Last Updated: Mar 21, 2024 Value Broking 7 Mins 2.1K

It is well known that participating in the stock market may yield large rewards. However, the opposite is also true. Missteps or errors in your investment methods might result in the loss of your wealth. This is because the stock market is a very volatile environment with continually varying share values. When it concerns the stock market, there are a number of factors that influence share values. Here are some facts on some of the most important factors that affect share prices in India, which will help you fully understand stock price changes.

Have you ever questioned what are the factors affecting share prices in the stock market—that is, what variables influence the price of a company? Unfortunately, there is no hard and fast rule or procedure that can predict how a stock’s price will behave. Having said that, we do know a few basics about the variables that cause a stock to rise or fall. These influences are classified as fundamental factors, technical considerations, and market sentiment.

The financial transactions of a certain organization are frequently referred to as fundamental factors affecting share prices. And a company’s financial success is one of the most critical elements influencing share prices in India. Investors frequently overlook firms with poor financial performance, resulting in a downward spiral in stock price. Furthermore, traders and investors seeking to acquire wealth always gravitate toward firms with extraordinarily good financials, which leads to a rise in demand for that specific stock, driving up prices.

It goes without saying that if a firm has publicly traded shares, anything that happens within the firm will directly impact the share price. So, if the firm is on the rise, with effective product launches, greater revenue, decreased debt, and an increasing influx of investor money, the company’s stock price is certain to grow. This is because everyone would want to acquire shares of a company that is on the rise.

Demand and Supply

The stock market is built on the years-old economic idea of supply and demand. These are the two elements that influence the price of a stock. When the demand for a certain stock exceeds the supply, it practically indicates that there are more buyers than sellers for the stock. This generally leads to an increase in the price of that specific share since it indicates that buyers are more than eager to pay a premium for the stock.

The opposite is also true. When the supply of a specific item exceeds the demand, it indicates the existence of more sellers than buyers. This causes a stock’s price to fall since it suggests that the sellers are seeking to get out of the stock, selling it at any price the buyers are ready to pay.

Economic Factors

When anticipating the price changes of stocks, most investors tend to underestimate the effect of the present economic condition. One of the many key elements influencing share prices is the status of the country’s economy and global economic trends. Stock markets include not just domestic investors but also a considerable number of Foreign Institutional Investors (FIIs).

When a country’s economy shows symptoms of slowing, FIIs are discouraged from making more investments. Furthermore, based on the intensity of the economic situation may drive FIIs to sell their stakes and shift their investments to more stable economies. 

Government Policies

Government policies are frequently regarded as key influences like what affects stock prices the most. If the government’s policies are seen favorably by investors, the share values of related industries and sectors start to rise. However, bad policies, particularly those involving taxation, might cause investors to lose trust. This causes a sell-off, which may swiftly send share values spiraling downward.

Political Scenario

The nation’s political situation is one of the most important factors affecting share prices in the stock market. If the political atmosphere is dark, with the government seeming weak, the prospect of conflict, or a negative public attitude against the existing administration, the stock price will fall.

Similarly, if the government seems powerful and has widespread popular backing, the stock price will rise. Furthermore, if the government has solid development programs, investors will be more eager to invest, but a government with a poor developmental agenda may cause stock values to fall.

While this may appear to be an insignificant element, it is far from it. Investors always aim to avoid investing in nations experiencing political uncertainty or turbulence since doing so considerably raises the danger of their wealth being degraded. Furthermore, any big alteration in the domestic political picture might, in the near term, affect the price movement of stock market shares.

Why is investing in the stock market considered risky?

Investing in the stock market is considered risky due to several factors which are:

1. Market Volatility
Stock prices can be highly volatile, meaning they can experience significant price fluctuations in short periods. Market volatility can be influenced by various factors such as economic conditions, company performance, investor sentiment, political events, or global economic trends. These fluctuations can lead to potential gains or losses for investors.

2. Liquidity Risks
Some stocks may have low trading volumes, making it challenging to buy or sell shares at desired prices. Illiquid stocks may have wider bid-ask spreads, increasing transaction costs and potentially limiting an investor’s ability to exit their position quickly.

3. Market Downturns
The stock market can experience periods of significant decline, known as bear markets. These downturns can be triggered by various events, including economic recessions, financial crises, or unexpected global events. During such periods, stock prices tend to decline, and investors may experience substantial losses if they need to sell their investments during a downturn.

4. Uncertainty
The future performance of a company or the stock market as a whole is uncertain. Even with thorough research and analysis, It is challenging to accurately predict how a company will perform or how the market will behave. Factors such as changes in consumer preferences, technological advancements, or regulatory developments can significantly impact stock prices.

5. Behavioural Risks
Investor behaviour, including emotional bias and herd mentality, can contribute to market volatility and irrational investment decisions. Emotions such as fear and greed can lead to buying or selling stocks at the wrong times, potentially resulting in suboptimal returns or losses.


This list of factors affecting share prices in the stock market is illustrative and not complete. The overall market mood is another major aspect that might influence company share prices. Unlike the majority of other criteria, this one is entirely emotional. If the market attitude is positive, share prices will certainly rise. Share prices will almost certainly fall in the case of a negative market attitude. Before you make your next deal, it’s a good idea to think about these elements to understand better how the market could move.

Thus, when compared to other types of investments, investing in the stock market might provide the highest returns. However, it also entails major hazards. However, nobody can disagree that if these risks are evaluated, the yield will undoubtedly match the risks. The variables listed above are those that have a direct impact on the stock market, and keeping an eye on them can help you determine whether to purchase or sell shares.

Frequently Asked Questions (FAQs)

There are multiple factors that affect share prices like demand and supply, fundamental factors, economy, government policies, political scenarios, dividend declarations, etc.

Natural disasters such as earthquakes and floods significantly impact the stock market’s value. This occurs for a variety of reasons, including damage to property and other things. This causes corporations to experience significant losses, resulting in a drop in stock values. Company sales are being harmed as a result of a breakdown in the manufacture and transportation of goods. As a result, when natural calamities strike, stock values are certain to collapse.

Stock prices can increase as a result of positive company performance, such as revenue growth and profitability.

Predicting stock movements with certainty is challenging. It requires a deep understanding of market dynamics, company fundamentals and industry trends.