9 factors that affects the Indian Stock Market

9 factors that affects the Indian Stock Market
9 factors that affects the Indian Stock Market

by Tanushree Jaiswal Last Updated: Sep 12, 2023 - 06:29 pm 102.1k Views
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The fluctuating stock prices make equity investments risky. Risk-averse investors usually prefer to stay away from the share market. Whereas, the risk-takers invest aggressively in stocks to create wealth in the long-run. The dynamic nature of the share market makes it an intriguing prospect to venture into. One cannot predict the future performance of the stock market. This keeps the investor awake with whether to invest in or not. But why does the stock market tend to be dynamic in nature? What impacts the stock market so much that they keep on fluctuating? This blog tends to look at some of those factors that affect the Indian stock market. Let’s discuss them in detail.

  1. Government Policies:
    Economy and business are largely affected by Government policies. The Government has to implement new policies in regard to the economic condition of the country. Any new change in policy can be profitable for the economy or tighten the grip around. This creates a possibility of the stock market being affected due to any change or introduction of the new policy by the Government. For instance, the increase in corporate taxes impacts the industry severely as their profits will take a hit and at the same time the stock price will fall.

  2. Monetary Policy of RBI and Regulatory Policies of SEBI:
    Reserve Bank of India (RBI) is the apex body which regulates the monetary policy in India. RBI keeps on reviewing its monitory policy. Any increase or decrease in Repo and Reverse Repo rates impacts the stock prices. If RBI raises the key rates it reduces the liquidity in the banks. This makes borrowing costlier for them and in turn, they increase the lending rates. Ultimately, this makes borrowing highly expensive for the business community and may find it difficult to service their debt obligations.
    Investors see it as a barrier in the expansion of business activities and start selling the shares of the company which reduces its stock price. A reverse of this happens when RBI follows a dovish monetary policy. Banks reduces the lending rates which leads to credit expansion. Investors consider it as a positive step and stock price starts improving.
    Similarly, any changes in trading and investment policies done by the Securities Exchange Board of India (SEBI) who keeps an eye on the entire stock market activities impacts the performance of the shares of the listed companies on the stock exchanges (NSE, BSE). Nifty50 and Sensex are two major benchmark indices in India.

  3. Exchange Rates:
    The exchange rates of Indian Rupee keep fluctuating vis-à-vis other currencies. When the rupee hardens in respect to other currencies it causes Indian goods to become expensive in foreign markets, Companies that are highly affected are the ones involved in overseas operations. Companies dependent on exports experience a drop in demand for their goods abroad. Thus, revenue from exports decline and stock prices of such companies in the home country fall.
    On the other hand, softening of rupee vis-à-vis other currencies results in opposite effect, in this, the stock price of exporters rises whereas, that of importer drops.

  4. Interest Rate and Inflation:
    Whenever the interest rates go up, banks raise the lending rates which increases the cost for corporates and individuals alike. The rising cost will tend to create an impact on the profit levels of the business affecting the stock prices of the company.
    Inflation is a surge in the pricing of goods and services over a period of time. High inflation discourages investment and long-term economic growth. The listed companies in the stock market may postpone their investment and halt production, leading to negative economic growth. The fall in the value of money could also lead to a fall in the value of savings. The stocks of luxurious companies also tend to suffer as nobody will want to invest in them. This not only adversely affects one's purchasing power but also the investing power.

  5. Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs):
    FIIs and DIIs activities highly impact the stock market. As they have a prominent role in the stocks of the company, their entry or exit will create a huge impact on the equity market and will influence the stock prices.

  6. Politics:
    Factors like election, budget, government intervention, stability, and other factors have a huge impact on the economy and the financial markets. The political events and budget announcements create tremendous levels of volatility in the market influencing the stock market deeply.

  7. Natural Disasters:
    Natural disasters 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 hitting the company’s stock performance.

  8. Economic Numbers:
    Various economic indicators affect the overall economy, ultimately creating an impact on the financial market. The movement of oil prices and GDP have a huge impact on the stock market. A country that is dependent on imported oil, any price change is likely to impact the economy. The movement of oil prices is one of the key determinants of the stock market. As and when the prices rise, the expenses will increase and will lower the buyers’ ability to invest in the market.
    Similarly, Gross Domestic Product (GDP) 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 create a positive impact on financial markets and investment.

  9. Gold Prices and Bonds:
    There is no established theory that expresses the relationship between stock price and gold & Bonds. Usually, stocks are considered a risky investment whereas gold & bonds are considered as a safe investment havens. So at the time of any major crisis in the economy, investor prefers to invest in safe instruments. As a result, gold and bond prices increase while the stock price tumbles.


Stock prices of the company may rise or fall due to different factors. Ideally, the investor should have a solid allocation strategy in place after a thorough understanding of the above factors. It will ensure that the investor makes the right investment decision and generate magnificent returns in the long-run.


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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.

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