Factors Affecting Stocks Prices

Stock market prices are affected by business fundamentals, company and world events, human psychology, and much more.

Stock trading is driven by psychology just as much as it is by business fundamentals, believe it or not. Fear and greed are the two of the strongest human emotions that affect the market. For example, it is easy to get caught in the trap of selling a stock prematurely because it dipped temporarily and fear set in. On the other hand, it is also easy to miss out on a respectable gain because greed was telling you to hold out for more, and then the stock drops back down.

Anyone who is considering investing in the stock market will hopefully be aware that the share price of individual companies can go up and down, as can whole sectors of the market or sometimes the whole market can go down in value. There are a large number of factors that can influence the share price of a company.

One of the main business factors in determining a stock's price is a company’s earnings, including the current earnings and estimated future earnings. News from the company and other national and world events also plays a large role in the direction of the stock market. Some examples of this are oil prices, inflation, and terrorist attacks.

The share price of a company is effectively the limit of what an investor is prepared to pay for it. If investors are confident that the stock of a company is undervalued demand will increase and the price will increase until those investors who own the stock feel the price is worth selling for. At this point supply and demand will balance out and the price will stabilize until something happens to convince investors to increase demand again. The reverse of this is where supply is greater than demand and those wishing to sell have to lower their price until demand increases.

Not all investors study financial reports and some buy shares simply because the prices are increasing and they feel they are bound to increase more. When the prices are increasing like this it is known as a bubble. When the bubble inevitably bursts shares return to a value based on the profitability of the company. A large bubble can affect whole sectors or even the whole market in an extreme case. The reverse of a bubble where investors are selling and prices drop below their logical price is known as a crash.

The individual fortunes of a company are mainly measured in terms of the profit it makes and the possibility for future profits. Listed companies have to provide reports of their profits publicly and it is common to see big moves in prices if the reported profits are different to those expected. Other factors that can affect the price include key directors joining or leaving the company, contacts being won or lost and rumors of a takeover or merger.

As well as the fortunes of the individual company, the fortunes of the sector as a whole are likely to affect the price. Investors and the financial press group companies into sectors such as construction or aviation and a change in the demand for their sector or the raw materials and commodities they rely on can move the prices of all the companies in the sector.

Wider economic activity can have an effect on the share price of a company even when it is not directly affected. In a recession when people have less money to spend and are concerned about the risks of investing in the markets the demand for the stock of a company can be reduced which will push the price down. Large nationwide and global events can also cause a similar effect for example when the New York Stock Exchange opened for the first time after 9/11 the whole market suffered its worst ever loss in a day.

Natural disasters can also cause drops in share prices as concerns over likely price increases in commodity and raw materials. Government policy and perceived policy changes including upcoming elections can also affect prices where conditions for business are likely to change.

Apart from those discussed above, the following one’s too are also factors for price variations, such as,
 
Bad News or "Good" Bad News?

Company news and performance

Here are some company-specific factors that can affect the share price:

• news releases on earnings and profits, and future estimated earnings
• announcement of dividends
• introduction of a new product or a product recall
• securing a new large contract
• employee layoffs
• anticipated takeover or merger
• a change of management
• accounting errors or scandals

Industry performance

Often, the stock price of the companies in the same industry will move in tandem with each other. This is because market conditions generally affect the companies in the same industry the same way. But sometimes, the stock price of a company will benefit from a piece of bad news for its competitor if the companies are competing for the same market.
 
Market Scandals

Traders tend to frown upon corruption in the stock market. Mutual fund scandals that have occurred in the past few years and corporate corruption such as Enron are two such examples. If people cannot trust the stock market, why would they invest their hard-earned money in it? In these situations it is harder for the market to go up because there is a lower demand for stocks.

