How Does The Economy Of A Country Influences The Risk Associated With Investment In A Stock Market?

We are often told that investments are subject to risk

. What is this risk? It means earning less than what you expected from a given investment or losing part of what you invested. When it comes to investments we only talk about returns. There is one common tagline related to investments higher the risk higher is the investment.

Investors solicit advice in brevity, but a broker can never suggest financial securities or stocks that would promise return without an element of risk. A good broker will always suggest stocks that involve calculated risks. If the fear of losing makes you leave the money idle or put in low-return instruments, then inflation will devalue it. Hence, investment is must, and the risks associated with it must to be understood.

In an ideal scenario, the investor should need to take only risks relating to the economy and company performance.

There are several parameters that evaluate the risk factor. Statistical and analytical tools can be used, but they are not affordable for the small investor nor would he always have the time or knowledge to use them.

Risk is related to time. The first question to ask when making an investment is: When do I need the money? In general, you can take more risk if your investment horizon is distant. This is because you have more time to recoup your potential losses along the way. Major factors that determine risk are stated below.

The economic performance of the nation fuels the risk factor. The GDP growth of 8% + in the last few years has fuelled the India stock market rally. Interest rate movements are also an important deciding factor, each time the Reserve Bank changes the benchmark rates of interest, it has a positive or negative impact on the stock market. The dominance of FIIs in India also makes the stock market sensitive to interest rate cuts, which are announced by FED in the US. International developments, such as energy prices, WTO, insurgence and wars between countries also impact the risk factor. Regulatory changes such as Truck overloading norms, Intellectual Property Rights, and VAT also affects the risk factor. The feel-good factor is also necessary to keep the market sentiment buoyant; if everyone feels that the economy is doomed then there is little one can do to improve the market sentiments.

Industry-level risks include: the state of a specific industry, whether it is considered to be growing or declining. Industries such as IP telephones and cell phones are characterized as a growing sector, whereas an industry that has harmful effects on the environment is considered to be declining.

Industry cycles are also important: for example, in the monsoons, there is less demand for cement compared to the rest of the year. Structural changes and paradigm shifts in an industry should be observed, such as peoples current preference for motorcycles compared to scooters, or landline phones versus mobile phones or electronic encyclopedias versus printed books.

by: Aditiya Mehta

POST COMMENT

Blog Marketing - A Beginner's Guide Profitable Horse Racing Betting Systems Creating Your Path To Web Marketing Glory Are You Being Fooled By Clever Labeling & Marketing? Wartrol Scam - Does Wartrol Work? Free Marketing Methods When Starting A Report On Worldwide Anesthesia Drug Market Article Marketing Guide-How To Profit With Article Marketing? Choosing The Right Guest Bed With Bed Supermarket What Is Affiliate Marketing - Is It For You? Praxair, Inc. - Swot Analysis - Market Reserach Report On Aarkstore Enterprise. Avoid yourself from the free trial weight loss patch that scam Forget About Social Media - Here's What to Do Instead For More Prospects & Profits (Simple & Easy)