How does the stock market react to news?

I want to know if it is true that it react to news. Please help!

Yes, movement of price depends on impact of the news. For example, latest news of RBI not approving Kotak Mahindra Bank's proposal of promoter holding dilution had negative impact on its price today. Some reaction will be temporary and prices will come back to previous level.

Thank you for the helpful reply. How reliable is it to make a trading plan on the basis of news?

Only unexpected news, either positive or negative will make stock price to move big. Else, price will come back to normal position once the news is digested by the investors. It is not good practice to trade based on news unless you are quick enough to enter and exit trades. On scheduled events like results, IV tend to move up before the event and option players make money based on this. IV will fall post event.

I really appreciate your informational reply. But how do option traders benefits from the fluctuation due to news?

There are many factors that influence option premium. One of them is volatility. Volatility goes up before the event due to uncertainty. So both put and call premiums go up. When the event is over, uncertainty is no more and so volatility drops and so does option premiums. Option traders use different strategies to make use of it. Also to keep in mind that if the outcome of the event is an unexpected one by market, there will be sharp movement in the price.