Equity Trading For Dummies : Thumbrules

The Equity trading is generally called as 'Gambling' and rightly so as 90% of the traders in the market only speculate the movement of the market/stocks and gain or lose money depending on their luck. But stock markets have their rules and they are a great source to learn Economics – both micro and macro as well as the way a business works. There are numerous factors which affect the way traders react to the share prices of a company. I have tried to compile the most common ones which one would generally come across while following the markets. These are strictly for those who have little or no exposure to markets and are willing to learn some tricks of the trade to get going. 

In the below table, I have detailed the impact of one scenario, for example A decreasing Rupee. The impact for a Rising Rupee will be vice-versa.

So, let’s take a look.

Factor	Scenario	Impact
Rupee	Decreasing	Exporters get more income IT, Pharma gains as they mostly export. Specially, those IT firms, who have higher hedged currency, outperforms Import bill gets dearer Everything we import gets expensive, specially oil. OMCs like IOC, BPCL, HPCL are the major losers. Airlines like Spicejet, Jet Airways have to pay more for ATF which makes up 40% of their costs.
Crude Prices	Increasing	Companies in exploration and extraction of crude oil gains. Eg. Cairn India OMCs and almost everything falls as we are heavily dependent on oil imports. It affects our fiscal spending and thus fiscal deficit.
Repo Rate	Decreasing	Cost of capital reduces and thus companies can borrow more for growth purposes. Thus almost everything gains led by banks and financials. Rate sensitives like Auto, Metals and highly leveraged companies gain in low interest rate regime.
Inflation	Increasing	Purchasing power of people decreases as the same amount of money fetches less. Consumption related stocks like HUL, ITC, Marico etc should effectively go down. However, if the overall economy is in bad shape, they still get higher valuations for being relatively safer.
Rainfall	Decreasing	Rural India gets affected and agri based companies like Rallis India, Fertilizer companies like Coromandal, RCF, Chambal are hit negatively as demand decreases. Tractor companies like M&M, Eicher and two-wheeler company like Hero Motocorp which has high exposure to rural market is also negatively hit as low rainfall leads to low income for rural india.
Commodity	Increasing	Rubber prices directly impact tyre manufacturers like Ceat, Apollo, MRF. Copra prices affect Marico and other hair oil manufacturers. Increase in Aluminium and Copper prices is good for a company like Hindalco, Sterlite which mines these metals while will augur negatively for stocks like Auto, Electronics manufacturer or other companies which utilize these metals.
Gold	Increasing	For that matter, increase in the prices of precious metals affects companies like Titan, Gitanjali etc which are in jewellery business as their margins decrease. A price increase by them helps to regain the lost margins. Gold Loan companies like Mannapuram and Muthoot gain as more and more people raise loan against gold at higher prices and thus the company's loan book expands. A falling gold price can be a nightmare for the gold loan companies!
Company Outlook of Parent/ Customer/ Supplier	Dismal	Dismal outlook for HP affects the share prices of Mphasis negatively as HP is the largest customer for the company. Such dependence exist for several companies. Similarly, something good for the supplier/customer will be reflected in the company's prices too.
Corporate Governance	Poor	Market hates such news. In the past one year, companies like DLF, Indiabulls, Everonn Education, Reliance Communications, Sun TV and many more have bore the brunt of reports of poor corporate governance. While a positive report is a long term value creator for the investors, a poor report creates instant money for short-sellers.
Equity	Buy Back	A buy back leads to an increase in EPS and thus more often the prices of the stock appreciates. The caveat is the quantum of buy back and the price till which the company is ready to buy. While buyback through tendering shows vigorous uptick, the open market buybacks generally keep the stock buoyed for longer duration. RIL's open market repurchase of the share began the recent rally in its stock prices.
Debt	Reduction	Any plans for debt reduction is mostly considered to be good. But at what cost the debt is being reduced is of prime concern to investors. DLF, IVRCL etc plan to deleverage their balancesheets by selling off their less productive ventures and shareholders like that. While Orchid Chemicals' sale of its Penecillin & Penem API business to Hospira served negatively for the shareholders as the business was a substantial source of revenue for the company.
Excise/Customs Duty	Increase	Mostly affects companies in a negative way as their PAT gets affected. But increase in the excise duty of a competitor product augurs well for the company. For eg. Budget 2012 increased the excise duty on the non-cigarette tobacco products which served positively for cigarette manufacturer ITC.

As I said earlier that these are only a few of the factors which affect the share prices of a company. There are many more. Depending upon the response and the feedback to this article, I may or may not cover them. J