I think most of us will know about the stock market, but very few of us will be actively participating in it. Why? Is it because people are not interested in it? Or because of a lack of proper knowledge about the market?
Whatever it is, through this article we will try to get a proper understanding of the Indian stock market.
What is a stock market?
The definition of the stock market is "a stock market is a place where shares of publicly listed companies are traded".
There are two major stock exchanges in India, the National stock exchange(NSE) and the Bombay stock exchange(BSE).If you want to know more about the stock market, we need to know who are the main participants of the stock market.
Stock market participants
1. Publicly listed companies
Companies listed on the stock market are called publicly listed companies. Investment and trading take place in the shares of such companies.
At present, there are about five thousand companies listed on the Bombay Stock Exchange(BSE) and about one thousand six hundred companies listed on National Stock Exchange(NSE).
Why do companies list on the stock?
If a company with moderate growth wants to expand its business again, it may have to raise a huge amount. There are several ways companies can do this, For example, they can find another partner or take out a bank loan. In all of this, some kind of risk is involved.
Here the importance of the stock market comes into play. If a company is listed on the stock market, it can raise the required funds for the company by giving a certain percentage of the company's shares to the public.
Funds raised in this way do not require interest. Moreover, by buying the shares of the company, people also become a partner in the company so that the total risk does not come on top of the company.
This process of listing companies on the stock market is called an initial public offering (IPO).
Shares are digital documents that a company provides to raise funds from people through the stock market. The value of such shares is determined based on the valuation of the company. Not only company valuation but also market sentiment plays an important role in this.
How does market sentiment affect the value of shares?
For example, suppose a company decides to do an IPO, and then comes the news that another company in the market that is currently growing exponentially is trying to enter that field. This news may sometimes negatively affect the share value of the company that is planning to do an IPO.
Similarly, if the current situation is favorable for the company that intends to do an IPO, it will also lead to an increase in share value.
How to buy or sell shares?
We cannot buy or sell shares directly from the stock market, so we have to approach the stock brokers. Who is a stockbroker?
2. Stockbrokers
A Demat account and a trading account are required to buy and sell shares from the stock market, Stockbrokers help us with this.
The digitally formed stocks purchased from the stock market are kept in the Demat account. A trading account allows us to keep the fund needed to trade in the market. We can transfer the fund required for trading from our bank account to it.
Stockbrokers are depository participants, acting as agents for depositories such as CDSL and NSDL. It is in this depository that we create a Demat account that holds the shares we buy from the stock market.
Broking firms also operate under most banks. There are two types of brokers called full-time brokers and discount brokers.
Full-time brokers provide tips and active support to their customers. Therefore, their service charges are more than the discount brokers.
But for someone who has a rough idea of the market, discount brokers are enough.
Eg: Zerodha, Upstox, 5paisa, etc
3. SEBI (Securities Exchange Board of India)
The Securities Exchange Board of India (SEBI)is a government wing that controls all activities in the Indian stock market.
4. Investors
Investors are another important participant in the stock market. Investors activate the market by buying and selling shares.
Their goal is to make a profit, and for that, they buy stocks at a low price and sell it at a high price.
We see many types of investors in the stock market.
For example, Individual investors or retail investors, institutional investors, Mutual funds, Foreign investors etc.
Investors interact in the market in two ways, Either making long-term investments or making short-term trading. So they analyze the market in two ways.
The first is fundamental analysis, which is the process of analyzing a company's fundamental data. For example, it analyzes the company's revenue, strength, possibilities for exposure, and management, and then decides whether to invest or not.
The second is technical analysis, which is mostly used for short-term trading. Here find the current supply and demand zones of the stock and enter into a trade.
This article seeks to give you a brief overview of the Indian stock market. Not everything may be in it, but I believe it will help to get a little idea about the Indian stock market.