Selling shares is the preferred method of raising funds for many corporations. It also presents individuals as well as financial institutions with a good opportunity of making profitable investments. Shares or stocks as they are sometimes called are a vital part of the economy as they form the foundation of many investments. Large corporations engage a specialist to conduct valuation for transfer of shares during high-value transactions like mergers and acquisitions. The prices of these stocks when they are available in the market witness lots of ups and downs owing to various reasons. Let’s take a look at some of the top factors which cause share price fluctuation.
1. Financial Position Or Performance Of The Company:
One of the biggest factors that affect stock prices is the performance or the financial position of the company issuing the shares. A corporation that secures a large order or is launching a new product will see a rise in its share prices. On the other hand, a company that defaults on loan payments or is guilty of breaking a compliance regulation will see its stocks getting devalued. It is not that only poor performance has a negative impact. Let’s say a corporation is planning to acquire another company and has started the valuation for acquisition proceedings. In such a scenario, its shares will fall while the target company’s stocks will rise.
2. Behaviour Of Investors:
It is not only a company’s internal conditions that influence its stock prices but investor sentiment or behaviour can also play a huge role in the matter. When the confidence of investors is high they indulge in buying which leads to a strong market and increased prices. On the contrary, when conditions are not so good and people are looking to shore up their cash reserves, they start selling their stocks leading to weakened market and falling prices.
3. Prevailing Conditions In The Business Domain:
Share price fluctuation can also be caused by the prevailing conditions in the vertical in which the company is located. When the business domain is witnessing a slowdown, then the corporations in that area will feel the effect in the form of falling stock prices. Similarly, if the industry segment sees a surge in demand for its products, then it will be reflected in increased prices of their stocks.
4. Changes In-Laws Or Regulation:
Stocks are also dependent on government policy as well as market regulations. For instance, in order to save taxes, multinational enterprises, started transferring goods to their own subsidiaries at low costs in geographical locations with favourable rates. When agencies in various countries started frowning upon the activity, a new regulation came into force to check the practice. Transfer pricing agreements are now an integral part of cross-border transactions within enterprises. Initially, the share prices of MNEs were affected by this new regulation but now with these entities hiring transfer pricing firms in India and other markets to obtain compliance, it is no longer a price-determining factor.
5. Monetary Policy Is A Major Factor:
The monetary policy of the country where the business is located is one of the markets factors that will affect its share prices. When the central or federal bank governing the nation’s economy increases the interest rates, it will affect its cost of debt. The company will also pay low dividends to existing shareholders because of lesser profits. This, in turn, will negatively impact its stock prices. A lower rate of interest will encourage investors to increase their borrowings for buying shares. This will help in boosting up the share prices and strengthening the market.
Trading stocks is a good way to earn money but investors must keep track of all the factors that can cause share price fluctuations otherwise there is a strong possibility of losing money.