Investor sentiment

Investor sentiment or confidence can cause the market to go up or down, which can cause stock prices to rise or fall. The general direction that the stock market takes can affect the value of a stock:
 

• bull market – a strong stock market where stock prices are rising and investor confidence is growing. It's often tied to economic recovery or an economic boom, as well as investor optimism.
• bear market – a weak market where stock prices are falling and investor confidence is fading. It often happens when an economy is in recession and unemployment is high, with rising prices.

  Economic and political shocks

Changes around the world can affect both the economy and stock prices. For example, a rise in energy costs can lead to lower sales, lower profits and lower stock prices. An act of terrorism can also lead to a downturn in economic activity and a fall in stock prices.
Changes in economic policy

If a new government comes into power, it may decide to make new policies. Sometimes these changes can be seen as good for business, and sometimes not. They may lead to changes in inflation and interest rates, which in turn may affect stock prices.
 
Interest rates

The Reserve Bank of India can raise or lower interest rates to stabilize or stimulate the Indian economy. This is known as monetary policy. If a company borrows money to expand and improve its business, higher interest rates will affect the cost of its debt. This can reduce company profits and the dividends it pays shareholders. As a result, its share price may drop. And, in times of higher interest rates, investments that pay interest tend to be more attractive to investors than stocks.
 
Economic outlook

If it looks like the economy is going to expand, stock prices may rise. Investors may buy more stocks thinking they will see future profits and higher stock prices. If the economic outlook is uncertain, investors may reduce their buying or start selling.
 
Inflation

Inflation means higher consumer prices. This often slows sales and reduces profits. Higher prices will also often lead to higher interest rates. For example, the Bank of Canada may raise interest rates to slow down inflation. These changes will tend to bring down stock prices. Commodities however, may do better with inflation, so their prices may rise.

Watch this video to learn more about inflation.

Deflation

Falling prices tend to mean lower profits for companies and decreased economic activity. Stock prices may go down, and investors may start selling their shares and move to fixed-income investments like bonds. Interest rates may be lowered to encourage people to borrow more. The goal is increased spending and economic activity. The Great Depression (1929-1939) was one of the worst periods of deflation ever.
 
Analyst Recommendations

Many traders rely on experts' opinions about companies and future stock prices. Are they always correct? Of course not. Nobody can predict what will happen in the future. They can, however, make educated guesses based on past performances and future prospects for the companies and industries they follow.

Round Numbers

Traders often like nice round numbers for their perceived stock price, such as $10.00 or $35.00. It is common for prices to settle near these round numbers, at least briefly. Also, many traders place automatic buy or sell orders right near these round numbers, causing the stock price to become slightly erratic when it first reaches that target.

Technical Analysis

One of the most popular methods for helping predict a stock's price, at least in the short term, is called Technical Analysis. This method involves looking for patterns or indicators in stock prices, volumes, moving averages, and many others, over time. Obviously nobody can predict the future but this method can be effective in many cases because human beings are somewhat predictable. For example, when people see a stock start falling dramatically they often panic and sell their positions without investigating what caused the fall. This causes even more people to sell their shares and this often leads to an "overshoot" of the stock price. If you believe the price went too far down you can try to buy it at the bottom and hope that it will come back up to a more reasonable level.

Another common example involves Moving Averages. Many traders like to chart the 50-day and 200-day Moving Averages of their stock prices along with the prices themselves. When they see the current price cross over one of these Moving Averages on the charts it can be an indicator of a change in a long-term trend and it may be time to buy (or sell) the stock.
 
Layoffs

This is usually good for the company and its stock price because expenses will be reduced significantly and quickly. This should help increase earnings right away. It is not always a major warning sign; it could just be a reaction to a slower economy. It is one of the quickest ways a company can cut expenses if sales have not been meeting expectations.
 
Store Closings

This event often causes the stock price to go up for the same reasons as layoffs. However, this is not always the case. Closing stores actually requires a lot of money, and the positive effects of it do not take place immediately. This could be a sign that the company is truly in trouble at the moment. They probably have lower sales and higher expenses than they want, possibly due to a slowdown in the industry or the overall economy. The good news is that their management is being pro-active about maintaining profitability. Unfortunately, the stock price may go down for the next few months.

