How Interest rates affect the Stock Market?

How Interest rates affect the Stock Market?

Interest rates are the percentage at which the Lenders lend the money to creditors. The lenders may be Banks or Individuals or Financial Intstitutions. The creditor may be any one.
But here, the Interest rates we are talking about is the rate at which a central bank or federal bank of any country lends the money to other banks. In USA, the central bank is Federal Reserve and in India, it is Reserve Bank of India.
Central Banks world over lends money to other Banks of their country. The Interest rate at which it is being given to the Banks really matters. If there is inflation, in order reduce the price rise, Central banks increase their lending rates in order to reduce the flow of money in to the system. This in turn reduce the price rise.
And in times of deflation ( prices decline steadily ), Central banks reduce the lending rates to inject money in to the system.

If interest rates are hiked, then the Banks will increase their lending rates and the Industry which is financed by Banks will get affected by the rising interest cost. Thus it affects the bottomline of the Company.
Since companies bottomlines are affected by rising Interest cost, their earnings will be affected which in turn affect the sentiments of the stock Market, which in turn affect the stock prices of the companies.

Fundamental Analysis of a Stock

Fundamental Analysis is the way of analysis of security based on their internal and actual performance of Company unlike Technical Analysis in which just the movement of prices is studied, without considering the fundamentals of the company




Fundamental analysis of a security is the study of Balance sheets, Profit or Loss account, assets and liabilities, sales income, other income, interest payment and etc.


Based on this an Analyst comes a conclusion about the future of the stock or the Company.


Some of the main value they see are PE ratio, EPS and Book value.


PE ratio is the ratio between Price of the Stock at the Market to the earning of the stock per share. Higher it is, the stock price is highly valued. If it is less, then the stock price is priced low.


EPS denotes Earnings per Share. It is the ratio of profits made for the year to the number of shares of the company. If the value is high, it means the earnings are high for the company and if it is low, then the earnings of the company is low.


Growing sales figure or slowing sales figure would influence the future performance of a company.


An analyst also see the performance of the sector at which a particular belongs to. They analyze the performance of the company with the sector’s performance. And also they see the future for the that sector.


Various factors like this influence the movement of the price of a particular stock. Study of this factors is Fundamental Analysis.

Technical Analysis Introduction-2

In latter years , in the course of market history many analyst propounded their own theory, and new indicators are introduced .Many indicators based on momentum have become popular nowadays .

Japanese candlestick techniques are used along traditional western charting techniques.

The price of a security represents a agreement between a buyer and seller. It is the price at which the buyer decides to buy and the seller decides to sell.


If he expects the price to move up, he will buy it. If the investor expects the price to move down, then he will sell it.

Humans as a individual, are not easily predictable. But as a crowd their behavior is predictable. A individual as a member of a crowd would behave differently.


Because of the participation of people of various emotions, anticipation and expectation, the market movement is unpredictable. Because of this there is always a gap between demand and supply which makes the prices to swing constantly .

Technical analysis, in other words is the study of this demand and supply ,and anticipate price changes.

Technical Analysis Introduction-1

Technical Analysis is the art of analyzing a stock's historical prices in an effort to forecast the probable future prices. It is done by studying and comparing current price movement, with the help of tools like (i.e prices ,volume ,speed ,pattern and time) ,with the past price action to predict future course of the price action.

To put it simply, technical analysis is the study of prices, with price,pattern, volume and time as being the primary tool. it is applicable to stocks, commodities and currencies.



With the help of Technical Analysis we can predict the prices from days to several years . It can be applied at the time of both purchasing and selling.

Technical Analysis is useful for improving the investment decision making skill Before making investment decision technical analysis should be supplemented with fundamental analysis


Concepts and tools of technical analysis were developed several centuries ago. Japanese used candlestick trading techniques for rice trading in 16th century itself .

These tools are well tested since then and all over the world investors are using it successfully .

The traditional technical analysis method got a boost after the Dow Theory, developed by Charles Dow in 1900. So he is also called the father of modern technical analysis.

Since then many theories are propounded by many people based on Dow theory or based on price pattern (ie Elliott Wave Theory and Neowave ) or based on Momentum of the Market.


..........to be continued in Part 2.......

Is the Bear Market over Worldover?

January 2008 saw the start of a bloody decline in stock markets World over and it terminated the bull run in the stock markets that started on 2003. The decline continued till  october2008 in most of the Asian Markets and the decline terminated around february in US and European Markets.



People ranging from ordinary men to investors in the stock market panicked and the period saw many layoffs in all sectors of the Economy. Unemployment rose in US and world over. The severely affected country was USA.


Many Banks and Financial Institutions in USA went bankrupt mainly because of sub prime crisis which is due to the burst of real estate bubble and Stock Market decline. The tremors are felt heavily in European countries and it is felt mildly in Asian Economies. It was said at that time, that World was going to face the worst bear market.


Ever since that, Governments offered stimulus packages to boost their respective countries economies. The stock Market were recovered from the lows very quickly. Now, everybody saying that the bear market is over. The stimulus packages given by their governments boosted the economy and everything is normal today.


But My opinion is, even though Stock Markets have rallied for the past 9 months, the present rally seems to be temprory.


No bear market completes its term in just 9 months. So, the real and the worst bear market is yet to come. It may take another five or six years to complete. Hisotry will always repeat itself.


Be prepared for it.