Why Share Prices go Up and Down? - Stock Price Calculation & Dynamics | #10 MASTER INVESTOR - YouTube

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Hello, my name is Mukul and you are welcome to master investor series of our channel Asset Yogi

If you are new to this Master Investor Series, then I recommend you

To watch the series from episode 1

In this video, we are going to discuss,

'Why share prices go up and down?'

and Why 'Sensex & Nifty' prices go up and down

'Sensex & Nifty' gives the overall movement of the market

Similarly, If we talk about 1 stock, we will get to know about that 1 company

So, Why do we need to know the movement of the stock or the Sensex?

What is the base of any investment?

BUY LOW, SELL HIGH

That mean we have to buy anything when the prices are low and sell them when prices are high

You have to know about this cycle, when any stock has gone high and when it is low

Before you invest

How do we know about this movement?

For that, we will need information

and we get this information from

news channels, newspapers, websites, blogs, videos, social media

In today's world, there is no shortage of information

Maybe 10-20 years ago there was a lack of information

or there was a lack of information and who had this information might be able to have good stock investments

In today's world, there is too much information, that can be a problem too

Because about 90% of information is useless (Noise)

So, How do we find out which information is noise and which is relevant

For that, You should know why actually stock prices or Sensex go up and down

In this video, we are going to know about 4 major factors, because of which price of any stock

or overall Sensex goes up and down

We will see the example of the Auto sector and see the current situation, noise, and relevant information

and what is the uncertainty in it

This video is going to be very important, so watch it till the last

Asset Yogi

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Let us see, How any stock price is decided?

whether it is 80Rs or 90Rs

Here comes, Demand & Supply rule, let's see a example

If we go to market to buy potatoes, and you realize that last week its price was 20Rs and now its price is 30Rs

Why does this happen? Maybe the supply was low and because of this, the prices went up.

Even the case can be reversed, if the supply is increased then maybe its price may comes from 20Rs to 10-15Rs

So, Price movement occurs due to demand & supply

So, you can also consider the share market as a very big vegetable or auction market.

In an auction, whoever pays the highest bid gets the item

The same concept is in the Share Market

If the shares are on selling and the demand is high, then whoever pays the highest price gets the share

and this process is continuous

Online moves so fast that its price movement gradually increases

Here, sometimes you can see too much movement in a single day

If the demand of any price is too high, let's say is supply is 10000 shares and demand is 1 lakh share

Then whoever pays the highest price, gets the share

Sometimes we see, that a share price increases about 10% in a month or a week

or even in 2 days if any positive news comes, similarly, it can be reversed

If the supply of any share is high, let's say 10000 shares are available for selling

Too many people want to sell, but don't want to buy, people think

That this stock has no power now, the buyers are very less, then

Sellers will have to reduce their price only then they will get buyers

so instead of 100, they will go for 99 or 98 or less, and if this continues its price may go down by 10% within a week or month

So, we understand that stock price depends on demand & supply

But what is such a thing that increases the demand for a particular stock so much

that many people become interested in buying the same stock?

Or else they become too much interested in selling and its supply gets very high.

Demand & Supply depends on, what type of information is coming about that company

what type of information is coming?

There comes the annual report of every listed company once a year, quarterly earnings report

How is the judgment of a company, if there is any court case, is it positive or negative news?

Companies gives their press releases, news stories and even news on social media

How is market buzz? is there any hype about a specific company

So, all the investors & traders process this information in different ways

Whether we are investors or traders, we have to depend on information

Whether the information is positive or negative

It can be positive in short term and negative in long term or negative in short term and positive in long term

So, we have to do this analysis and see which information is important and which is useless or is it going to have any impact

To process this information, we should know 4 factors

on which the stock price movement depends

The 1st is, Company Fundamentals

The most important in the fundamentals is Earnings, is the company profitable or has it shown loss in the past

If it has shown loss then it gives a negative impact

Maybe it can be momentary, will the company recover that loss in the future, we should know the indications

That is way current earnings becomes so important

after this

How will its earnings growth in the future, everyone tries to predict it

So, in a stock price, its current earnings and future growth reflects it

We will know about that in our upcoming videos

First is earning in fundamentals, second is how is our management & governance

or were there any frauds in the past of the company

or the company is ethically strong, it follows a process and doesn't compromise in the that

Ethically strong and process strong companies always do good in the future

The next important factor is Competitive advantage

Is there anything in the company which is difficult to replicate

If there is such thing, these type of companies also performs well in the future

What are the expansion plans of the company?

Does it wants to launch a new product or want to expand in new markets?

In such cases its future growth aspects becomes good

If we talk about negative impacts then if,

The company has too much debt, then it is a negative impact

If the promoters/founder has pledged their shares, that means they have taken loans against them

That is also a negative impact

These are all the things we have to see in company fundamentals on which too much stock price depends

Generally, these company fundamentals affect the prices in the long term

You will see, all the investors study the fundamentals

In the short term, we have to see the technical factors, what are these technical factors?

For example, if the liquidity of any stock is high

For example, The demand for large-cap stock is always high

so, it is easy to buy & sell them

That is why one is its price is at an optimum level

But if we talk about any small-cap company, about which probably many people do not know

Maybe its products & services are good, and there may be a good scope of expansion

There can be the problem of liquidity, because many people don't know about it, so its demand is low

so because of this also the stock price can go down.

