Best Stock Market Courses Online For Beginners

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Mastering Macro Economic Factors for Stock Market Success

Fundamental Analysis of Stocks gives us insights into a company’s financial health. Stock Technical Analysis gives information about the stock’s price movements. But, as an investor, one should never ignore the Macro Economic Factors that affect the Stock Prices in The Stock Market. Some Major Macro Economic Factors That Affect the Stock Market are:

Key Factors That Affect Stock Prices

1.Economic Growth:

A country’s economic growth is directly proportional to its stock market growth. This means the economy of country is an outcome of companies expanding their business to increase their overall profits. This leads to increased share prices.

Now, if the economic outlook is poor, which means the average GDP (Gross Domestic Product) is low, consumers cut down their expenses. Further, a weak economy makes investors move their funds into bonds, golds, etc. which are treated as safe havens and low-risk assets.

2. Inflation

One other important major factor of Macro Economic Analysis, a part of The Best Stock Market Courses in India, that impacts consumer spending is inflation. Inflation results in increased costs of goods and services. Thus, with increased costs, consumers have less money to spend on non-essential items. For companies, increased raw-material costs lead to two scenarios:

1. Passing on the input costs to the customers.
2. Absorbing the increased costs within them to stay on par and competitive with their peers.
But, both situations, lead to lower profits, contributing to a fall in the stock price.

Note: Sectors such as gold, consumer staples, healthcare, oil, etc. benefit from inflation.

3.Interest Rates

High-interest rates lead to negative reactions in stock markets.
• The interest rates of the bank, etc. lead to less purchasing power of consumers/retailers, thus indirectly affecting their overall spending.
• For companies, high-interest rates restrict their borrowing capacity thus hampering their business growth. This further affects the earnings, and stock prices of a company.

4.Unemployment

The best indicator that signifies consumer spending in terms of wages/salaries. If the employment rate is high, consumer spending also increases. On the other hand, if the unemployment rate is high, then the consumer spends on essential items, dropping their spending on luxury/non-essential items. This impacts the revenue (top line) of most of the companies and thus affects their stock prices.

Note: This is the main reason consumer staple stocks like Reliance, ITC, HUL, etc. act like defensive stocks during a Stock Market Recession.

5. Exchange Rate:

All the above-mentioned factors, lead to falling in the value of the country’s currency. This leads to higher import costs and lesser export costs.
Example: Let us say company A used to import raw materials from company B for $100 before inflation wherein the exchange rate was Rs 75. This means company A must pay Rs 7500.

But, after inflation, the same cost of $100 would lead to INR 8000 due to the decrease in the value of the currency. Since India is more of an import-based country, this makes companies struggle as the price of most of the goods and services surge due to this reason.

Goela School of Finance, The Best Stock Market Institute in India provides an Online Stock Market Course for Beginners which covers the A-Zs of the stock market.