Q. “There are the two factors that influence the price of a stock”. Explain them.
Ans: (1) Stock specific –The stock-specific factor is related to people’s expectations about the company, its future earnings capacity, financial health and management, level of technology and marketing skills. (2m)
(2) Market specific –The market-specific factor is influenced by the investor’s sentiment towards the stock market as a whole. This factor depends on the environment rather than the performance of any particular company. Events favorable to an economy, political or regulatory environment like high economic growth, friendly budget, stable government etc. can fuel euphoria in the investors, resulting in a boom in the market. On the other hand, unfavorable events like war, economic crisis, communal riots, minority government etc. depress the market irrespective of certain companies performing well. (2m)