When the price of nifty falls, why does the price of all companies fall along with it?
Nifty 50 is the bench mark of the performance of stocks in the industrial sector, likewise bank nifty (12 large and most fluid stocks from the bank sector), Nifty FMCG represents 15 companies that are into FMCG manufacturing. These are cubical indicators of the performance or daily health in that sector. If bank Nifty goes up or down, then it gives an indication of stability the banking sector in general for that day, If these indices fall then the share price of the stocks (not all) in that sector tend to follow based on the market sentiment and the risk perception of the investors and traders. If Nifty falls, then many traders start selling or do partial profit booking to re-enter at a lower price. This sudden surge in selling also drives the prices down.
Isn't the price of a stock dependent only upon the performance of the specific company alone ?
This is far from true.There are many factors that decide the current price of a stock. The global financial health, sudden news of gloom ( Korea firing a missile, war in middle east, a crisis in USA. The last crisis in the Chinese economy triggered a fall in the Indian shares too.
Potential good news also affects the price, if you have been following the bank stocks, they were under performing because of the losses via the NPA. But when government announced a stimulus package for the NPA, all bank stocks values increased.
If you look at pharma stocks,when there is a US FDA warning or fine imposed on a company for breach of rules or safety issues, then immediately the pharma company share prices falls down. Apart from this there are many factors behind the scene, the promoters, key big players or institution bulk purchases all of which affects the stock price.