If an answer to the above question was simple, then every individual would have timed the market really well and earn good returns. However, the reality is that the stock market is very risky and unpredictable in nature. The stock prices can increase one day and may decrease another day. A large percentage of people, who invest in the market doesn't even know the actual reasons behind the fluctuations in the share prices.
Though the stock market increases and decreases largely because of the demand-supply aspect, there are many other prominent factors that lead to the price fluctuations in the shares, which are as follows:
Every company which is listed on the stock exchange is required to publish its financial statements quarterly or yearly basis. The financial performance of the company triggers stock price change. The cost of the shares mainly depends upon the Earning Per Share (EPS), which is net profit of the company earned on a single share. If a company reports higher profits, then EPS would increase and vice versa.
Company Related Factors
Any decision or changes in an organization can lead to stock price changes. The below mentioned factors lead to the increase in share prices:
Increase in revenue generated through the sales
Decrease in the cost of operations
Any kind of new product launch
All these factors lead to an optimistic outlook of the company that in turn increases the share prices. Similarly, there are also some negative factors that can decrease the cost of the stock, which are:
A key member of the company leaving the management
Higher manufacturing cost
Fall in sales revenue
Hence, if the company is making a loss, then it is quite obvious that the investors will resist from purchasing the shares and ultimately the stock prices will tumble.
Reserve Bank of India (RBI) Monetary Policy
The monetary policy is constantly reviewed by the RBI. If there is an increase in the Repo and Reverse Repo rates, then the loans will be available to the companies at the higher interest rates. The higher rates will limit the borrowing capacity of the companies and they may have to forgo any product launch or expansion plans. This leads to the creation of a negative outlook among the investors and leads to the decrease in the stock prices.
On the other hand, if the Repo and Reverse Repo rates are decreased by the RBI, then the lending rates are decreased by the banks and the companies can borrow easily. The investors consider this to be a very positive sign and the share prices increase eventually.
The Final Words
It is important that an investor must not take any stress regarding stock price volatility as it is an intrinsic part of the stock market and will always be there. Instead of worrying, we should keep a close tab on the present or future events that can affect the share prices. If you are a novice, then you can take the help of a top advisory company having the certified advisors as their expert stock market tips can really prove to be useful for investing money and get better returns.