If you observe closely, you will find that stock markets don’t move in a linear fashion. In other words, they don’t move in a single direction. While sometimes they are up, the next moment they are down. Predicting stock market movement/trend is pretty difficult as it’s affected by several factors. Read on to know five factors affecting the stock market trend.

Government policies

The policies undertaken by the Government has a direct bearing on stock market trends. This is because, on most occasions, the policies have a direct impact on investors’ sentiments and the economy as a whole.

If the policies are deemed favourable by investors, stock markets gain. On the other hand, if they are perceived to bring down investors’ confidence, it affects the market negatively. For instance, the recent cut in repo rates by the Reserve Bank of India (RBI) is expected to bolster markets in the coming days.

Geo-political events

Stock markets are also affected by geo-political events. For instance, an event in the neighbouring country can have a bearing on the stock market as it can affect trade and the economy as a whole.

Also, happenings in developed economies of the world, such as the US can affect the stock market as many investors trade in stocks which invest in heavily in global companies. Thus, global happenings can affect stock market movement in a big way.

Speculation and expectation

Speculations and expectations from investors and stakeholders play a crucial role in affecting stock market trends. While speculations drive investors’ behaviour today, expectations lay the foundation of an act tomorrow.

If speculations and expectations are in line with investors and stakeholders, markets react in a positive manner and so the trends. On the other hand, if it’s opposite, the trends will reflect so which is normally drop in prices or indices.

Happenings in related markets

This is another factor which affects trends. For instance, the ongoing crisis in the debt market following ILF&S default along with some others have had an impact on the performance of equity stocks. Note that the stock market comprises various instruments, including equities, debt, commodities, etc.

Any development, positive or negative, in one has a contagion effect on the another. If a happening is positive, so is its effect. On the other hand, if a development is negative, markets react in that manner.

Developments within companies

Internal developments within companies also have the potential to affect market trends. Developments related to mergers and acquisitions, appointments, earning reports, etc., can dictate market movements. If the development is related to a reputed firm, then it can heavily influence investors’ sentiments. In the past, there have been cases, where an event in a big company had a major impact on the market as a whole.

While it’s essential to keep a watch on these trends, it’s more crucial to stay invested for the long term to create wealth.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product.  Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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