Stock prices
change every day under the pressure of market forces, i.e., according to supply
and demand. Suppose more people want to buy a security (demand) than sell it
(offer), the price increases. On the contrary, if the number of people looking
to sell that security is greater than the number of people prepared to buy it,
the supply is greater than the demand, and the price goes down.
The law of
demand and supply is easy to grasp. What is more difficult to understand is why
people want to buy or sell a particular security? It comes down to determining
what constitutes good news or bad news for a business. The answers to this
question are plentiful, as every investor has unique investment ideas and
strategies.
The value of the
company
The leading
theory is that the movement of market prices indicates the value that investors
place on a company. However, one should not confuse the value of a company and
the cost of its share.
The company's
value is its market capitalization, which is the share price multiplied by the
number of shares outstanding. So a company that issued 1,000 shares at INR 100
(INR 100,000) has a higher market capitalization than one that has 100 shares
at INR 500 (INR 50,000).
To complicate
matters further, the stock price reflects the current value of the company and
the growth expected by investors. And companies like to hire trained
professionals who have in-depth knowledge of the stock market so, one must do stock market courses to become an
expert.
The benefit of
the company
The most crucial
factor influencing the value of a business is its profit. Companies with
outstanding shares (public companies) must report their earnings four times per
year (quarterly).
The stock
markets are paying extreme attention to these quarterly statements, as analysts
base the future value of companies on a projection of earnings. If a company's
results are more immeasurable than expected, its stock price jumps. If they are
lower than expected, the price drops.
And all the rest
Profit is not
the only factor that can change investor sentiment towards a stock. If this
were the case, the world of the Stock Exchange would be simple!
Investors have
developed hundreds of variables, ratios, and indicators literally to try to
measure stock market trends. Like the price/earnings ratio (P / E), some are
simple, while others are incredibly complex (Chaikin oscillator
convergence/divergence of moving averages, for example).
Some analysts
believe that it is possible to predict where prices will go. Others believe
that by plotting graphs and looking at past price movements, one can determine
the best time to buy or sell. The only sure thing is that stocks are volatile,
and their price can change extremely quickly.
The stock market
is also sensitive to global news. Significant events such as the explosion of
BP's platform in the Gulf of Mexico in 2010, the 2011 earthquake in Japan, and
the public debt crisis in Greece have had a significant impact on stock prices.
The variation in the cost of raw materials, the publication of employment and
industrial production statistics also has implications because they are
indicators of the economy's health.To understand in-depth about the stock market it
is recommended for a person to do stock market courses.