Share market and investor’s sentiments: An intriguing study

If I am to rename the share market I shall award it with the title of “an investor’s paradise”. Investors of all risk appetite come to play in this market and as far as my knowledge goes everyone gets a bit of return. Today when financial market makes big news in Indian economy, investors march into the market with different expectation about returns of their investment. Financial institutes have a keenness to know how the investors set their expectation on share market. I often come across survey reports explain about investor mindset.

Most of the survey conducted so far gives a common message about the general perception about share market noticed in investors. In most cases it has been observed that investors find the economy of a country synonymous to the share market. This might sound a little off beat but the widespread of media channels has played a big role behind making this idea. I do comply with the fact that the stock market does responses to the movement of economic parameters. However, the response is not as much as news media channels present it before investors.

I cannot rule out the fact that share market and economy of India does move in the same direction. But at the same I should not mislead my readers that the movement is observed at the same time. An economy relies on reality and there is a cause and effect theory that works within it.  In case there is any weak economic parameter then its effect makes the economic health of a country poor. As contrast the stock market works instantaneously and doesn’t give an economic parameter to work upon the market. The effect of a poor economic factors, say for the example unemployment, is instantaneous in financial market.

I should blame the instant effect of any economic disruption over the share market on two crucial factors; hype created by news channels and investor’s sentiments. Now these two might apparently look like two distinct factors. But in reality the factors affect each other and form a cycle that intensifies a wee issue into a mammoth affair.

I can best explain the principle of mutually affecting each other by citing small example. Suppose the crude oil price has increased by 10% in India at a point of time. The moment this information is released from the state financial department’s desk, the news channels capture it readily and broadcasts immediately. Most of the investors are net savvy now and thus they react immediately on this news and the shares come under pressure causing the market to drop. This drop is solely because of the investor’s strategic intent of risk aversion. This mass shifting of investors in selling side creates news again which eventually affect the investor mindset putting the stock market in a passive mode. Thus the vicious circle takes a full turn.