When you hear the word stock market index, two names which are most likely to ring across your mind are BSE Sensex and the NSE Nifty. We also hear or read statements like “BSE Sensex went up by XYZ points” or “NSE Nifty fell by XYZ points” etc.
The BSE Sensex also referred to as the S&P Bombay Stock Exchange Sensitive Index is a free-float market-weighted stock market index comprising of 30 well-established companies which are listed on Bombay Stock Exchange. These 30 companies which together form the BSE Sensex stock market index are some of the largest and most actively traded stocks and represent various industrial sectors of the Indian economy. Similarly, the NIFTY 50 stock market index represents the weighted average of 50 Indian company stocks in various sectors.
Stock prices move up and down every second due to fluctuations in supply and demand. To understand why the stock market index keeps fluctuating let’s take a look at an example.
Imagine you want to buy a particular product or a commodity, something which is very short in supply. You go to the shop, ask the seller about the price and are about to hand over the money, when the person standing behind you offers a higher price. The seller tells you sorry and decides to give the product to the other person when a third person comes up and offers a much higher price. As the product has a huge demand, but very limited supply the seller decides to give it the third person for the best price.
Now few days later, to overcome the shortage the government decides to import the commodity in bulk from neighboring countries. Once the foreign shipment arrives, there is plenty of availability in the market. Now there are plenty of sellers but limited buyers so the price of the product drops sharply. So you can see the prices of the product went up and down depending on the supply and demand in the market for it.
Similarly, when more people want to buy a particular stock, its market price will go up. On the other hand, if more people are wanting to sell a stock, its price will decrease. Apart from the supply and demand another important factor which drives the stock market index up or down is the news surrounding stocks as well as economic, political and global factors.
Factors Which Drive Stock Market Index Up Or Down
When there is negative news around stocks, people tend to sell. The negative news could be anything like poor earnings, corporate miss-management, economic, global and political uncertainty, etc. For example, if there is a terror attack on airlines, share prices of most aviation companies would go down.
On the contrary, when positive news triggers people to buy stocks. Positive news includes good earnings, better corporate governance, the launch of new products, positive overall economic, global and political indicators, etc. For example, if the government decides, to reduce the GST on automobiles, it would be seen as a positive move for the auto sector and in such a situation auto stocks would go up.