Everyone who invests in stocks has the goal to invest in stock market to earn money, that’s why emotions play an important role in stock market volatility.
Breaking news and corporate events trigger emotions whether positive or negative that bring ups and downs in the stock market.
Positive news results in markets going up whereas negative news can lead to a fall in the market’s trend.
For example, in January 2023, Hindenburg Research, a US-based investment research firm, released a report alleging Adani Group for stock manipulation and raised concerns about their corporate unethical governance practices.
The report triggered panic selling among the investors, DIIs, and FIIs which created a huge selling pressure and resulted in a bloodbath in Adani group’s stock prices.
Let's discuss the fascinating ways in which news and events shape stock market volatility.
Breaking news often serves as a catalyst for market fluctuations as they trigger investors' sentiments.
For example, if the Indian government declares to impose taxes on Chinese imports, as soon as the news break about the new taxes on Chinese products, it will send shockwaves to Indian stock markets.
Investors will start reacting to the uncertainty going to happen due to the impact of this policy. That reaction will result in a significant decline in companies' stock prices which have a dependency on Chinese imports.
Earning reports are of two types - Annual and Quarterly. Both give you an overall view of the company’s business performance.
When a company releases its financial reports, investors quickly investigate the report to get an idea about a company's profitability and overall financial health.
Exceeding or falling short of investors’ expectations can have a profound impact on stock prices in the short term.
For example, Zomato’s stock prices fall 4% in Feb 2023 when the food delivery giant disclosed its quarterly earnings results with a net loss of Rs 347 crore in the Dec 2022 quarter.
Big corporate events also have a profound effect on stock market volatility. Events such as two companies' mergers or acquisitions, and initial public offerings (IPOs) can create volatility in the stock market.
When companies merge or acquire others, investors evaluate the potential synergies and growth prospects, which can influence stock prices.
Similarly, IPOs, where companies go public for the first time, generate immense interest and can result in significant price fluctuations as investors assess the company's growth prospects.
For example, Paytm’s initial public offering is one of the biggest IPO in India which was oversubscribed 1.89x at a price of Rs 2150 per share. That is an example of investors having high expectations from the company.
Macroeconomic Factors are those factors, or situations that affect the national economy at a broader scale. Macroeconomic factors are GDP, fiscal policy, and inflation.
These factors also have a deep effect on stock market volatility.
For example, in 2019, the Indian government announced a huge reduction in corporate tax rates to 22% from 30% that day (Sep 20, 2019) the Nifty 50 rose by 5.32%.
One interesting aspect of news-driven stock market volatility is how investors interpret and react to the news and events.
Different investors view the same news from different angles leading to mixed outcomes.
You may see an opportunity to buy when the market is falling, while others may perceive it as a signal to sell because the situation is panicking.
These mixed responses lead to price fluctuations and overall market volatility.
We are living in a digital era where communication is instant and you get news 24/7m but access to timely and accurate information is important.
You can get valuable insights into market-moving events and important news from reliable sources, such as financial news outlets, regulatory filings, and research reports from trustworthy sources.
Staying informed is important and but critically evaluating the information you receive is more important to make better-informed investment decisions.
For example, on Feb 1, 2023, when Indian Budget for the 2023-24 year was being announced, Hindustan Aeronautics Ltd’s stock fell by more than 8% within 1 hour and those who were aware of the information made 60% returns on HAL in the next 3 months.
Market volatility is an inherent part of your investment journey because markets are emotions-driven. News and events play a significant role in triggering those emotions of an investor. But you must have that eye to grab those opportunities that come on the surface due to news and events.
If you maintain a long-term perspective, you can easily go through the ups and downs of stock market volatility with greater confidence.
