Each one of us wants to invest money to yield maximum profit from it. The best and fastest way of making profits is through investing in the share market. But If you invest with half knowledge or more worse without any knowledge at all then you will surely have to bear major losses. It is certainly not to be performed on luck basis, you need to understand and study the trends to come at a conclusion about where to invest your money. Moreover, you have to be very precautious and should focus on studying the stock market trends on a regular basis which will make you a good investor.
This is an introductory blog for people who don’t know the basics of the share market but want to start their journey and also for those people who want to clear their basic concepts. You are at the right place to start with your basics and I welcome you towards your share market journey.
What is a Share?
Let’s consider an example that will give you more clarity about this topic.
Suppose you own a company that has multiple products and it is currently making a lot of profit. The valuation of your company is 100 crores. So, you decide to expand your company, but for the expansion, you need 50 crores more. As an owner from where you can bring this amount?
One way would be to break your company into smaller sections according to the valuation of the company and sell some parts of your company to people. The money you get from these people can be invested again in your company for further advancements. In our example, it means that the owner will have to sell 1 crore shares of his company at the cost of Rs. 50 per share, which will give him his 50-crore amount.
People buy some percentage of the company which makes them the partial owner of the company by a percentage of the amount they have invested in. To summarize, I can define shares as a unit of ownership that people have in the company. Ownership will be proportional to the percentage of shares each person owns.
How people are benefitted by investing in company shares?
People buying shares have benefited the company for their growth, but how people are going to avail profit from this? Does it mean that if the company makes any profit in the future some percentage of profit will be given to their investor directly? Well, the answer to this question would be No.
Let’s see then how shareholders can make profits?
- Selling their shares at a higher rate: Suppose if you have bought the share at say Rs. 50 each and if the company continues to make profits then the share prices may increase up to Rs. 60 or Rs. 70 each. In that case, you can sell your shares at the increased price rate and can earn profits from it.
- Dividends: Companies disclose their profits at each quarter and they offer some percentage of their profits to their investors. But it is not necessary that the companies will always grant dividends, some might provide and some won’t.
- Bonus Shares: Some companies offer bonus shares to the shareholders, so even using this you make profits.
What is Share Market?
As we already know by now what is a share now let’s jump into what is a share market? Suppose you want to buy a TV from a reputed company; will you go to the company directly to buy the TV? Of course not, you will go to the market and buy a TV from your desired company. Similarly, for buying and selling shares of any company there is a market established which is called a Share Market.
During the old days buying and selling of the shares used to take place using an auction method so investors use to be present at the venue. Nowadays buying and selling shares can be done from anywhere using a website or even mobile phones.
In conclusion, I can define Share Market as a platform from where you can buy and sell shares of any company.
How many Share Markets are available in India?
There are 21 share markets available in India which provides a platform to buy and sell shares. Maximum people use the 2 most popular and largest markets available. And even you should be using these platforms for buying and selling of stocks.
- NSE (National Stock Exchange)
- BSE (Bombay Stock Exchange)
Let’s compare both the major Share Markets in India
|National Stock Exchange (NSE)||Bombay Stock Exchange (BSE)|
|Established in the year 1992||Established in the year 1875|
|Around 1600 companies are listed||Around 5000 companies are listed|
|It is the biggest exchange volume-wise|
i.e. large volume of buying and selling
of shares takes place
|Compared to NSE, BSE conducts less |
volume of buying and selling of shares
|It is new compared to BSE||It is the oldest stock exchange in India|
|An index used by NSE is Nifty50||An index used by BSE is Sensex|
|It is located in Mumbai||This is also located in Mumbai|
New investors prefer trading in National Stock Exchange (NSE) as it handles large volumes of shares, but old investors still use Bombay Stock Exchange (BSE).
What are Stock Indices?
Loads of companies are listed on both NSE and BSE based on all of them it is very difficult to analyse the overall current trend. If any investor wants to know the basic current trend of the stock market, then that can be known by Stock Index. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) came up with a concept of Index, which considers only a few companies listed on their respective exchanges to know the trend. All the companies listed in NSE and BSE are sorted based on Market Capitalisation and top companies are only indexed to find out the overall trend.
Stock Indices: Nifty 50 and Sensex
National Stock Exchange (NSE) came up with the Index of the top 50 stocks listed.
So, if most of the top companies’ stock price goes up, then Nifty 50 index price will also go up indicating that the overall trend is positive.
Bombay Stock Exchange (BSE) came up with the Index of the top 30 stocks listed.
Similarly, as mentioned above if most of the top companies’ stock prices go down the Sensex index price will also go down indicating that the overall trend is negative or weak.
Both Nifty 50 and Sensex is used as a reference point to know the overall trend of the market.
Many companies’ shares are listed both in NSE as well as in BSE, but their prices may vary. It would be advisable to stick to only one stock exchange and perform your trades. Prefer NSE over BSE, since it is a newer exchange and also because it handles a large volume of trading.
Frequently used important terms in the stock market
- Share, Stock, and Equity: All these terms mean the same thing so they can be used interchangeably in this stock market world.
- Bears and Bulls War: Stock market is termed as the Bears or Bulls War in which Bear represents the downside of the market and Bull represents the upside of the market.
- Bullish: Upside trend of the stock is termed as bullish
- Bearish: Downside trend of the stock is termed as bearish
So, if anyone says that the stock was bullish today, they mean that it was on the upside and if anyone says that the stock was bearish today then it means that it was on the downside.
I hope by now you have a clear picture of what does share and share market means. Also, we have covered all the basic concepts and terminologies used in stocks. This should be sufficient enough for you to get started with your stock market journey. Stay tuned for more such detailed blogs.
Till then keep learning 😊