Firing of CEO or Company Official(s)

This may sound very negative at first, but it does show that the company’s board of directors was bold enough to take drastic actions to help the company in the long run. The stock price could go up or down after this announcement, depending on the situation. In some cases this event could be a sign of corruption that reaches beyond these individuals and there could be more negative announcements to come.

Every analyst and trader has a different perception of what that stock price should be now and where it might be in the future, and trading decisions are made accordingly.

Why do stock prices move Up and Down

Every day, without fail, stocks rise and fall. The main reason for movements in a company’s stock price is due to supply and demand. Stocks go up because more people want to buy than sell. When this happens they begin to bid higher prices than the stock has been currently trading. On the other side of the same coin, stocks go down because more people want to sell than buy. In order to quickly sell their shares, they are willing to accept a lower price.

While these movements may seem mysterious, they often spring from concrete causes. Investors savvy enough to spot these driving forces may also suss out excellent opportunities to profit.

Basically, every stock trades at the latest price at which someone was willing to sell it, and at which someone else was willing to buy it. That willingness fluctuates depending on the people involved, the circumstances around the company, and even basic human psychology.

The most obvious reason that a stock goes up or down has to do with how much money the corporation makes. If a company is making money or might make money in the future, more people will buy shares of its stock. The name of the game is supply and demand. Because of supply and demand, when there are more buyers than sellers, the stock price will go up. If there are more sellers than buyers, the stock price will go down.

Often stocks go up or down based primarily on people's perceptions. This is why so many corporations spend a lot of money on advertising and on actions that will bring them positive publicity. This is also why some shareholders send out emails to strangers or post messages in Internet chat rooms to try to convince people to buy more stock.

Stocks also go up or down depending on the mood of the country and the state of the economy. Once again, a lot is based on perception. If people believe that economic conditions are improving and the country is on the right track, they will be more inclined to invest in the stock market. 

A share price goes up when…

• A company is making huge profits.
• Lots of people want to buy the shares to reap the rewards of the profits.
• Not many people want to sell the shares.
• There are not many shares left.

A share price goes down when…

• A company makes some losses.
• Lots of people want to sell the shares.
• Not many people want to buy the shares.
• There are too many shares.

However there are several external factors too that affect a company’s stock price. One factor that we have all witnessed recently is the recession. Others include inflation rates, interest rates, job cuts, natural disasters, company mergers, changes in company management etc……

Bears

The great novel Animal Farm written by the legendary author George Orwell is about animals and how they live together in a hierarchical society. As it turns out, he may have been talking about the stock market. The market is full of these named animals and each has a different place on the investment pole.

Pigs are greedy, chickens fearful, bears hide and sleep, bulls charge ahead. Over the years these names have become synonymous with a person’s investment interest or view of how the market is going to move. Really the names of the animals signify an individual’s approach or philosophical investment strategy.

One common myth is that the terms "bull market" and "bear market" are derived from the way those animals attack a foe, because bears attack by swiping their paws downward and bulls toss their horns upward.

There are a couple different possible sources for the “bear” part of this tandem, but the leading theory is that it derived from an old 16th century proverb: “selling the bear’s skin before one has caught the bear” or alternatively, “Don’t sell the bear’s skin before you’ve killed him,” equivalent to, “Don’t count your eggs before they’re hatched.”

By the early 18th century, when people in the stock world would sell something they didn’t yet own (in hopes of turning a profit by eventually being able to buy the thing at a cheaper rate than they sold it, before delivery was due), this gave rise to the saying that they “sold the bearskin” and the people themselves were called “bearskin jobbers”.

This is a useful mnemonic, but is not the true origin of the terms.

