The stock market India is not a single factor but is derived from a variety of factors, not just directly influencing the stock market India, but also affecting other factors, which again influence the stock market.
Let’s take the cricket game for a simple analogy.
The result of the match depends on the success of the players. Team success depends on a team of high-quality players and on a range of factors such as pitch conditions, Dew factor, field measurements, etc. And it’s not that these factors ju
st influence the outcome, but each of the factors also influences the output of players in a particular way, such as pitch conditions, etc.
Similarly, there are many factors in the stock market India that impact not only the stock market India directly but also other factors that, in turn, affect the markets. Both make the overall forecast of the stock market India a difficult activity, not just because of the number of variables involved, but also because of how these variables influence each other.
Take Porter’s Five Forces model as an easy structure to analyze which factors have a general effect on business and which have a large impact on the industry.
The Porters Five Forces Model addresses 5 main macro factors influencing a company’s operations. We will review each force in-depth to see which factors generally influence a company and thus the stock market India.
These are the five reasons for making the Stock market India unpredictable –
1. Threat of New potential entrants
2. Threat of product/services substitution
3. Contract capacity of providers
4. The purchasers’ trading ability
5. Competition between existing competitors
The threat of New potential Entrants
Potential entrants apply to companies that are not currently operating in the market but have the potential to do so if they have an option. New players are adding to the industry size. The threat of new entrants to the industry can force current players to hold prices down and spend more to retain customers. New entrants bring new power, price, and cost pressure. The impact of entry of Amazon into the Online shopping market and its huge impact is a great example.
The threat of product/services substitution
If a new product or service serves the same basic needs differently, the profitability status of the industry is significantly affected. The danger of a replacement product is high if it provides an appealing price-performance trade-off compared to the current products of the industry or if the switching costs are minimal. The development of a new variety of coffees affecting the market for tea or electric vehicles replacing petrol cars are a few examples of this.
Contract capacity of providers
Suppliers apply to companies that supply inputs to the industry. The bargaining power of the suppliers refers to the ability of the suppliers to raise the prices of inputs (labor, raw materials, services, etc.) or the costs of the business in other respects. Companies in each sector buy various inputs from different manufacturers, which account for different proportions of costs.
Power suppliers may use their bargaining influence to charge higher prices or negotiate more favorable terms from market rivals due to their competitive position, which decreases the profitability of the industry and the overall outlook of the business. If there are only one or two suppliers of the critical input component, for example, or if the supplier switches are inexpensively time-consuming, the supplier would have more control. For example – a large corporation like Intel, specializing in a particular computer chip negotiating power over manufacturers that source Intel products.
The purchasers’ trading ability
Buyers apply to customers that eventually purchase the commodity or to organizations that sell the product of the industry to final consumers. The bargaining power of the buyers refers to the ability of the buyers to negotiate price reductions. Strong consumers may use leverage to lower prices or demand more service-affected prices, thus capturing more value for themselves but impacting company performance and future prospects.
Buyer power is the strongest when the consumers are in large numbers and the rivals serving those goods are undifferentiated, and there are few switching costs from one rival to another. They can compete against one another, especially if the product of the industry is undifferentiated and loyalties are easy to alter.
Competition between existing competitors
If the competition is high, prices decrease or profit decreases by increasing costs by different factors such as a changed line of goods increased budget for ads, etc.
Rivalry refers to the competitive battle between companies in a sector for market share. Extreme competition between existing companies poses a strong challenge to profitability. It depends on many factors, such as industry fixed costs, competitive structure, consumer priorities for each industry, and industrial demand conditions.
As can be seen even with one company, how many factors play a joint role in assessing the overall success and potential of the company. View it as a market for an industry of many such businesses. Then think of an economy that includes both other big and small industries.
All these economic sectors have additional national, foreign, economic, social, and political influences. The size of these problems can only be imagined, and the structure of an overall system defined by the stock market India works.
As a result, the stock market India becomes too difficult to forecast, because of the vast number of interdependent variables in the stock market India in a predictable and unpredictable world due to monitoring the upcoming movement.
“In many ways, the stock market is like the weather in that if you don’t like the current conditions all you have to do is wait a while.” – Low Simpson
Till then, happy investing!