Tuesday, 27 May 2014

What is it that determines stock market trends?


Stock market is well known for its tendency to fluctuate abnormally the main reason of which is the factor of ‘self fulfilling’. I was reading Swaminathan S.Anklesaria Aiyer’s column in Times of India the other day where he elaborated the way the cycle of ‘self fulfilling’ acts. To quote him, it runs like this:

“If enough people think land and stock prices are going to rise and all of them start buying, the price of land stock will indeed shoot up. If all businessmen fear a recession and stop investing, that itself will cause a recession”.

Exactly this very cycle is called ‘self fulfilling’ and is in many ways responsible for large scale fluctuations not only in the stock market alone but equally the other markets where the theory of demand and supply plays a vital role. Now that the new government in India led by Narendra Modi as the Prime Minister is fully in the saddle and investors in the share market are jubilant with the thought that the index will continue rising much beyond where it stands on date tempting them to indulge in large scale buying but this very action definitely has the tendency to go in the reverse direction having a likelihood of recession taking place with a deep fall in the market as a whole. Better it is for the investors to keep this factor in their mind before trading.

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