Share index can be considered to be a measure of economic prosperity. These indexes are a group of shares. Their prices are computed by taking the traditional arithmetic mean of shares. The two most important share indexes in India are Sensex and Nifty. These are the benchmark performance index of share markets. If both of these indexes exhibit a bullish run then the share market will go north. If both of them exhibit a bearish run then the market is bound to go south. What makes them fluctuate is the price of the share itself. That is things from the grass-root level.
Factors affecting the price of these shares:
- Company factors: A publicly-traded company’s shares will be affected by its internal matters a lot. Even from things as minuscule as the promotion of employees. If the company just witnessed a successful product launch then there would be an increase in revenue which in turn streamlines more capital into it. This enhances the image and prices of share shoot up.
- The emotion of investors: The investors also have a hand in the price fluctuations in the share market. Like if the customers choose to more risk aversive and funnel large sums of money then the market is bound to shoot up. On the other hand if someday customers choose to play the game say and stay low then they’ll invest small sums of money. Hence pulling the market down. Another situation in this aspect can be that when there is uncertainty in the securities market people tend to choose a safe option like gold or real estate which though may provide less return but are comparatively a safe option.
- Demand and supply: The most basic factor involved. The thumb rule of economics says that if there is a shortage of something and it is in high demand then its price is bound to shoot up. For instance, the city of Delhi only has 1000kg of tomatoes. People flock to buy more than that. Then obviously the one paying the most will get it. The same is the case in the share market too. If a share is not open for sale for very long neither is any holder keen on selling it, then the price of that share is bound to shoot up.
- Interest rates: Every meeting or rule set at RBI makes the market go for a toss. RBI is the body that fixes the rate of interest at which banks are lent money this is known as the repo rate. According to this repo rate banks further set the interest rate which they are going to charge. If the repo rate is high, so would be the interest rate and this would create a crunch of liquidity into the market thus resulting in less investment in shares. Making the market go for a bearish run. Also, the exact opposite can happen.
Share market indexes act as brilliant indicators for avid investors. Providing them a pretext of what is to come today. These traders using their years of invaluable experience and analytical skills invest their money. If you want to participate in the stock market, you need to open a Demat account. You can open one with 5paisa.