Factors that affect the Stock Market

Factors affecting the stock market


11 Factors that affect the stock market

Investing in stock market is the first hurdle and next hurdle is seeing the stock going up, so that you can make profit.

Stock market on the whole can go up or down based on the below factors,

1) Monsoon

2) Festival Period

3) Global Tension

4) Global trades

5) Political Stability

6) Forex

7) Natural calamities

8) Investor Sentiment

9) Quarterly/Annual Results

10) Crude Oil Prices

11) US Treasury Yield

Why people perceive stock market as Gambling ?

During the last week of January 2021, stock market was correcting. On the budget day, as the budget was as expected for Industries, stock market cheered and started moving up.

If you are an outsider you may not understand why the market was moving up and down unnecessarily. Investors just put in their money and they wait for the stocks to move up say in 3-5 years timeline.

If you are trade, your intention is to trade on daily basis to make money on daily basis. So based on daily information which is available internationally or nationally and related to that particular stock, you will start either buying or selling stocks. This causes the stocks on the whole to move up or down.

This make the outsider to believe that stock market is gambling.

Now let’s look at the 11 factors affecting stock market one by one.

Factors that affect the Stock Market

1. Periodic Monsoon

Monsoon is one of the factors that affect the Stock Market in India. Monsoon onsets by June month and the forecast starts in advance. Based on the forecast if the monsoon is going to be sufficient then all the stocks related to Agriculture and rural areas will start going up or will show momentum. Mostly FMCG sector and then 2 wheeler will see great momentum.

If there is enough rain, then there will be more money in the hands of rural people. Eventually that will lead to more sales and revenue for these sectors and companies. If the monsoon forecast looks not sufficient, then the linked stocks will be flat for the next few months until the next trigger comes in for that stock.

In 2023, everyone is fearing about El Nino which may affect monsoon and which will in turn affect purchasing power of rural Indians.

2. Festival Period affecting the stock market

Festival period is the huge sales period for Indian market and even across the world. From Navratri festival, Diwali then christmas and New year will have huge offers from all the companies. In between we may have Ramzan and other small festivals.

Every company will try to sell more during this period. Consumer durables companies who deals with Fridge, Washing machine, TV’s, mobiles etc to consumer discretionary companies like Asian paints, Berger paints, etc. Car sales picks up during this period as there will be huge discounts and offers running.

3. Global Tensions

When US and China were locking head trying to prove their supremacy, there were global tensions as they were the top 2 economies in the world. Across the world, stock market will get corrected.

When there was war like situation arises between Indian and Pakistan, again there will be drop in stock market. After all the wars, stock market has always risen up.

Russia-Ukraine war which started in 2022 created economic instability in European nations. Most of them faced increase in energy prices which saw them worst inflation in the last 40+ years.

4. Global Trades affecting the stock market

Global tension started when US started imposing sanctions on chinese goods in their country. China strongly retaliated. Australia strongly condemned China for the cornona virus fiasco. China retaliated by stop buying coal and other commodities. The price of commodities in the world market went up as China started buying from other nations at higher prices.

5. Political Stability

If central Government is strong with full majority then they can take all major policy decisions strongly. They don’t need to give up the reforms or any laws for the sake of allies.

It was evident when BJP was coming with full majority it created huge approval in stock market. As with full majority they were expected to take major policy decisions strongly.

6. Forex reserves & trades affecting the stock market

Any transactions happens in US dollars all across the world. Rupee getting stronger or weaker is good for importing or exporting companies.

Rupee stronger means they can import at lower price which is good for importing companies and all those companies related to import will start to grow up in the short term. The reverse is also applicable.

Indian Rupee started depreciating in 2022 due to inflation and other factors which saw FII pulling their money out. This brought down stock market by few points.

7. Natural calamities

Natural calamities affect every nation. Based on the severity of floods or earth quake some of these companies may go down in the short term. Nowadays most of the companies are having Insurances to protect against most of the things.

8. Investor sentiment affecting the stock market

If Investor sentiment is optimistic stock market will keep moving higher and higher. If the investor sentiment is bad, whatever the real economic situation is, the stocks will be flat.

After 2008 market crash, investor sentiment was low in India and all across the world, at that time EPS of most of the companies started rising but still the stock market was very flat till 2013

Now after corona, though economic situation is slowly recovering, the stocks are flying higher and higher as the sentiment of people is high.

Hindenburg report had brought down Adani group shares by more than 60% and in certain stocks by more than 80%. Along with market correction had created a small panic among investors in 2023.

9. Quarterly/Annual results of companies

First when ever quarterly results are coming, analysts will say the expectations of these companies in this results. After the announcement, based on whether the company had beaten the expectations or not, these stocks will move high or correct in the short term.

All the companies cannot keep beating the expectation. Based on the business and economic situation the real sales and revenue will keep varying. Traders and those who want to make money, use this is an opportunity to enter or exit.

10. Crude oil prices affecting the stock market

India imports more than 85% of the crude oil prices from across the world. After deregulating crude prices, petrol or diesel prices started reflecting the international market prices every day .

India has biggest roadways and all transportation of goods including vegetables and things need this petrol/diesel. This will increase the inflation rates in India. If inflation increases it will affect the pricing power of people which will have an impact on the sales of consumer durables and other things.

11. US treasury yields

The final in this list of factors that affect stock market is US treasury yields. They have stayed around 0% from 2008. Thanks to quantitative easing announced after 2008 market crash. During February, 2021 when treasury yields crossed 1.6%, it created fall in stock market across the world.

US treasury yields are believed to be the safest asset and it cannot default. Most of the nations will have their money invested in treasury yields. If that value is high, then it will be safer to invest in that itself than taking risk and investing in equities.

Treasury yields started increasing with increase in inflation in 2022 & 2023.

Case Study

Royal Enfield established in UK and got into India by imports in 1955. Though the company is old enough, the motor cycles were noisy and had design problems for the millenials.

After Eicher group acquired the company, they started reviving from early 2000’s. Company’s initiatives started reflecting in the balance sheet slowly from early 2008 after market crash. All the important key ratios started increasing one by one.

Between 2009-2013, cash flow, sales and revenue started rising. During 2014 market rally and afterward this stock and bike became the darling of the masses. The company started establishing centres all across the world.

This clearly signifies that only when the underlying earnings grows in the company, the stock price keeps moving higher. Looking at the company and their vision, all other factors are opportunities to enter and exit.


Any good business will keep moving higher and higher, but it will take months and years. After superior growth any company will take breather for some period.

All the above factors that affect the stock market are short term noises which will give an opportunity for investors to enter or exit the stock market. If you are someone who is looking to make money frequently, utilise these opportunities to enter and exit in profit.

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