Long ago, "bear skin jobbers" were known for selling bear skins that they did not own; i.e., the bears had not yet been caught. This was the original source of the term "bear."

This term eventually was used to describe short sellers, speculators who sold shares that they did not own, bought after a price drop, and then delivered the shares.

One of the earliest references of this comes from an issue of The Tatler, April 26, 1709:

Forasmuch as it is very hard to keep land in repair without ready cash, I do, out of my personal estate, bestow the bear-skin, which I have frequently lent to several societies about this town, to supply their necessities; I say, I give also the said bear-skin as an immediate fund to the said citizens forever…

In a later edition, June 23, 1709, it goes on to state:

I fear the word Bear is hardly to be understood among the polite people; but I take the meaning to be, that one who insures a real value upon an imaginary thing, is said to sell a Bear, and is the same thing as a promise among courtiers, or a vow between lovers…

Yet another early instance of the term is in Daniel Defoe’s The Anatomy of Change Alley, published in 1719, around the time the term was popularized to something of the same type of definition we use today:

Those who buy Exchange Alley Bargains are styled buyers of Bear-skins.

The use of the word “bear” in this way was popularized thanks to one of the early market bubbles known as the South Sea Bubble. While it was a long and incredibly complex market scheme that led to the bubble, the gist of it was that the South Sea Company, formed in 1711, was granted by Britain a monopoly on all trade to South America and would be given an annual sum (6% interest plus expenses) from the government. In exchange, the new company agreed to take over large portions of the government’s debt. (In fact, this was primarily how the company actually made money throughout its century and a half it was in business, simply by dealing in government debt.)

Thanks to this deal and an amazing amount of government corruption, insider trading, and other unscrupulous practices by certain shareholders who knew well that the company’s trade business had little hope of ever being profitable, the burgeoning company’s stock soared. At its peak, based on the stock price, the company was worth about £200 million (by purchasing power, today this would be about £24 billion or $37 billion; by average earnings, it would be £350 billion or $537 billion).

Besides the fact that they didn’t even have their first trading shipment until 1717, 6 years after the trading company first formed, one of the problems was that having an exclusive monopoly on trading to South America from the British government at the time wasn’t saying much as most of the region was almost entirely held by Spain, who Britain was at war with. Nevertheless, amid rampant and widely published rumors (deftly planted by certain stock holders to jack up the price) of the vast wealth from gold and other resources in those regions and the potential promise of soon securing trade rights from Spain, the stock prices soared, even though the company itself wasn’t really doing any actual trading and their main asset, the monopoly on trade to Middle and South America, was essentially worthless, as the core stock holders knew well.

Spain did eventually grant the South Sea Company rights to trade in the regions held by Spain, but only one ship load per year total was allowed in exchange for a percentage of the profits. Needless to say, the inability to do any actual real volume of trading and the fact that war once again broke out in 1718 between Spain and Britain causing much of the company’s scant physical assets to be seized by Spain, the market crash that followed wasn’t pretty.

As to the “bull” name for rising markets, in this case we have to do a little more speculation as the documented evidence just isn’t there. The leading theory is that it came about as a direct result of the term “bear”. Specifically, the first known instance of the market term “bull” popped up in 1714, shortly after the “bear” term popped up. At the time, it was something of a common practice to bear and bull-bait. Essentially, with bear baiting, they’d chain a bear (or bears) up in an arena, and then set some other animals to attack the bear(s) (usually dogs) as a form of entertainment for spectators seated in the arena.

While bears were one of the more popular animals to use in these games, bulls were also commonly used. More rarely, other animals were used such as in one instance where an ape was tied to a pony’s back and dogs were set on them. According to one spectator, the spectacle of the dogs tearing the pony to shreds while the ape screamed and desperately tried to stay on the pony’s back, out of reach of the snapping jaws of the dogs, was “very laughable”…

In any event, the popularity of bear and bull baiting, along with perhaps the association with bulls charging, is thought to have probably been why “bull” was chosen as something of the antithesis of a “bear”, shortly after “bear” first popped up in the stock sense. But, of course, we can’t be at all sure on this one as there wasn’t the more lengthy documented progression of definition as with the “bear” term.

