What are the Factors that can Affect the Stock Market?


Equirus Wealth

20 Jan 2023 4 min read

Stock Market#Stock Market#Investment

Factors Affecting Stock Markets

Many factors affect the stock market, some of which we may already be familiar with, such as the inflation or unemployment rate. Many other factors affect the stock markets and, in turn, our returns. Here is a look at some such prominent factors.


People's ability to invest is directly impacted by inflation, which hurts their finances. Additionally, higher inflation rates deter investors, which hurts businesses. Therefore, inflation has a significant effect on one's ability to invest, their ability to buy things, and the economy as a whole.

Interest rates:

Interest rates are regulated by the Reserve Bank of India (RBI), which directly impacts stock prices. When the interest rate is low, businesses may borrow a sizable sum at a reduced interest rate, which boosts their earnings by raising the value of their stock. However, higher interest rates result in lower profitability and lower stock values.

Yearly Average RBI Repo Rate

Imports and Exports:

An impact is felt by businesses that are directly involved in the import and export of products and services. Import businesses' earnings and stock values rise when there is a high number of imports. Similar to how it indicates that Indian companies are entering new markets when there is an increased number of exports of products and services. The share prices of these export companies rise as a result. On the other hand, enterprises that are focused on import and export business suffer from a decline in the quantum of imports and exports, which hurts the value of such companies' stock.

Foreign Exchange:

It was hypothesized that as local currencies decline and local enterprises become more competitive, which increases their exports, there is a positive link between stock prices and exchange rates. Stock prices will eventually rise as a result of this. On the contrary, many firms also significantly depend on revenue in foreign economies. This could be counterintuitive to them.

Supply and demand:

Supply and demand are the two core principles that drive the economy as a whole. They are integral to the capital markets as well. The mismatch between supply and demand, which causes an increase or drop in stock price, is one of the significant variables influencing the stock market. Additionally, variables like economic information and interest rates impact the demand for equities, which causes swings in the value of stocks.

Political factors:

The influence of politics is enormous on the stock market. If the country lacks political stability, the business confidence index ranks low for such companies, and there is a possibility that the funding and investments would be low. Foreign investors could pull out their investments. For instance, stock prices decline when there is a threat of war, when the government is weak, when the people are angry with the government, etc. Elections or budget announcements have a significant influence on market volatility, which affects stock prices. Furthermore, the share market may be impacted by the new government policies concerning the Indian economy. In addition, equities lose value when riots or political unrest occur in the nation.

Government policies:
Government policies and changes significantly impact the country's economic condition. Any change in the same could make the stock market move accordingly based on how deeply the underlying companies would get affected due to the change.

The regulatory changes in the country:

The Reserve Bank of India (RBI) makes regulatory changes, impacting the underlying companies and affecting the stock prices of the same. Changes in the repo rate or the reverse repo rate also affect the stock market.

Natural disasters:
Just like the Covid-led crash in 2020 due to global instability, any natural disaster would also impact the stock market as the companies' stability would be affected.

So, you must check all factors before opting for the stock you must include in your investment portfolio.

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