Why do stocks fluctuate?

The stock market live ticker on the financial news channels fluctuates constantly. Just the red and green numbers made me anxious earlier. Now that I’ve worked in the finance industry, I feel much more relaxed by the same red and green numbers :)

Let me make some basic concepts easier for you’ll as well. Here are some of the basic reasons that are responsible for these fluctuations:

Investor Sentiment:

A company’s stock performance depends on how the investors perceive it. They take into account quarterly earnings reports, media coverage, dividend payouts, and profits. If the perception is positive, the price rises and if the perception is negative, the price drops. Based on these perceptions, investors make their decisions.

Interest Rates:

When the Central Bank (RBI) decides to keep rates high to combat inflation, it means banks need to pay high rates for borrowing from the RBI and consumers from commercial banks. This leads to reduced spending which in turn results in decreased manufacture from businesses. Profits decreases and so does investor sentiment which eventually affects stock market live.

Political Uncertainty:

When a nation’s ruling government inspires confidence in the public, optimism is on the rise. People spend and invest more which generates profits for businesses and the market sees an upswing. However, a government which fails to inspire any confidence leads to pessimism and people withdraw their investments; they would rather keep it safe with themselves than in the market

Global Events:

In a globalized world, events happening in other nations cause the same effect as any domestic event would have on the markets. War, crude oil prices, and climate changes are global events that have the maximum effect on the market.

Emotions :

Indians are a superstitious bunch. From birthdays and anniversaries to doomsday predictions and solar eclipses, trading volumes rise on some days while on the others, they fall to surprising lows. This causes the markets to fluctuate. Quite often these superstitions do not bring any bad luck but many lose out on a day of trading.

Note: You must note that these factors are over and above the basic stock value evaluation like the Face Value of the stock, the yearly financial statements, Cash-flows, Earning per share.