Factors Affecting Market Price of Sensex Shares

This paper examines various research studies undertaken in the Indian and international context highlighting the affect of various fundamental factors on the behavior of the stock market. The empirical analysis of these studies exposes a lot of contradictions among them and there prevails a wide gap between the Indian and international research studies. This paper identifies the critical variables, which have significant effect on stock price movements and thereby influencing the entire market movement. The 30 scrips constituting the Sensex are used as proxy to capture the entire stock market movement. Appropriate statistical techniques have been used to establish a meaningful relationship among the various explanatory variables identified through the empirical analysis considering the available research studies. The various explanatory variables, which are acting as major determinants of stock price movements, are condensed into a few critical factors by the factor analysis and the relevance of these factors in influencing the stock market movements is explained in detail. The results reveal that few factors are acting as major determinants of stock price movements and thereby have a significant bearing on the entire market. With the Sensex touching the 13,000 mark, there is a lot of skepticism among the investors about the behavior of the stock market and the safety of their investment in the highly volatile Indian stock market. These factors can be used as a major analytical tool by the investors, corporates, and the brokers to make rational and intelligent investment decisions.