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Investors regularly read books on investing, crunch various financial data and news about the stock markets in order to keep themselves informed. Most of this is done in an attempt to know how to predict stock price movement and invest in ones that provide the best opportunity.

In this article, we take a look at some of the major indicators that predict price movement. Keep Reading to find out!

Major Indicators that Predict Stock Price Movement

We take so much effort on our part to understand the stock markets and factors behind them to know how to predict the stock price movement and make gains through it. There are many factors that influence stock prices in the short run and the long run. 

Long-term investors prioritize fundamentals and recognize that technical factors play an important role. Investors who believe strongly in fundamentals can reconcile themselves to technical forces with the following popular argument: technical factors and market sentiment often overwhelm the short run, but fundamentals will set the stock price in the long run.

Let’s take a look at some of the key fundamental factors which we can use ourselves as retail investors to predict the stock price movement –

1. Increase/Decrease in Mutual Fund Holding

The trading activity of mutual funds is inherently linked to the price of the stocks in which they invest. When mutual funds buy and sell stocks, the prices of those stocks are automatically affected.

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In fact, because of the size of their investments, mutual funds can have a huge impact on stock prices, in both the short and long term. Mutual fund trading can push stock prices up or down on any given day. In addition, the herding effect of mutual funds and other large-scale institutional investors can create long-lasting trends that influence a stock’s price over time.

Generally, any news about a mutual buying a stake in a company causes the stock price to go up and vice versa. Therefore an increase in the mutual fund holding of a stock or mutual funds entering a stock is a positive sign for the stock price. Investors should consider it as an optimistic & encouraging signal for the stock.

Predict Stock Price Movement - MF Holding

Stock – HDFC BANK & Source – Trade Brain Portal

2. Influence of FPI & FII on Stock Price Movement

Stock markets are primarily driven by institutional money. FIIs and DIIs account for the bulk of the liquidity in the market. Tracking their inflows and outflows can help predict broader trends in the market. 

As FPI/FII activity hogs the limelight, it makes sense to keep tabs on their activity. As retail investors, we do not have enough financial muscle to influence stock prices. Instead, we can earn above-average returns just by following in the footsteps of FPI/FII.

If you find that FPI/FII are gradually increasing their holding in a particular company, it can be a good indicator for making an entry. Remember, FII’s are backed by a strong analytical team. They take investment decisions based on valuation and earning expectations. 

You as an individual investor seek the same, hence chances of going wrong is minimal. If the company is fundamentally strong, one should not think twice as  the one who spots the FII footsteps early will be the most benefited one

Predict Stock Price Movement - FII Holding

Stock – National Aluminium Company & Source – Trade Brain Portal

QUICK READ – Key Financial Terms and Fundamentals of Stock Market

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3. Delivery Percentage in Stock Trading Volume 

Many investors tend to check volumes in stock and are rather happy if they have bought a stock and see the volumes going up significantly.

However, more important than studying the volume of a stock or shares is to study the percentage of deliverable quantity to total traded quantity.

Now, let’s cite an example. Suppose on Oct 29, HDFC bank had a total traded quantity of 62,03,437 shares. The deliverable quantity of the shares was 35,09,518 shares. This implies that the total deliverable quantity to traded quantity was 56.57 %.

Generally speaking the higher the percentage, the better it is. Some stocks go up with a significantly lower per cent of total deliverable quantity to the traded quantity per cent. This means there is more trader interest in the stock.

A higher delivery volume implies that investors have solid faith in the stock. This is why they are prepared to take delivery. This increases the probability of the stock price moving up in the future.

HDFC Bank Deliver Percentage

Source – NSE India

4. Increase/Decrease in Promoter Holding

A rise in promoter holding is read positively by investors. For them, this increase is akin to putting money where one’s mouth is. All prominent shareholders, including promoters, have a vested interest in speaking well about their company and its future prospects.

In this manner, they can influence prospective investors to invest in the shares of their company, thus increasing its price, and consequently their wealth. It is just vice versa in case of a decrease in promoter holding.

A much-cited example of a promoter buying shares of his company and the share price doing well is that of Vedanta. Its promoter Anil Agarwal had increased his holding in the quarter ended December 2015. 

The average price of the purchase was around Rs 85 per share. Even after substantial declines in price this year, the stock is trading at Rs 224 per share currently. It had reached a high of Rs 345.80 per share towards the end of January this year.

While promoter holding alone cannot determine whether a stock is a good buy or not, it is definitely one of the factors that should be looked at. Also, promoter holding decreasing and increasing is more valuable to look at compared to looking at the actual promoter holding itself.

Predict Stock Price Movement - Promoter Holding

Stock – Phillips Carbon Black Ltd & Source – Trade Brain Portal

5. Change in Business model/Promoters/Venturing into New Business

Inefficient promoters being outset from the company or a change in management will be a major positive signal for the investing community at large. Hence any such news should also be tracked carefully to predict any stock price movement.

6. Consistent Growth in Profit in Several Quarters

When looking at a company’s quarterly or annual financials, it is not enough to just look at the revenue for the current period. When investing in a company, an investor wants to see it grow or improve over time. Comparing a company’s financials from one period to another gives a clear picture of its revenue growth rate and can help investors identify the catalyst for such growth.

While strong quarterly revenue growth is one metric for success, it’s important to look at several quarters and the consistency of growth over time. If growth is simply a two- or three-quarter phenomenon, it does not necessarily bode well for a longer-term investment.

Consistent growth in earnings should be a key driver of the stock price in the long run. Investors should pay key attention to the quarterly results. It can help in forecasting the earnings.

Note – The above mentioned stocks are for educational purposes only and should not be taken as investment suggestions. Please do your research before making any investment.

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In Closing

This list of factors affecting share prices are merely indicative and are not exhaustive. An important factor that is capable of driving the share prices of companies in the overall market sentiment. Unlike most other factors, this one is purely emotional. If the market sentiment is bullish, the share prices will invariably go up.

In the event of bearish market sentiment, the prices of shares will most likely come tumbling down. Before you decide on your next trade, it’s prudent to consider these factors to get a better idea of how the market may move.

We hope now you have an idea on how to predict stock price movement and earn maximum returns. Comment down below and let us know your thoughts on this topic. Happy Investing.