Imagine,You and your friends have a Lemonade Shop.There comes a day when there is a major cricket match around your locality. There are lots of people coming in, and your sales shoot up to ₹500 that Day. On another day, heavy rains come pouring all day long, and you end up doing sales worth only ₹50 of lemonade. In the same manner, certain occurrences around the globe can cause a drastic increase or decrease in stock prices even within a very short period of time. Let’s explore how this happens.
How Economic Events Affect Stock Prices
Many workers in the world faced unemployment due to lockdowns imposed as a result of the COVID-19 pandemic. For example, the share price of IndiGo Airlines fell sharply from ₹1,400 in January 2020 to ₹870 in March 2020 due to decreased travel demand.
At the same time, share prices of firms like Hindustan Unilever which produces hand sanitisers went up from ₹2,000 to ₹2,400 as a result of increased purchase of hygiene-related products.
Key Economic Indicators
Economic indicators are like traffic signals. They help us understand if the economy is strong or weak.
| Indicator | What It Means | Impact on Stock Market | Example |
| GDP | Measures how much a country produces. | High GDP growth boosts stocks. Low GDP growth makes them fall. | India’s GDP grew 13.5% in Q1 2022. Sensex rose by 10% during this time. |
| Employment | Shows how many people have jobs. | More jobs mean higher spending and rising stocks. Unemployment does the opposite. | In 2019, when India’s unemployment rate hit 7.6%, Nifty fell 4% that year. |
| Inflation | Tracks how fast prices are rising. | Low inflation helps stocks. High inflation can hurt stock prices. | In 2022, India’s inflation rose to 6.7%. Sensex dropped by 5% in June. |
Central Banks and Interest Rates
The cost of borrowing money is determined by the interest rates.
Low Interest Rates: Borrowing becomes cheaper when economic growth is boosted. For example, in 2020, RBI lowered interest rates to 4%. The Sensex increased from 40,000 in April to 47,000 in December of the same year.
● High Interest Rates: Loans become costly by reducing spending. In 2018, RBI raised rates to 6.5%. Nifty also declined by 8% in the same year.
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Global Events That Affect Stocks
Natural Disasters: The State of Uttarakhand in India suffered from severe flooding in the year 2013. The tourism business in this state suffered a temporary setback. Travel-related stocks such as Thomas Cook India declined by around 5% as there was a drop in the number of tourists coming in.
● Political Changes: In 2016, India made headlines when it announced demonetization. Turnover in the financial markets as expected people were very much scared. The Indian Stock Exchange fell by three percent within a week owing to fears surrounding the country’s economy.I
● Trade Issues: In the year 2019, the Indian government raised tariffs on imports from China. Stocks of mobile companies relying on Chinese parts, like Micromax, dropped as production costs rose.
The Role of Investor Sentiment
Stock prices often depend on how investors feel about the economy.
● Positive Sentiment: In India, during the festive season, it was observed that the Sensex increased by approximately 6% owing to a rise in consumer expenditure.
● Negative Sentiment: The 2016 demonetization saw a 3% drop in the Sensex within a week due to the uncertainties that investors faced regarding the lack of cash availability.
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Corporate Decisions That Influence Stocks
Decisions made by companies are also responsible for influences on stock prices.
Dividends: In the year 2022, TCS announced a dividend of ₹67 per share. The stock price appreciated by 2 % on the following day after the declaration.
● Share Buybacks: In 2021, Infosys announced a buyback of shares worth ₹9,300 crore. The stock price appreciated by 5 percent within a week.
Conclusion
The stock market reflects the world’s events in real-time. Be it a pandemic, trade tensions or varying interest rates, everything has an impact. It helps in investment decisions if one knows how the inflations, GDP growth, and other events affect the stocks. This is particularly useful to understand how markets get influenced.