The share market in India, commonly known as the Indian stock market or the Indian equity market, operates similarly to share markets in other countries. Here’s an overview of the Indian share market and its components:
- Stock Exchanges: The two main stock exchanges of India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). These exchanges provide a platform for trading various securities, including stocks, bonds, derivatives, and mutual funds.
- Stocks: Stocks represent ownership shares in publicly listed companies. In India, companies list their stocks on the NSE or BSE after complying with regulatory requirements. Investors can buy and sell these stocks on the exchanges.
- Stock Indices: The two most prominent stock indices in India are the Nifty 50, which represents the performance of the top 50 companies listed on the NSE, and the Sensex, which represents the performance of the top 30 companies listed on the BSE. These indices serve as barometers of the overall market sentiment and performance.
- Securities and Exchange Board of India (SEBI): SEBI is the regulatory body responsible for overseeing and regulating the Indian securities market. It formulates rules and regulations to protect investors’ interests, ensure fair practices, and maintain market integrity.
- Brokers: Like in other stock markets, brokers play a crucial role in facilitating trades on the Indian share market. They act as intermediaries between investors and the exchanges, executing buy and sell orders on behalf of clients. Brokers are registered with SEBI and provide various services such as research, advisory, and trading platforms.
- Market Participants: The Indian share market involves various participants, including retail investors, institutional investors (such as mutual funds, insurance companies, and foreign institutional investors), traders, and market makers. These participants contribute to market liquidity and overall trading activity.
- Trading Mechanism: In India, trading on the stock exchanges takes place electronically through computerized trading systems. The exchanges operate during specified market hours, typically from Monday to Friday, allowing investors to place buy and sell orders. Orders are matched based on price and time priority to facilitate trades.
- Clearing and Settlement: After trades are executed, the clearing and settlement process ensures the transfer of securities and funds between buyers and sellers. Clearing corporations, such as the National Securities Clearing Corporation Ltd (NSCCL) and the Indian Clearing Corporation Ltd (ICCL), handle the clearing and settlement process to minimize counterparty risks.
It’s worth noting that the Indian share market is influenced by domestic and international factors, economic conditions, corporate performance, and regulatory changes. Investors need to stay informed, conduct thorough research, and understand the risks associated with investing in the stock market.
What is a share of a company?
A share is a stock, that represents a ownership in a company. As soon as you purchase shares of a company, you become a shareholder and have a proportional claim on the company’s assets, earnings, and voting rights in certain matters related to the company’s operations.
Shares are typically issued by public companies that have gone through the process of an initial public offering (IPO) or direct listing, making them available for trading on stock exchanges. However, shares can also be issued by private companies, but they are not publicly traded and are typically held by a limited number of investors.
The ownership stake represented by shares allows shareholders to participate in the company’s growth and financial performance. As the company generates profits, it may distribute a portion of those profits to shareholders in the form of dividends. Shareholders can also benefit from capital appreciation if the value of their shares increases over time, allowing them to sell their shares at a higher price than their initial purchase price.
Shares come in different types, such as common shares and preferred shares. Common shares represent the basic form of ownership and generally entitle shareholders to voting rights and a share of the company’s profits. Preferred shares, on the other hand, may have different rights and privileges, such as a fixed dividend payment or priority in receiving dividends or assets in case of liquidation.
Investing in shares carries risks, as the value of shares can fluctuate based on various factors such as market conditions, company performance, and investor sentiment. It’s important for investors to conduct research, diversify their investments, and consider their risk tolerance before investing in shares.
Debentures are a type of bond that is not secured by any assets. This means that if the issuer of the debenture defaults on their payments, you are not guaranteed to get your money back. However, debentures typically offer higher interest rates than secured bonds, as investors are taking on more risk.
Liquidity refers to how easily an asset can be bought or sold. A liquid asset is one that can be easily converted into cash without a significant loss in value. Shares and bonds are generally considered to be more liquid than other assets, such as real estate or art.
Here is a table summarizing the key differences between shares, bonds, and debentures.
Some of the most common terminologies of the share market
Bull market: A bull market is a period of time when stock prices are rising. This is typically associated with a positive outlook on the economy and corporate earnings.
Bear market: A bear market is a period of time when stock prices are falling. This is typically associated with a negative outlook on the economy and corporate earnings.
Market capitalization: Market capitalization is the total value of all the outstanding shares of a company. It is calculated by multiplying the number of outstanding shares by the current share price.
Dividend: A dividend is a portion of a company’s profits that is paid out to shareholders. Dividends are typically paid out quarterly, but some companies may pay them out monthly or annually.
EPS: EPS stands for earnings per share. It is a measure of a company’s profitability that is calculated by dividing the company’s net income by the number of outstanding shares.
Beta: Beta is a measure of a stock’s volatility. It is calculated by measuring the stock’s historical returns relative to the returns of the market as a whole.
PE ratio: PE ratio stands for price-to-earnings ratio. It is a measure of a stock’s valuation that is calculated by dividing the stock price by the company’s EPS.
Arbitrage: Arbitrage is the practice of buying an asset in one market and selling it in another market at a profit. This is possible when the price of an asset is different in two different markets.
Averaging down: Averaging down is a trading strategy that involves buying more of a stock that has already fallen in price. This is done in the belief that the stock will eventually recover and that the investor will be able to sell the stock at a profit.
Margin trading: Margin trading is a type of trading that allows investors to borrow money from their broker to buy stocks. This can be a risky strategy, but it can also be very profitable if the investor is correct about the direction of the stock market.
SHARE MARKET OF iNDIA
- National Stock Exchange of India(NSE)
- Bombay Stock Exchange of India(BSE)
These are just a few of the many terminologies that are used in the share market. It is important to understand these terms before you start investing in stocks. Investing in the stock market is a risky affair. One should have a thorough knowledge of the Share Market, before starting investment.
