What is stock market?
The stock market is where investors buy and sell shares of companies on an electronics platform. It's a set of exchanges where companies issue shares and other securities for trading.
The place where buy and sell of a company share happens is called Stock Exchange.
In India, two major stock exchange is National stock exchange (NSE) & Bombay stock exchange (BSE). In practice, the term "stock market" often refers to one of the major stock market indexes, such as the Nifty or Sensex in the case of Indian stock market.
Nifty consists of 50 major companies of Indian economy from different sectors. While Sensex consist of 30 major companies of different industries of Indian economy. These two indexes represent large sections of the stock market. The performance of the indexes is viewed as representative of the entire stock market.
What is Stock?
When a company sells a part of ownership, it comes to stock exchange & issues shares to many people to raise money for their growth & expansion. This process of issuing shares to public is called Initial public offering, or IPO. This is also known as Primary market.
In a nutshell, a stock represents an ownership share in a company. When you purchase a public company's stock, you're purchasing a small piece of that company. Stocks are also called Shares or Equity.
If a company has a total of 100000 shares and you own 1000 shares, it means you owned 1% of the company.
How does Stock Market work?
When a company wants to grow & expand its business, it requires huge capital. To raise such money, any company or organization comes to stock market to sell its part of ownership to the large public. The process of issuing shares to large public is called Initial Public Offering (IPO).
After issuing its shares to the public for the first time, it is listed in the stock exchange for trading.
What is IPO?
When a company, first time issues its shares to large public it is known as Initial public offering (IPO). It is the process through which a private company becomes a public company.
When a company brings an IPO, they offer to sell part of its ownership to large public by issuing shares at a fixed price range. It is a direct contract between company & buyers of the shares.
The IPO process is carried out in Primary markets. After allotment of shares in IPO, it can be sold only in secondary market after listing of the company in stock exchange.
What is Primary Market & Secondary Market?
The primary market is where securities are created, while the secondary market is where those securities are traded by investors. In the primary market, companies sell new stocks and bonds to the public for the first time, such as with an IPO.
In the primary market, the investor purchases shares or bonds directly from a company in a one-time transaction; in the Secondary Market, investors buy and sell the stocks and bonds among themselves.
Secondary markets are primarily of two types – Stock exchanges and over-the-counter markets. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are examples of such platforms.
What are different types of stocks?
There are different types of stocks but major classification is Common Shares & Preferred Stocks.
Common shares may be classified as Growth stocks, Cyclical stock, Non-cyclical stocks, Value stocks, Dividend stocks, Income stocks, Undervalued stocks, Large-cap stocks, Midcap stocks, Small-cap stocks, Penny stocks, Bluechip stocks etc.
Common Shares: Most stocks that people buy and sell are common stocks. It represents partial ownership in the company with unlimited potential to upside but with very high risk.
Preferred stocks: Preferred shares give shareholders a preference over common shareholders to get back a certain amount of money if the company dissolves. Preferred shareholders also have the right to receive dividend payments before common shareholders.
What are Large-cap stocks, Mid-cap stocks & Small-cap stocks?
Stocks get categorized by the total worth of all their shares, which is called market capitalization. Companies with the biggest market capitalizations are called large-cap stocks, with mid-cap and small-cap stocks representing successively smaller companies.
One often-used rule: stocks with market caps of Rs.10000 Cr or more are large-caps, Rs.5000 Cr to Rs.10000 Cr are mid-caps, and below Rs.5000 Cr are small-caps.
Large-cap stocks are generally considered safer and more conservative, while mid-caps and small-caps have greater capacity for future growth but are riskier.
What are Growth Stocks?
Growth stocks are shares of companies that are expected to grow at a significantly faster rate than the rest of the market. Growth stocks usually do not pay dividends as the growth strategy requires reinvestments of profits.
What are Values Stocks?
Value stocks are seen as more conservative investments. They're often mature, well-known companies that have already grown into industry leaders. With reliable business models that have stood the test of time, they can be good choices for those seeking more price stability.
What are Safe Stocks / Defensive Stocks?
Safe stocks are stocks whose share prices make relatively small movements compared with the overall stock market. Also known as low-volatility stocks, they often operate in industries that aren't sensitive to changing economic conditions and often pay dividends.
What are Dividend Stocks?
A dividend stock is a publicly traded company that regularly shares profits with shareholders through dividends. These companies tend to be both consistently profitable and committed to paying dividends. Generally low growth stocks pay high dividends.
What determines the share price?
Company news, industry news, sector news & overall market sentiment influence the company price in short term. As a result, stock prices go up or down because of supply and demand.
The most important factor in determining the price of any stock is the future earnings and profits that the company is going to generate.
What are the benefits of Stock Market Investment?
The stock market is one of the most potential & rewarding places to invest money. Key benefits:
a) Investment gains / Capital appreciation — The stock market tends to increase in value over time, and investments in solid companies can help investors make profits.
b) Dividend income — Some stocks provide income in the form of a dividend and deliver annual returns to investors.
c) High returns potential — Hundreds of stocks have generated even 10 to 100 times returns for investors over the long term.
d) Ownership in the company — Shareholders vote on corporate board members and certain business decisions.
How to get started in Stock market?
Once you have decided to step into stock markets, the first step is to open a Demat and trading account. You can open a Demat account with India's largest discount stockbrokers like Zerodha, Upstox or Angelone.
The next step would be to start learning about how to select good companies for investing. You can also go for buying mutual funds instead of directly buying shares if you want to start safely.
FAQs
Why Should I invest in Stocks?
Benefits of investing in stocks: a) Safety of the principal sum invested in long term, b) Regular dividends, c) Liquidity — any time you can sell it, d) Capital appreciation, e) Remain always ahead of inflation, f) No other asset class can give returns of 15-17% in long term.
What is Indian stock market time?
Indian stock market time is 9.15am to 3.30pm.
Is it good to invest in growth stocks?
Investment in best growth stocks is undertaken to ensure wealth accumulation through large scale capital gains. Such companies exhibit a higher expansion rate than the underlying industry.
Are growth stocks high risk?
Investment in growth stocks can be risky. Because they typically do not offer dividends, the only opportunity an investor has to earn money is when they eventually sell their shares.
Should I invest in dividend or growth stocks?
If you are looking to create wealth with a longer time horizon, staying invested in growth will enable you to enjoy longer returns. But if you are looking for steady cash flow, dividend investing could be the best choice.
What are blue chip stocks?
A blue chip stock is a huge company with an excellent reputation. These are typically large, well-established, and financially sound companies that have operated for many years with dependable earnings, often paying dividends.
Is a stock dividend good?
Dividend investing can be a great investment strategy. High Dividend stocks have historically outperformed the Nifty 500 with less volatility because they provide two sources of return: regular income from dividend payments and capital appreciation.
What Instruments are traded in the stock markets?
There are different types of instruments traded in the stock market. They are stocks (Equity), Commodities, currencies, ETF, IPOs, Mutual Funds, Futures, and Options.
Who is Stock Broker?
A stockbroker is a mediator between a buyer and a seller. He also gives financial advice to its customers as to how and where to invest their capital. A stockbroker is an authorized member of the stock exchange and is registered with SEBI.
What is the face value?
Face value is an initial value of the shares decided by the issuer to analyze the growth and needs on the balance sheets.
Which are the best app & website for share market?
Moneycontrol, Investing.com, BSEIndia, NSEMobileTrading, Economic Times, Money Tree Robo.
Why is market going down?
A stock market collapse typically occurs when the economy is overheated, inflation is rising, market speculation is rampant, and there is significant uncertainty about the path of an economy.