We cover the three types of market movements—fundamental, technical, and sentimental.

The Story

Markets are an intriguing mix of logic, patterns, and emotions. At their core lies three interlinked forces for movements in asset prices:

  • The fundamental reflects an asset’s underlying value.
  • The technical patterns provide insights into price trends
  • Investor sentiment is often an unpredictable emotional pulse of the market.

These forces not only coexist but feed upon and amplify each other. Thus, understanding these factors is crucial for an investor.

Let’s understand them one by one.

💪 Fundamentals: The Foundation

The fundamental analysis is the foundation of long-term investment. It looks at a company’s financial health, business model, and profitability in the long term.

Investors examine earnings, revenue, market share, and economic indicators to estimate the value of a stock. However, the fundamentals do not dictate price action immediately.

Consider Hindustan Unilever Limited (HUL) and Hero Honda (now Hero Motocorp) for example, how they held up during the 2008 financial crisis.

While the SENSEX and the Nifty 50 declined by over 50%, these companies showed double-digit stock price growth—a testimony to the robust fundamentals.

HUL’s resilience:
Despite the economic downturn, HUL reported a 17% rise in net sales and a 21% growth in its FMCG segment during the December quarter of 2008.

This performance was a result of strong underlying volume growth and diversification across its product categories.

Hero Honda’s strategy:
The company capitalized on its strong rural brand recall and delivered impressive results despite the motorcycle industry’s domestic volumes shrinking by 11.3%.

Hero Honda recorded a 0.2% rise in volumes and a 5.6% increase in net sales in Q4 FY 2008, outpacing the broader industry.

Such examples highlight how businesses with strong fundamentals can sustain growth, even during economic adversity.

📈 Technicals: The Price Patterns

Technical analysis examines price patterns, trends, momentum, and trading behavior to identify the collective behavior and psychology of market participants.

Analyzing recurring patterns helps predict future price movements based on past market behavior. It is the art of spotting trends in the chaos of market charts.

The chart shows ICICI Bank trading in a well-defined upward channel. The price is consistently respecting the lower trendline (acting as support) and the upper trendline (acting as resistance).

The thesis is that whenever the stock price approaches the lower trendline zone; it bounces back upward. Assuming that the trend would persist, it presents a potential buying opportunity.

Moving to the third and last type of market movement, where emotions overshadow fundamentals and technicals.

🧐 Sentiment: The Behavioral Factor

Market sentiments, like investor psychology, are often driven by news, speculation, or emotions. It’s an intangible yet powerful force that can override fundamentals and technicals.

A recent example is the sharp decline in the Nifty 50 during the Lok Sabha election results on 4th June this year.

In just one day, the Nifty 50 dropped nearly 6%, showing how emotions can drive market behavior.

However, within four days, it fully bounced back and touched an all-time high as investors set aside emotions and assessed the situation more rationally.

To Conclude

Markets are like a three-act play—fundamentals tell you the true worth of an asset, technicals help you read between the lines, and sentiments often play the wildcard that turns the plot on its head.