Because bull and bear baiting were once popular sports, "bulls" was understood as the opposite of "bears." I.e., the bulls were those people who bought in the expectation that a stock price would rise, not fall.

Bear Market

A bear market is when the economy is bad, recession is looming and stock prices are falling. It is a period of several months or years during which securities prices consistently fall. Also defined as a period when the stock market as a whole is decreasing in price.

The term is typically used in reference to the stock market, but it can also describe specific sectors such as real estate, bond or foreign exchange. It is the opposite of a bull market, in which asset prices consistently rise.

Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".

One theory as to where the bull and bear market got their names is due to the way the animals attack! A bull throws its horns up in the air and a bear swipes down at its prey. -

Just as with a bull market, not all sectors of the economy may participate. Certain sectors of the economy may decline while others rise. Making money during a bear market can be more challenging than during a bull market, but it can be done. Investors can protect their profits or generate current income by selling call options against stock they currently own. This is referred to as writing a covered call, and it involves selling another investor the right to purchase your stock at a set price for a set period of time in exchange for a premium. If the underlying stock does not increase in value to the set price, known as the strike price, the option will likely expire unexercised. The original investor gets to keep both his stock and the premium.

For those who don’t know, a “bear” market, or when someone is being “bearish” in this context, is marked by investors being very conservative and pessimistic, resulting in a declining market generally marked by the mass selling off of stock. A “bull” market is simply the opposite of that, with investors being aggressive and positive, with stock prices rising as a result of this optimism. This “bull” and “bear” terminology first popped up in the 18th century in England.

Bulls

The precise origin of the phrases "bull market" and "bear market" is still unknown but one theory suggests that the fighting styles of both animals may have a major impact on the names. When a bull fights it swipes its horns up but when a bear fights it swipes down on its opponents with its paws. Thus when the market is going up, it is similar to a bull swiping up with its horns and when the market is going down it is similar to a bear swinging its paws down. These actions are metaphors for the movement of the market. If the trend is up, it's a bull market and if the trend is down, it's a bear market. There is, however, another theory which proposes that the animals' personalities are behind the symbolism. Bears move with caution, while bulls are bold and like to charge ahead. So a "bearish" investor thinks the market will go down, while a "bullish" investor thinks it's headed up.

Bull Market

A bull market is loosely defined as a period when the stock market as a whole is rising in price. Certain sectors of the economy may experience a bull market while other sectors remain stagnant or are in decline. The classic way of making money in stocks during a bull market is to purchase a security, wait for the stock price to go up, then sell. The difference between the purchase price and the sale price of the stock is referred to as a capital gain.

Have you ever wondered what a bull and bear market is? The stock market can be tricky as stocks are constantly going up and down. When the market is going down it is referred to as a "bear market". When the market is going up it is referred to as a "Bull Market" Then if any particular stock is doing well it is referred to a bullish stock.

So the words Bull and Bear describe the general conditions of the stock market. They do not describe the daily or short term fluctuations. So these terms would describe the condition of the market over a longer period of time, such as two months. That does not mean to say that the market may go up or down during that period. It is more to say that the overall general performance of the market is termed as Bull Or Bear over a given period of time.

A bullish market refers to a market that has a long-term up trend. For a market to be bullish, investor confidence must be high and the market’s respective country will likely be showing solid economic growth. The number of stocks traded in a bull market is often high.

Bull and bears not only describe the market condition they also reflect the state of the economy. In a Bull market the economy is doing well. The opposite holds true in a bear market. The reality of these terms is a general indication of the state of a given pattern on the stock market.

