Various Factors Affecting Stock Market Prices

stock market

The stock market is considered to be volatile in terms of price fluctuations due to one or the other reasons. Simple demand and supply of a particular stock can affect the price to a great extent. However, various other reasons may affect the price of stocks as listed on primary and secondary stock exchanges. Different aspects related to stock market price fluctuations have been enumerated below that can help you understand what exactly can affect the price of a particular kind of stock. Various factors affecting stock prices are divided into two broad categories:

Industry-related factors:

The industry as a whole can affect the stock market prices. For example growth and the slowdown of the banking industry can affect the stock market price of every single banking stock. Various industries related aspects have been listed below:

  1. Growth of a particular industry:

In case a particular industry like pharmaceuticals or banking shows potential for great growth in the future the demand for the best stock increase which increases the price as well. Moreover, in case of any signs of a slowdown, the price continued to fall due to a decrease in the demand for the same.

  1. Changes in government laws;

Government tends to push certain industries like pharmaceutical and even consumer-based products through various government laws and policies. This helps in overall industrial growth that can help in increasing the demand as well as the price of a particular stock. Any kind of unfavourable government policy or change can at the same time cause the stock price to fall.

  1. Availability of industrial competition:

The competition between various firms in a particular industry can also affect the stock market price. For example, if various companies are working individually in a particular sector to ensure greater supply for their product or service then the need for better raw materials and research becomes a necessity. This results in more competition and therefore reducing in profitability. This reduces the demand for the stock of that particular industry which causes price fluctuations. On the other hand, if the extent of competition is low then the demand for that stock price will tend to be high which result causes the stock price to increase.

Particular company-related factors

Apart from the whole industry or an economy, the workings, decisions, and operations of a particular company affect the demand and supply for that particular stock. Better operations, profitability, and overall financial situation results in better demand for that particular stock which in turn increases the price to a great extent. Various aspects categorized under company-related factors are as below:

  1. The extent of competition a particular company faces:

In case a company faces great competition then the demand and supply of stocks will tend to fluctuate depending upon the profitability and working of various companies. However, in the case of a monopoly, the prices tend to remain stable in various cases. Also, with less competition, the company may generate greater profits that can attract the attention of investors thereby increasing the stock market price.

  1. Company growth, profitability, and decision making:

The growth and overall profitability of a company also affect the demand and supply of its stock. Improvement in overall operations, better profits, and favourable decision-making of the board members increase the demand for their particular stock. Moreover, on the other hand, making and reduction in the overall profitability reduce the price of the stock. Investors tend to look for companies with better growth and opt for these stocks that can help them generate greater returns in the future. Therefore, the growth, slow down and every aspect related to a company can affect the stock market price.

  1. Financial decisions:

Apart from all the above factors and aspects, the financial decisions taken by a particular company to fuel its operations can also affect the stock market prices. In case, a particular company indulges in taking huge loans with is combined with lower profitability then the chances of long growth of that company reduces in the near future. The greater the amount of debt less is the demand for that particular stock. Moreover, in case a company generates a huge amount of profit and uses the same for its operations then the potential of that company improves in terms of enhanced operation. The demand for that particular stock also improves which in turn affects the stock market price.

Stock market prices tend to fluctuate due to various industrial and company-related factors. Moreover, various economic factors also tend to increase or decrease the price of a particular stock. These include economic growth or slowdown, unforeseen situations like war, or a disease outbreak. Investors must therefore keep themselves updated and opt for various sources of information to take the best investment decisions. Proper analysis and understanding of various factors can help investors understand the stock market price fluctuations.

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