Major Factors Affecting Stock Market in India

A stock market is an ever-changing place where fluctuations are always around.  This dynamic nature of the stock market makes it an intriguing prospect to venture into. The thing about the stock market is you cannot predict the future outcome every single time. And this ends up keeping you awake with whether to invest in or not. But why does the stock market tend to be dynamic in nature? What influences them so much that they keep on fluctuating?

This blog tends to look at those factors that affect the Indian stock market and looks at the reasoning behind it.  Read along.

7 Major Factors Affecting Stock Market in India

Government Policies

Economy and industries are often affected highly by government policies. The government tends to implement new policies in regard to the economic condition of the nation. Any new change in policy can create a highly profitable scene for the economy or tighten the grip around. This creates a possibility of the stock market being affected due to any change or launch of government policy. The increase in corporate taxes impacts the industry severely as their profits will take a hit and simultaneously the stock price will plunge. Similarly, markers like fiscal policy also impact the share market as it has a major role to play in the financial bearings of the industry. You can take into consideration the interest rates, whenever the interest rates go up, banks raise the lending rates which tend to increase the cost for corporate and individuals alike. The rising cost will tend to create an impact on the profit levels affecting the stock prices of the company. Similarly, for the individual, the rising cost will create a dent in the pocket decreasing the purchasing power of the consumer. The way automobile and real estate sectors were affected is a testament to it.

Add to it the debt market scene where the bonds yields are getting lower by the day. This creates a contagion effect on the stock market where investors may look to pull out of their investments. People tend to deem the debt market safer than equity ones. And when the debt market tends to fluctuate, investors tend to stay put from investing in markets altogether. This may also create an indifferent relation wherewith the declining NAV in the government bond yields, people may shift from the debt investment to investing in stocks. Furthermore, when the government increases the bond rate, the bonds of the previous issue tend to be of lower value and people who will look to offload their bonds by selling will generate less value in return. that may shift their stance from opting for bonds to the stock market.

Monetary and Regulatory Policies

Reserve Bank of India (RBI) is the apex body which regulates the monetary policy in India. RBI tends to bring different monetary policies as regards to the economy of the nation. One such step is the revision in the repo rate from time to time based on their view towards inflation. This change impacts the loan rates and the interest rates in the market. When the loan rates decrease, then the expenses on the consumer level will decrease allowing people to invest in the stock market.  

Similarly, the Securities and Exchange Board of India (SEBI) keeps a guard on the stock market ecosystem. They launch a mandate regarding the stock market to regulate trading. The recent crackdown on the fraudulent brokers added with the announcement of the stop on margin trading; tends to create a ripple effect on the market. The investors may look to equity shares with an air of caution when the SEBI regulatory announcements come in.

Currency Strength

Currency defines the economy of the nation. The exchange rates are a marker to check the currency strength of a nation. The exchange rates between dollars and rupee showcase the strength of the Indian currency across the global economy. Any fluctuations in the rate will create an impact on the finance market. And when that happens a multi-chain impact is created on. There are plenty of Indian companies who have an overseas connection and conduct business with foreign companies. Companies that depend on foreign trades tend to go through cycles of change. For say, if the rupee tends to be strong, then that will mean lower sales invoices for the company dealing with payments in dollars decreasing their net profit and ultimately creating a dent in the stock value of the company. Meanwhile at the same time imports do get cheaper though and people will have more to spend for allowing them to partake into investment in the share market.

Taking into same when the rupee tends to perform badly against the dollar, the imports will tend to be expensive and it will severally impact the purchasing power of the individual stopping them from venturing into investing in the share market. In the meantime, the sales invoice will get higher value for those dealing with foreign companies and their profit levels will increase.

Economic Indicators

There are various economic indicators that affect the overall economy of the nation ultimately creating an impact on the financial market. The major of the lot is oil prices which are detailed by the OPEC data and GDP. The markers like OPEC data allow for a detailed analysis of the future happenings on the oil market. For a nation who is dependent on imported oil, any change in price is likely to create a dent in the nation’s economy. The movement of oil prices is one of the key determinants of the stock market. As and when the prices rise, the expense tends to rise to create a hit for the buyers. That will lower their ability to invest in the market due to hit rendered by the increased oil prices.  

Similarly, Gross Domestic Product (GDP) is the marker for the nation’s economy. It looks at the aspect of total economic production of the country and its overall economic health. It helps to showcase the economic developments and the future direction of the market. A healthy GDP status will directly create an impact on the financial markets and investment.


Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) tend to impact the stock market very much. As they tend to have a prominent role in the stocks of the company, their entry or exit will create a huge footprint in the equity market and will impact the stock prices.

Natural Disaster

Natural disasters tend to create a chaotic situation in life. These natural disasters tend to hamper the lives and the market equally. It impacts the company’s performance and the capacity of people to spend the money. This will lead to lower levels of consumption, lower sales and revenues ultimately denting the company’s stock profile.

Political Aspect

Speaking of political impact, factors like election, budget, government intervention, stability, and other factors affect the economy and the financial markets hugely. The political events and further announcements like budgets tend to create tremendous levels of volatility in the market influencing the stock market deeply. The same has been seen plenty of times over the period with the cases like elections and riots where the market has taken a hit quite a lot.

The stock market tends to go through various cycles depending on the influencing factors. These factors tend to affect the shares market and may abruptly change market trends. The aforementioned factors have a prominent role in defining how the stock market functions ultimately impacting the investor’s willingness to venture into the stock market.


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