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Here, in this article we will discuss various factors affecting stock market in India.

Some of the major factors are – Economic Factors, Demand & Supply, Policies, News, Key Events, Corporate Actions & more.

Let us know each of these factors in detail.

About Stock Market

Lets get a bit of understanding related to share market before checking the factors affecting the same.

Factors Affecting Stock MarketThe stock market is a platform for buying and selling shares by investors. The prices of the shares are on basis of the demand and supply of the buyers and the sellers.

It works like an auction house where the buyers and the sellers negotiate the prices and trade.

The SEBI (Securities and Exchange Board Of India) was founded in 1992 to secure the market and protect the inventors in any occurring threats in a legal manner.

The stock traders usually buy and sell stocks through brokers. The company traders usually deal with stocks of big investment companies and firms.

The traders use various methods to liquidate the funds in the market. The stock exchange acts as a mediator for letting the buying and selling of stocks take place.

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    Economic Factors Affecting Stock Market

    Here we will discuss about all Economic Factors that affect stock market or share prices in India.

    Interest Rate of Banking Sector

    The bank of a country can increase or decrease the interest rates to stabilize the economy. We refer to it as monetary policy.

    For example, when a company borrows money to expand its business, the high-interest rates may cost debt to the company.

    This result in reduced profits and the dividends of the holders of the shares may also decrease.

    Nationwide Inflation

    Inflation in simpler terms means high consumer rates. It usually reduces the sales and profits of a company.

    The high price rates lead to high-interest rates. Bank may increase the interest rates to reduce inflation. It results in a fall in prices.

    Though inflation does not affect the costs of commodities it may more or less benefit their prices.

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    Nationwide Deflation

    The fall in prices leads to lower profits of the company and reduced economic activity.

    When the prices of stocks start falling, the investors may start selling their stocks and move towards fixed-income investment such as the bonds.

    The interest rates decrease to encourage people to borrow more money. The Depression caused in the year 1929-1939 has been recorded as the biggest deflation period.

    Change in Economic Policy

    With the formation of a new government, there may be changes in economic policies.

    If the changed policies are good and helpful in the development of the economy, they may result in a change in the level of inflation and the interest rates which would affect the prices of the stocks in the market.

    Demand and Supply

    The imbalance between the demand and supply is directly proportional to the rise and fall of the price of stocks.

    For example, if a company is doing very well, investors would want to invest in that company which would lead to a shortage of the company’s shares and results in the price of the shares to shoot up.

    Similarly, if a company has too many shares available, nobody would be interested in buying the shares which would cause the prices of the stocks to fall drastically.

    Politics within a Country or Change in Govt.

    In our country, the conditions in politics play an important role in the increase or decrease of the stocks.

    If a government is falling weak, risking a situation of war or even in a state of the pandemic, the stock prices start falling.

    Usually, a government with a weaker agenda may cause a fall in the prices of the stock market. In the same way, if a government stands strong with huge public support it stabilizes the stock market.

    A government introducing policies that are actually beneficial for the country may lead to an increase in the prices of the stock market.

    Exchange Rates

    The relations between the Indian rupees and other foreign currency can also affect the stock market. When the Indian rupee is strong it may lead to high stock prices. But this may affect people differently.

    For example, when the prices of the Indian commodities rise, the exporters would have to suffer while the importer gets goods at cheaper prices.

    Similarly, when the Indian rupee is weakened, the prices of stocks rise for the exporters, and the prices lower for the importers.

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    Corporate Actions – Factors Affecting Stock Market

    One of the major factors that affect Share Market quite regularly are corporate actions of a listed company.

    The investor needs to have a clear understanding of the effect of corporate actions on their investment and the stock market before any investment plans.

    A good understanding of these actions will help to explain the company’s health, and investors can also find out if purchasing or selling a specific stock is wise or not.

    There is a variety of corporate actions on the financial market that leave a mark and influence stock prices.

    The Stock Split

    It is an action taken by the corporation in which the existing share is subdivided to reduce the cash value of the individual shares.

    All the shares already present are subdivided to decrease the cash value of the individual shares. Besides, no change in the stock value is seen in the total market capitalization.

    This action is performed by the firm when the share price becomes too expensive for an investor to buy a basket of shares.

    It also allows the company to disperse a greater number of market shares so that the liquidity of the stock can be improved.

    Normally, we achieve this in fractions. Based on the decline in face value prices, the stocks get into various ratios.

    The stocks work in different ratios depending on the decrease in face values. For instance, a 2:1 ratio will mean that there would now be two shares for every shareholder that earlier had one share in their names.

    Infosys is one company that follows the process of a stock split.

    Bonus Issue

    Bonus shares mean free shares that the company gives to its shareholders. It doesn’t affect the total worth of an entity. This is usually given out when a firm is short of cash.

    Typically, the board decides on what ratio bonus shares should be given out. Companies who are low in cash undertake this action as a way to provide their shareholders with regular income.

    Cash flow is not involved in this corporate action.


    Dividends serve as a way for companies to encourage investors to purchase their stock. The Annual General Meeting (AGM) decides the action.

    It normally means a payment to its shareholders in the form of money or stocks that the company offers. The board of directors and shareholders need show approval for the company dividends.

