Five Factors Which Influence Share Price

The share market is a major pillar of the Indian financial system. It’s the place where companies list themselves when they need to raise capital and common people invest their hard earned money in hope of earning higher returns.

A share market is a where emotions and logic run high simultaneously. Share prices go up and down and so does people’s heartbeat. For example, say two days ago, Unitech share price was INR 200 per share and today it is INR 250. What made it go up? What influences the share prices? Read on to know about these factors.

1. News

It’s without a doubt that news has the most influence when it comes to share prices. For instance, exit polls of the recent state elections in UP, Punjab, Manipur, and Goa showed a win for the BJP in three out of four states. This led to share prices rising because many people were looking for a change and the BJP was their answer.

News can affect people’s emotions which drive their decisions. Thus, you will notice that even a slight negative piece about a company can drown its share price and a positive one does the opposite.

2. Monetary Policy

Every time the Reserve Bank of India (RBI) announces its monetary policy, there is a noticeable change in market trends and share prices. Each time the RBI hiked the repo rate (the rate at which RBI lends to banks), the markets reacted negatively.

The markets keep a close eye on the RBI announcements for it influences money supply on a nationwide scale and has a direct effect on the share market.

3. Market Players

While the news and monetary policy are external factors, many a times, it’s the internal factors such as the listed companies which influence share prices.

If there are more bull players (increasing share prices, positive company outlook) than bears (falling prices, pessimistic company outlook), the prices begin to increase and vice versa. Thus, it’s important to concentrate on the company as well as the market trends before making a trade.

4. Dividends

Dividends are money paid by the company to its shareholders out of its profits. Whenever a company announce dividends, its share price increases. However, a point to note is that if the rate of dividend is less than expected, the share prices fall.

5. Demand and Supply

One of Economics central ideas has its application in the share markets as well. A share price is directly affected by the market trends. If more people are buying a particular share then its price increases and when more people are selling the share, its price falls.

There are many factors which affect a share price. While it’s hard to keep a track of them, the above five points are the major ones you should keep an eye on before making a trade in the share market.