In 2nd technical factor, there is a lot of impact of positive & negative news

That what is the sentiment of that company in the market

For example

If we talk about HDFC bank, the earnings growth in the last 5-10 years is good, it has given good earnings

There has been no negative news in the market, like, they have declared high NPS suddenly

Many banks were affected in the banking sector because of this reason

You have seen the example of YES Bank, when they did the provisioning then suddenly the price was dropped

and there has been a loss of many investors

So, in the short-term positive and negative news has a lot of impacts

In fact, we have to analyze that any news is impacting in short-term or long-term

We will understand its example by using Auto-sector

Besides this, technical analysts analyze charts & patterns, that historically how a stock has moved

Accordingly, we find out the future

For example, delivery percentage is seen

If there has been high delivery of any stock that means has been bought for the long term

That means it will go up, it is getting a bull run indication for that stock

If there has been a volume breakout, i.e. buying more volume

If stock cross a certain limit that means it goes up

just like that moving averages are calculated for 30,60 & 90days

We will talk about all these things in upcoming videos

Now we will understand the factor

Other than that overall level of nifty and Sensex also seen

Is the market overpriced or underpriced

Suppose in market its P.E multiple is less than18 then we can say it is underpriced

When its value is 25 or more we can say overpriced

May be

A stock whose price is 100 we brought at 125 or 150

Due to this overpricing, a bubble is formed, and when it burst

All the stock price came down

You will remember I talked in detail about this in my first video

The Stock price depends on these technical factors

Especially in short-term

Other factor is Macro & Micro economic factor

These factors can affect in both short-term and long-term

first socio-political stability comes in economic factor

Which is important whether it is country, state, or city

A business will be flourish when there is no rampage, it has a stable and business-friendly governments

You have seen in the past when the majority government formed

We have seen when BJP government and Congress government formed by a majority

Market showed an appreciable reaction

it is natural when the government stays for 5 years it can continue its policies

which affects the businesses

Instead, whichever government is formed

They make which type of policies, whether they are business-friendly or not, also affect the businesses

Especially the businesses that depend on government policies are affected too much

For example, Infrastructure companies or solar power companies depend too much on these government policies

Besides, How overall Economy is doing at the national level or growth rate of GDP

Or how the world economy is doing or how the countries in which our companies operate, are doing

These also affects the businesses

The next economic factor is Inflation

It has been seen that if inflation is low, then people tend to give money for a particular stock

and if the inflation is high, then the people pay less price, so this negatively affect the stock price

Other than this, there can be Competing Investments, people don't need to only invest in the stock market

Sometimes sentiments are bad, so people start searching for a different avenue

Some invest in Real estate, some in gold, and some in FDs

Some invest in bonds (corporate bonds/government bonds), some invest in government schemes

If the sentiments are poor, then it will affect negatively

because people will withdraw their money from the stock market and will invest somewhere else

We should see Macroeconomic & Microeconomic factors for the company whose stock we are analyzing

If the news is negative or positive in the short term then it will affect trading

If it is negative or positive in long term, then it will affect in long term, this is what you have to analyze

The 4th factor is the most unpredictable and that is why it is the most important factor

That is, Human Sentiment, what does it mean?

All the information we are getting about the company's fundamentals, technical factors,

macro, and microeconomic factors, how we will react to this?

You can tell your reaction, I can tell my reaction, I can tell my friends reactions

But in stocks, millions of people are dealing, how do we tell the overall reaction of millions of people in the market

Why the reaction is so unpredictable? It has two reasons

First is, Information asymmetry

Everyone can have different information, maybe you have some information more than me and vice-versa

Or the others who are trading may have more information than us

The second reason is, different reactions to the same information

If we take all this to the Auto sector, what is going on in the auto sector?

You all know that the auto sector is down and there are so many layoffs

There are so many different reasons

When you read different articles, blogs, watch different videos, channels

I had read all those and I understand the three main reasons

to which different people are processing in different ways

Firstly,

All the BS4 norms have to be upgraded to BS6 norms

Maybe people don't want to buy BS4 Norms anymore that is why there can be a downturn

Second,

There has been a push for Electrical Vehicles by the government

It is going on in speed, so market is reacting on this

If it is going on in speed then it can have long term effects

Now, the information regarding BS6 Norms will affect the vehicles in short term

If the Norms comes in 2020, then obviously sales should be picked from there

But if electric vehicles are being pushed then the auto sector have to immediately push towards the

electric vehicles, otherwise

There can be so many losses in the short term

In the third reason, we are talking about cultural shift

That in today's world, people are preferring ola and uber's shared cab services rather than buying their own car

If there is any truth in this, then it can also affect it in the long term

We have talked about these 3 reasons, BS6 Norms, Electric Vehicles, and cultural shift to shared cab services

Information is the same, and is with everyone but the reaction to this can be different for all

Some can think that this is a short term problem, if we see the overall sentiment

So maybe it can be fixed by 2020 and they will buy the shares

Some will think it is a long term problem

So auto sector will not perform good in future so they will sell their shares

There can be people, who will think that all these things are right but all these things have been factored under price

That means, whoever is analyzing the auto sector or auto company's share sees that the stock price has already gone

gone down, then from here it can only go up, so this type of people will also buy the stock

So, what do you think about the auto sector, tell me in the comment section

So I think, from this example, it will be clear to you that the same information goes to everyone

but everyone's reaction can be different,

Here, no one is right or wrong, we can only know that in the future who is right and who is wrong

Right now, we can just analyze our information and take a side of whether buy or sell

We will end this video on this note

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