    We can make such payments either through cash dividends or through stock dividends through which the firms allocate stocks.

    We pay dividends at particular intervals. For example, if the face value of a company’s share is Rs 5 and a dividend of Rs 10 per share is present, the dividend is 50%.

    It should also be noted that is not mandatory for the companies to give dividends. They may also intend to reinvest the profit in the company itself.

    Rights Issue

    Through this action, the companies invite the current shareholders to purchase fresh shares. It gives them the right, on a record date, to purchase stock.

    The shareholders get to maximize their exposure in the stock market at a discount price. When this corporate action comes out, the stock price is dilute.

    The number of shares that we can purchase also depends on the existing shares owned in the company by the investor.

    This action typically comes in when the companies need big capital for some reason, so they issue this instead of going for a loan.

    Buyback of Shares

    The corporation repurchases its share in the stock market through this corporate action. The number automatically decreases by this action. There are many explanations for the companies to carry out this action.

    For example, if the company does not see any value in reinvesting the capital for the growth of the business, buyback action lets them return cash to its shareholders. It also allows the company to reduce its equity resources.

    The corporate actions may be obligatory or optional. We need to recognize that it impacts the stock price when a company issues these actions.

    Investors should always take a close look at a company’s corporate actions as they directly impact shareholders.

    These actions will, later on, assist investors in choosing their investment plans wisely.

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    Company News – Factors Affecting Share Market in India

    Any News related to a company listed in the share market, is one of the major factors which affect the stock market and the specific share price.

    News can of any type for ex. –

    • Hiring of a CXO or Firing or Resigning of a CXO
    • Any kind of New Acquisition or Selling a part of business or Mergers
    • Quarterly, Half-yearly & Yearly performance of a company
    • Major Fraud in the Company
    • Establishing an International Footprint
    • Heavy-weight Competition in the Market
    • Innovation or New Business Model within the Company
    • & more

    News is one of the major factors affecting share price or share market.

    Key Events that Affect Share Market

    Here are the list of major events which has a major impact on share market.


    In the year 2016 the government of India banned the notes of Rs.500 and Rs.1000 respectively in an attempt to stock the source of black money and corruption.

    In the stock market, the Sensex collapsed by almost 1689 points and the Nifty by over 541 points due to the government’s plan to bring out notes with higher denomination.

    Election of Sonia Gandhi

    There was a crash in the stock market after the election of Sonia Gandhi in 2004. It is known to be the highest fall in history with 15.62%.

    The crash was caused because of the communist coalition issue during her election.

    Surgical Strikes in Pakistan

    The domestic equity market took a great fall after the military carried out a surgical strike in the launch pads found in Pakistan. Such strikes may result in tension between the two countries again.

    In the stock market, it showed a decline after the surgical strikes. The Nifty had dropped almost 2.1 % and the Sensex collapsed 500 points.

    There was a great pressure on the investors to sell the shares and the wealth had fallen by 109 lakh crores.

    US Presidential Elections

    After Donald Trump was elected as the president of the US, there was rise in the prices of the stock market.

    A term called ‘trumponomics’ was used to describe his big economic plans such as the cuts in the personal as well as corporate taxes etc.

    In the stock market, the Dow had increased by 257 points, and the S&P, as well as the Nasdaq, had risen up to 1.1 cents for a piece.

    Natural Calamities or Pandemic

    Various natural or man-made calamities such as tsunamis, earthquakes and droughts may affect the prices of the stock market. If this happens there can be destruction of properties and assets.

    For example, a company would suffer heavy losses and fall in its sales due to the breakdown of its factories and transport may result in a fall of prices in the stock market.

    Covid-19 or Coronavirus has slumped stock market across the world and created a scenario of recession. So, Pandemic can have massive adverse affect of share market.

    Other Factors Affecting Stock Market or Stock Prices

    One needs to understand the factors that can affect the stock market well before they start investing.

    We have discussed some of these factors below.

    Company’s Performance

    The prices of the companies stocks can be affected by any mergers, introduction of new services or products by the company, getting new contracts, company scandals, etc.

    These issues within the company can affect the price of their stocks.

    Investor Sentiment

    It can cause the rise or the fall of prices in the stock market. The direction the stock market takes would affect the following,

    • Bull Market– When the stock market is strong and the prices rise, it boosts the investor’s confidence which is often an economic boom. You could expect the optimism of the investors to purchase the stocks.
    • Bear market– When the stock market falls weak, the prices of the stocks fall which leads investors to lose their confidence in the stocks. This usually happens in an economic recession and the unemployment rate also increases.

    Factors Affecting Stock Market – Conclusion

    The knowledge gained from researching and learning different skills would be of great help.

    One needs to be patient, have the will to learn, and acquire the skill set to become one of the successful traders. Learning through mistakes and gaining experience is equally important.

    Different factors may affect various investments involved,  to measure the average value of the collection of shares or securities.

    The fluctuation in the stock market is due to a change in the demand from high to low. The company’s performance can also be a cause. The factors stated above may affect the prices in the stock market.

    Therefore, you need to look out for the involvement of these factors before you invest in the stock market. You need to decide when you should buy or sell your stocks to yield better returns from your investment.

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