It is generally known that most of the money is made during a bull market. That does not mean to say that there is no money to be made during a bear market. Opportunities lie within both markets. The key then is to understand the state of play so that you can execute trades that will make you money. After all that is why people trade on the stock market. When understanding this as the fundamental reason for trading then it is necessary to gain knowledge on how to execute a plan of trading that will yield a return.

However without a shadow of doubt it is always easier to make money on a bull market. So when starting out you may want to just focus your attention here so as to increase your odds of making money.

The reality of bear markets is timing. Getting in at the right time when the price is at bottom. Then the only way is up. You should always be prepared for short term losses. Trade logically not emotionally. Be careful out there and do your homework.

PTC India Stock

The Concept of PTC
India is the third largest producer of electricity in Asia with an installed capacity that has increased from 1362 MW in 1947 to about 169749 MW as on 31st December 2010. However, alongside this growth story is the large scale shortages in meeting peak (10.5%) as of 31st December 2010 as well as energy shortage (8.2%) as of December 2010. In spite of the overall shortage, the inherent diversity in demand of various States and Regions in the country results in periods of seasonal surplus in one State or region coinciding with periods of deficit in another.

This coexistence of overall shortages with complementary geographical and temporal surplus-deficits provides substantial opportunities to improve the economic efficiency and reliable supply through trading of power both within as well as across Regions.

PTC India is in the Trading sector. The current market capitalisation stands at Rs 1,583.64 crore.The company has reported a standalone sales of Rs 2198.74 crore and a Net Profit of Rs 37.05 crore for the quarter ended Mar 2013.The company`s standalone trailing 12-month (TTM) EPS was at Rs 4.50 per share as per the quarter ended Mar 2013.The stock`s price-to-earnings (P/E) ratio is 11.89.The latest book value of the company is Rs 78.57 per share.

PTC India Ltd. (formerly known as Power Trading Corporation of India Limited), was incorporated in 1999 to undertake trading of power to achieve economic efficiency and security of supply and to develop a vibrant power market in the country. Therefore, PTC has a tri-fold mandate:

a. To optimally utilize the existing resources to develop a full fledged efficient and competitive power market

b. To attract private investment in the Indian power sector

c. To encourage trade of power with neighboring countries

The pioneering service of the Company led to recognition of “Power Trading” as a distinct licensed activity in the Electricity Act 2003. PTC holds Category I license from Central Electricity Regulatory Commission (CERC), the highest category with permission to trade unlimited volumes. PTC has maintained the largest market share since inception and is No. 1 in last 10 years of operations with its innovative products and services.

PTC would continue to play a frontrunner's role towards development of a vibrant power market in India and the South Asian Region and shall strive to add value to its customers' operations through providing holistic services that serve the evolving needs of the sector.

VISION

To be a frontrunner in power trading by developing a vibrant power market and striving to correct market distortions

MISSION

# Promote Power Trading to optimally utilize the existing resources
# Develop power market for market based investments into the Indian Power Sector
# Incentivize development of Power Projects by providing services on a holistic basis
# Promote exchange of power with neighbouring countries

CORE VALUES

# Transparency
# The Customer is Always Right
# Encouraging Individual Initiative
# Continuous Learning
# Teamwork

The company management includes

Deepak Amitabh	- Chairman & Managing Director,
Rita Acharya	- Director,
M K Goel	- Director,
S Balachandran	- Director,
Hemant Bhargava	- Executive Director,
Ved Jain	- Director,
Anil Razdan	- Director,
Dhirendra Swarup	- Director,
I J Kapoor	- Director,
Ravi P Singh	- Director,
Deepak Chatterjee	- Director,
M S Babu	- Executive Director.

It is listed on the BSE with a BSE Code of 532524 and the NSE with an NSE Code of PTC.

Its Registered office is at 2nd Floor, NBCC Towers,,15 Bhikaji Cama Place New Delhi, 

Delhi - 110066.

Their Registrars are M C S Ltd.