PESTEL Factors are macro-level factors that affect the economy. They are both beneficial and detrimental to society as a whole.
It stands for
P – Political
E – Economic
S – Social
T – Technological
E – Economy
L – Legal
Since these factors affect the entire economy, a change in any of these factors brings humdrum to the stock market.
Political factors refer to those related to government fiscal, tax, and budgetary decisions. If let’s say the budgetary decision is in favor of one sector then the stock of that sector is likely to see a huge rise. For example, in the budget of 2023-24, the Finance minister made numerous provisions for the banking sector and also gave heavy funding to the infrastructure sector. Not only this, but the world bank had also sanctioned a heavy amount of loan for the Mumbai Metro development. All these sectoral calls have prompted investors to buy banking and infrastructure stocks.
Economic factors are those factors that pertain to inflation, unemployment, population density, poverty, and other economy-related issues. Any news related to these factors can bring chaos in the market and mull emotions among investors.
For example, recently, the RBI raised the repo rate by 25 bps, causing strong tension among investors. Investors were nerve-trapped thinking about the liquidity crunch post repo rate rise. This let many investors withdraw funds from stocks.
Social factors refer to cultural, occupational, demographic and value-driven factors which affect day-to-day lifestyle, spending habits, and investment quotient of the economy as a whole. For example – long back it was witnessed that the government banned plastics which were a day-to-day use product by every individual. This dropped plastic’s manufacturing, shipping, and distribution and deeply hit the sale of plastic manufacturers and distributors resulting in a fall in the share price of plastic companies.
With the advent of the digital decade, it is imperative to understand and use basic technology in some or the other ways. Every startup gives a digital touch to its product or service to stand and at least survive in the competitive market. Digitization, automation, and R&D have revolutionized the tech industry. For example – A fear of recession in the US led to job layoffs in the tech industry causing a massive fall in Indian tech stocks. Even after the consolidation phase, the IT stocks continue to remain flat!
Environmental factors refer to situations related to sustainability, pollution, corporate social responsibility (CSR), climate change, etc. These changes can bring massive sectoral switches not only among consumers but also among producers.
For example – due to a lack of oil supply and extreme air pollution, manufacturers and consumers are shifting to electronic vehicles. Due to shifts in demand and preferences, Indian firms are also leveraging and diluting their distributable products from CNG and Petrol dependent vehicles to EV. Classic examples include Nissan, Volvo, etc.
Legal factors are law-abiding rules, legislative moves and judicial permits which an industry should abide by failing which it can face deadly consequences. For example – Not to forget everyone’s favorite, Maggi was banned in the year 2015 under the Food safety and Standard act because it was alleged to have huge lead content harmful for the human body. As a result, Nestle shares saw a bloodbath in the next trading session.
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