At the time of Covid-19 pandemic, the whole suffered from the job losses, adverse business conditions and falling of economy. The economy of whole world would suffer the loss of trillions of dollars. Jobs are vanishing day by day, daily expenses are increasing rapidly, saving are going down and business are getting ruined. But at the same time the stock market is reaching at its new height. Stock prices are going up even though the economy of the whole world is falling.
As per various reports, the world has already been entered into depression. In future, jobs would go more down and purchasing power of people would also go down with that. But after all these adverse market conditions, the Stock Markets are still performing better.
Here we will discuss why the stock market is high in-spite of low economic activity. But before that you have to understand the basic concepts of factors that affect the price of any stock. There are various factors which decide the upward or downward movement of any stock price. Lets take some of those factors and compare those with the current situation.
1. Supply and Demand
Like other commodities the price of a stock is decided by the supply and demand of such stock. If demand is high then price would rise or vice-versa.
2. News relating to the Company
Any favorable news can move the stock price up and any negative news can become the reason of the falling of the price of such stock.
3. Market Sentiments
If the majority of traders in the market made a particular perception regarding any company then its stock would behave on the basis of market sentiments.
4. Management Profile
Management profile plays an important role in the sustainability of any corporate. If management formed of efficient leaders then it is high possibility that the company would perform better in the long run and that`s why it affect the price of stock. Imagine if Warren Buffet become the director in any listed company then price of its stock would rise as a result of strong personnel in the management board.
5. Financial Performance
The financial performance of any corporate plays a crucial role in the movement of stock price. If a company publish a profits showing financials then the price of such would rise and if does not perform better and incurred losses then the price of such stock would fall.
6. Economic Factors
Economic factors also play an important role in determining the price of the share. Economic factors include interest rate changes, financial outlook and inflation. For e.g. if the interest rate and inflation rate go up, and the economic outlook is poor then the share price will likely to come down.
There are various other factors also which also plays an important role in determining the share price. Other factors include:
- Government Policies;
- Market Capitalization;
- Management Profile;
- Political Factors;
- Availability of credit;
- Returns offers by other markets;
- Level of Foreign Investment;
- Stability of Government;
- Future Sustainability;
- Return offers by other Markets.
Now when we understood the factors that affect the stock price let`s discuss why at the time of pandemic the stock markets are performing that much better.
First of all, we have to understand the fact that business activity, travel, tourism, trade and manufacturing has been stopped in the mid March. So, basically in the March month only for 15 to 20 days, all the commercial activities were stopped due to the pandemic and lock-down for the same. But it is related to the stock price? To understand that we have to move forward to the second fact.
Second fact is that at present, all the listed companies are publishing their quarterly and annually financial results. The quarterly and annually financial results published are up to the date of March 2020. That means companies declared their financial result for the year 2019–20 which ends on March 31 and quarter results that includes the months of January, February and March.
Finally if we combined the first two facts then we come to know that the latest financial results published by the companies do not reflect the damage caused to the Companies. The real impact of novel corona virus pandemic would be seen in the upcoming financial results. After there there are huge chances that the stock market would correct itself and price would move according to the real position of the Company.
Summary
The current market scenario is not showing the true position of the companies because it reflects the financial position of the companies earlier the pandemic. The factors affecting the share price are not fully visible right now. The real impact of the pandemic on the share price will be seen after the financial performance of June quarter will publish. After that, the impact of falling economy will clearly visible on the stock market.
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