A Shallow Dive Into Stock Market

To start with any kind of market, here stock market, first of all you must know what a market is. A market is a place where exchanges take place between parties, exchanges of any kind of goods, assets liabilities, etc.

A stock(also known as share or equity) is a fractional ownership in the company’s total numbers of issued shares. In simple words when a company needs to grow and they don’t have enough money then they issue company’s shares as assets to public by generating a face value. (A Face Value of the share is the nominal price issued by the issuer to the public, the actual price of the share is much higher than the face value due to the addition of the company’s reputation which lacks physical touch and is very hard to evaluate(such as Goodwill: an accounting term that increases the cost of the corporation due to its reputation and name).

Let us look at an example : Suppose a company named “ABC” is a well going company has not much capital to fulfill its requirement also it does not want to conduct any funding round and does not want any burden of further investors, suppose it needs Rs.50,00,000 so it will issue 5,00,000 shares at a face price of Rs.10 to public through IPO(Initial Public Offerings : It is the launch in the stock market, when first time the company issues its shares to public) so by this Rs.10 face value the owner gets its Rs 50 lacks and the share owners gets the fractional ownership in the company’s price.

This example will be continued forward in another topic, do remember this….

Common Stock: In this the owners have voting rights and can be carried out at the time of corporate decisions.

Preferred Stock: In this the owners generally do not have voting rights.

With this as you know much about stocks or shares, now let us look to the stock markets…..

In the picture provided above, it shows NYSE(New York Stock Exchange situated at Wall Street, New York), it is the place(market) where traders sell and buy stocks. In India the biggest stock exchange markets are NSE(National Stock Exchange) and BSE(Bombay Stock Exchange). Earlier the traders used to exchange shares physically, but now the traders do this through internet.

BSE

NSE

In NSE there are more than 1500 companies listed and in BSE there are more than 5000 companies listed. The companies listed in these markets must have cleared SEBI(Securities and Exchange Board of India: It is responsible for maintaining rules and regulations in the trading of stocks and checks that no one is violating them) guidelines.

NIFTY and SENSEX are the indices for NSE and BSE respectively. The valuation of a particular market is measured by its index. NIFTY is measured up on the basis of performance of its top 50 companies and SENSEX is measured up on the basis of its top 30 companies. These companies changes on the basis of their performances.

With the performance of the listed companies the points goes up or down, when most companies perform well and gain profit the index goes up and when the day is bad for the companies the index goes down, and this draws up a similarity with life, as life is full of ups and downs and so does market.

Many of you may think that the companies provide profit to the stockholders from the profit that the companies earn, or provide share of profit to the shareholders that the companies earn, well this is not true in this case of equity share.

Let’s continue to the previous example…

So at the time of IPO as mentioned above the company issued 50,000 shares at Rs.10 each, now the company ABC gains profit and performs well financially and economically, and so its reputation and its income rises and due to this there is a demand of company’s shares in the market and due to this the price of the shares of company ABC increases to let’s say to Rs.12 per share. Let us consider a share holder Mr. X who has bought 100 shares at the time of IPO so he had bought the shares for

“Rs.10 x 100 shares = Rs.1000” now as that particular shares’ price is Rs.12 per share so the price of 100 shares now is “Rs.12 x 100 shares = Rs.1200” and with this Mr. X earns a profit of Rs.1200 — Rs.1000 = Rs.200. If Mr. X is satisfied and feels optimistic about the share’s price he will keep the shares with him, and if he feels pessimistic about the share’s price he will sell the shares taking his Rs.200 profit.

This might not be a topic to be covered separately but I think you must know these simple terms as you will hear these words regularly if you follow markets, and with this long description you might consider this less important and might forget.

Bull Market: When the market is going up or the indices are going up we call it as a Bull Market.

Reason: The horn of a bull is upwards and it attacks in upward direction.

Bear Market: When the market is going down and the stock prices are depreciating and indices are going down we call it as a Bear Market.

Reason: The claws of a bear are downwards and also it attacks in a downward direction.

Suppose you bought a dress from Lajpat Nagar Market(a shopping market in Delhi), so can I find the same dress in Sarojini Nagar Market(a shopping market in Delhi), the answer is Yes, can their price vary, the answer is again Yes.

Similarly the same company can be listed in different exchange markets, say in NSE and BSE, and their price may also vary depending upon the demand in that market.

The answer is again Yes. The stocks are stored in your DP(Depository Participant) Account or DEMAT Account and you can sell a stock in different market.

First of all you are required a Saving Account.

You need to link the saving account to DEMAT Account(DP Account). A DEMAT Account consist of all your shares.

You are required to create a Trading Account through which you will exchange shares and will be able to see your current status.

If you buy some stocks through your Trading Account the DEMAT Account will withdraw it from your Saving Account, and if you sell some stocks through your Trading Account and you are in profit, through your DEMAT Account your profit will be saved in your Saving Account.

You can start trading in stock market with any price even for Rs.500 but then you will buy stocks having low prices.

You can visit to Financial Brokers and with their consult you can buy or sell stocks into the market or to anyone else who is in contact with the broker and willing to sell or buy the same stocks as you do. For this the broker will take his commission.

YES, STOCK MARKET IS LITTLE BIT RISKY BUT IF YOU DON’T TAKE RISK TO EARN, THEN HOW CAN YOU LEARN.

So with this we end here.

More of these kind of blogs are coming, Stay Tuned Guys!

Thank You…

A blog by Shubhashish Sinha.

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