The stock market represents the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of respective publicly-held companies take place. These are the over-the-counter (OTC) marketplaces which operate under defined rules and set of regulations.
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What is a stock?
A stock is proof of an individual's part ownership in a company. Which is done by providing a share of that particular company in exchange for a capital invested (decided by that company).
For example, if a company is listed on the stock market which has 1 lakh shares in total, and if we buy one share of that company we become a 1/100000th owner of the company.
History of the stock market:-
A Longtime back, When people use to run their businesses and companies with their own money because of which all businessmen could not generate a good amount of the capital to build their industry and increase their scale of production with their own money.
Even the banks and the money lenders would not lend a huge amount of money to help the new businessman and the Young company holders.
Thus by the end of the 17th century, The Duch East India The company decided to raise its capital from the common people by issuing their company's shares to the common people and they became the first company to do this with the Amsterdam Stock Exchange.
What does a stock exchange mean?
Stock exchange means anybody of individuals buying and sells or dealing in securities (shares). They are the one who provides different instruments for trading and investing purposes where the exchange of stocks take place.
The companies that are interested to generate capital from the public get listed in the stock exchanges according to some rules and regulations with some other paperwork.
There are two main stock exchanges in India the National Stock Exchange(NSE) and the Bombay Stock Exchange(BSE).
Bombay Stock Exchange (BSE):-
(Established in 1875) it was Asia's oldest stock exchange was situated in Dalal Street, Mumbai. It is the world's tenth-largest stock exchange and has a market capitalization of more than 2.2 trillion dollars.
National Stock Exchange (NSE):-
(Established in 1992) the first dematerialized electronic stock exchange in our country located in Mumbai.
How the stock exchange work?
Trading in NSE and BSE takes place to buy electronic bookings were the orders of buyers and sellers are made electronically and proceed to exchange the buying and selling orders are given priority based on time, quantity, and price and the best matches are done by trading computers.
The orders are placed by the retailers by their respective brokers who act as the middle man between the stock exchange and the retailer and he facilitates the trade on the behalf of the investors.
Types of Stock Market primary and secondary:-
Primary market:-
The primary market mainly deals with new securities which are issued in the stock market for the first time does it is also known as the new issue market, the main function of the primary market is to facilitate the transfer of the newly issued shares from the companies to the public. The main investors in this type of market are Financial Institutions, banks, etc.
Secondary market:-
It is the market where the trading of the securities actually takes place, thus it is also referred to as the stock market. Here the buying and selling of securities take place the existing investors sell the securities and the new investors buy the securities. Investors can only trade in the secondary markets only through members of the stock exchange.
Participants in the stock market:-
And the stocks are also publicly traded by the corporations in their own company's shares.
There could be various categories of investors in the stock market:-
- RII – Retail Individual Investors.
- DII – Domestic Institutional Investors.
- HNI – High Net-Worth Individuals.
- FII | FPI – Foreign Institutional/Portfolio Investors.
Eligibility for investing in the stock market:-
- No age restrictions.
- Own Demat account(to create a Demat account you should be more than 18 years old).
What is a Demat account?
The Demat account stands for the dematerialized account. it is an account to hold financial securities (stocks) like (equity or Debt) in the electronic form. The Demat accounts are maintained by two depository organization in INDIA:-
National securities depository Limited (NSDL)
Central Depository Services Limited (CDSL).
Nowadays it is an easy and convenient way to hold shares or stocks with safety.
Why should we invest and know about the Stock Market?
As a matter of fact, first of all, we must know that the stock market comes with risks. But when it comes to investing and wealth multiplication the stock market can be our best friend. It works based on the power of compounding where if we let our investment stay for a long time and let the interest compound we will reap good results and will get one of the best benefits of investing in stocks.
Through the investments in the stock market, our benefits can be exponential and a fully analyzed long term investment can be enjoyed at a later stage.
What are indices?
In the world of finance, an index is a statistical measure of the change in a representative group of individual data points. It shows the trend of a market (economy) about its upward and downwards movement. It helps investors compare current price levels with past prices to calculate market performance. It is computed from the prices of selected stocks of some major companies and the investors can invest in a stock market index by buying an index fund.
For Example:-
NIFTY 50 – Index of some top 50 companies in India. It is abbreviated as national fifty or index of fifty. It is an index of NATIONAL STOCK EXCHANGE.
SENSEX – Index of some top 30 companies in India. It is abbreviated as a sensitive index. It is an index of BOMBAY STOCK EXCHANGE.
And many more like nifty200, nifty bank, nifty500, etc.
The regulatory body which controls the stock market?
SEBI(Securities and Exchange Board of India) – They is the one who makes the rules and regulation for the stock exchanges in India. They have the following power with them:-
To call periodical returns from stock exchanges.
To compel listing of securities by public companies.
To levy fees and other charges for different transactions.
To grant approval to a by-law of stock exchanges.
To control and regulate stock exchanges and to direct inquiries.
To make or amend the by-laws of recognized stock exchanges.
To grant registration to market intermediaries, etc.
Busting the myths of the stock market:-
“Over the years, it has been proven that equity has registered better returns as compared to other asset classes such as government-backed securities, debt investment, fixed income securities, etc.”
Investing is gambling – In reality, Taking an investment decision without examining the underlying asset could be gambling concerning any asset class. Along with analyzing the stock trading patterns, investors should also, focus on the business of the company and other factors affecting the business before buying a stock or a share.
Investing requires huge money – A person believing in such stuff might not be able to start anytime. Stock market investing doesn’t require a large sum of money, however, it requires a long-term vision, dedicated investment plan, and discipline. An individual willing to invest in the stock market can start with a minimal amount by selecting a discount broker accordingly as per the requirements.
Stocks going up are always a good coincidence - It is not necessary that stocks and equity assets that are going up might turn a good bet all the time. A share that has run-up more than 100 per cent or more than 50 percent in a respective year doesn’t guarantee to deliver the same return in the future also.
Investing needs in-depth knowledge - Investing doesn’t require in-depth knowledge. A person who is good at basic mathematics may turn out to be a great investor if an individual can gauge the fundamental value of an asset. Trading data and analysis tools are now available for personal usage.
Examples based on real facts:-
Mr Porinju Veliyath:-
An Indian investor and fund manager who manages his own portfolio and the portfolios of investors in his fund management firm Equity Intelligence India Private Limited. Is now a well-known value investor in India (He has been called a small-cap czar).
Comes from a very poor family in Kerala.
Struggled for education due to financial conditions.
Joined Ernakulum Telephone exchange as an operator.
Then completed his Law Graduation then worked in various securities in India.
After getting some experience and started his own venture Equity Intelligence Private Limited.
List of successful billionaire Indian investors:-
- Mr Rakesh Jhunjhunwala (CA).
- Mr Ramdeo Agarwal (CA).
- Mr Parag Parekh (M.COM).
- Mr Vijay Kellia (B.COM).
- Mr Radhakrishnan Damani (Undergraduate).
- Mr Porinju Veliyath (Law Graduate).
- Mr Ramesh Damani (HR Specular).
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