cases against the company moves its price down.
  • High raw material input cost affects bottom line which causes share prices to rise. Increased supply but less buyers is also a factor.
  • Shortage of raw materials affects particular sector.

Government Policies:

  • Government changes policies and imposes extra charges/abruptly changes excise duty, sales tax which affects profitability of the company which in turn affects investor’s liking for the company.
  • Budget declared at the yearend has historically shown that sector wise share prices to fluctuate two weeks before and after the budget.
  • Increase in the repo rate or CRR lowers the fund availability in the market causing downgrade of stock market.

How International Factors Impact Share Prices

  • Fluctuations In worldwide indexes like Dow Jones of USA, FISE 100, DAX of Germany, Nikkei of Japan, Hang Seng of Hong Kong etc. also affects share price movement. If most of the indices are strong or weak; then other markets get affected.
  • If any country’s currency is devalued or appreciated, the share market of that country gets affected.
  • Policy changes by government of any country.
  • Interest rate change in major international markets (like USA, Japan) creates fluctuation in share market of other countries.

Other Factors:

  • Poor / heavy rainfall is an important factor which affects share price. This is because too much of rains ruin the crops like cotton, tobacco and tea etc. whereas too less rain lowers the grain production.
  • Inflation, unemployment figures rise in interest rates usually affects the market as a whole / a particular sector.
  • Investment sentiment plays a crucial role in moving share prices up and down. Sentiments means buying/selling based on what they think of company/its price as a whole. Some might think – prices may go increase/decrease and accordingly purchases of shares are made.
  • Fund availability in the overall market is less then share prices fall. 
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