Factors Influencing Stock Markets

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Factors Influencing Stock Markets :

-Political :The political stability and the policies of the government play a very important for the stock markets.
For example a government may be opposed to foreign investment or maybe it may not favour some actions (for example government might be was against any action against a company for it' s alleged unlawful practices, but however his predecessor was not so sympathetic towards the culprit company.Also greater stability in the government indicates a more stronger country and greater stability in policies. Also domestic security situation is very important since a disturbance might cause disruption of business or it might to even damage of business properties.
Exporting firms will be even greatly affected since their clients might not want to have any disruption in their supplies and therefore might change their supplier.

-International Political situation : International crisis like a war or a rise in tensions will definitely lead to loss of business.

-Other factors: Factors like increase in the GDP, improvement of infrastructure ,favourable policies also lead to rise in business.

-Foreign exchange rates : If the most of the economy depends on exports and if the value of the local currency rises then the exporters will get affected .And if the economy 's largest component is it's imports then any fall in the value of the local currency's value will result in the shooting up of payments to be made for imports.

-Inflation : As the inflation rises the goods will become costlier and consumption will decrease hence businesses will lose .

-International markets: If there are no major changes in the domestic business scenario then the domestic markets.

-Excessive inflows into the market :If there are plenty of investment coming into the market then naturally the values of the stocks will go up.


-Factors affecting individual stocks :

--Improved profitability :The stocks are usually valued based on their earnings per share .The term used is P/E ratio(price of the stock/earnings per share ) .If the profitability of the stock increases or if there are prospects for greater increase of profitability in the future then the P/E ratio can be increased. The P/E ratio is usually high for high growth companies (like technology)and lower for lower growth companies(like saturated businesses).

--Performance of peer companies : If the peer /related sector companies report unexpected results then the expectation from the company also increase and so the price of the stock also increases.

--Performance of the companies in general: If there is an overall general trend in the performance of the companies (like improvement/degrading) then due to the general market movement even then otherwise static stocks tend to improve.

--Future prospects : The value of future profits (10-15 years) will be factored into the value of the stocks if the future prospects change then the value of the stock is bound to change.

--Management : The management of the company is one of the most important factors in the performance of the company. If there is substantial change in the quality of the management then the profitability of the company is bound to change hence the price of the stock varies .For example governments are usually perceived to be very good managers of the public sector companies if these companies get disinvested or privatised then the value of the stock increases since the incoming private management will be considered to be better than the government management that it replaced.