Stock Market Basics: How Share Market Works In India

In the stock market, a share is not a physical share. It is a unit of ownership in a company. A company can issue any number of shares to meet its financial requirements. To buy or sell a security, one needs to get in touch with a broker or an exchange. The share price can either rise or fall depending upon the demand and supply of stocks.

What is Share Market?

Share market, also called the stock market, is where people and institutions buy and sell shares of companies that are publicly listed. It provides a marketplace for trading ownership stakes in these companies allowing investors to participate in their growth and profits. Transactions in the share market can occur through stock exchanges like NSE or BSE in India which facilitate the buying and selling process. Share market helps companies raise capital for expansion while offering investors the opportunity to earn returns on their investments. It is a vital component of the financial system, reflecting economic performance and investor sentiment.

What are Stocks?

Stocks represent ownership shares in a company. When you buy a stock, you acquire a small portion of that company, known as a share. Stocks are traded on stock exchanges and their value fluctuates based on the company's performance and market conditions. Owning stocks can provide investors with potential returns through price appreciation and dividends, which are payments made to shareholders from the company's profits. Stocks are a key component of the stock market, offering a way for individuals to invest in companies and participate in their financial success.

How can you invest in shares in Indian markets?

You can invest in shares in two ways. One is by subscribing to the initial public offering (IPO). In this case, you will need an investment amount of Rs 2 lakh or more.  

The other way is by subscribing to the follow-on public offer (FPO). In this case, you need to have an investment amount of at least 1 lakh rupees.

Upcoming IPO is a list of the companies you can choose from and invest in after completing your due diligence and performance analysis of the respective companies. 

As a shareholder, you are entitled to get dividends every year based on the profits earned by your company. You will also get voting rights to elect board members in your company or decide on critical corporate decisions like mergers and acquisitions. 

The price of a share changes every day in the stock market depending on demand and supply for that particular company. The price at which it changes is called the closing price. 

Which are the fundamental entities available in Indian Stock Markets?

The market capitalisation of Indian stock markets crossed Rs 260.78 lakh crore in September 2021, making it one of the largest stock markets globally. Though the number of listed companies remains small compared to the USA or China, they are relatively more liquid and serve as an essential source of funds for corporations looking to expand operations.

The share market is divided into three distinct entities - primary markets, secondary markets and stock exchanges. While the stock exchanges are open to participants throughout the year, the primary markets are only available during IPOs. The NSE is India's largest stock exchange, with over Rs 2.27 trillion crore market capitalisation.

Source: Economicsdiscussion

The BSE has a market capitalisation of over Rs 3.4 trillion crores, making it the largest stock exchange in India. There are several other smaller stock exchanges in India, including those run by states like Gujarat, Tamil Nadu etc. 

The stock market has been an essential part of the economy since the early development stage of India. It provides an efficient capital distribution system to corporates and contributes to developing new businesses in the country. The market has been witnessing growth, with several new companies going public.

Beginner's Guide to the Indian Share Market

While purchasing shares, you should be looking at how much dividend income does this company give out? What are the fundamentals of this company? How does this company improve its performance over time? One should also consider how expensive or cheap this stock is right now? 

For a newbie, there are many things to learn and do when you start trading in the share market. Here we will discuss the basic principles and the process of buying and selling shares. 

The people who buy and sell shares are called Share traders. While buying, they purchase the right to own the company's assets and earnings for a certain amount of time. During this time, they get dividends that come out from the earning of the company.

There are three types of shareholders: 

1) Face Value: These shareholders buy shares at their face value, which means the company's price at which they were offered to them, which gives no future benefits. 

2) Direct Benefit: These shareholders get benefits such as coupons that offer extra dividends over and above their face value or get other benefits such as an annual meeting with top-level managers where they get to voice their opinions directly to them. 

3) Growth Option: These shareholders also get dividends, but in addition, they get extra benefits such as the opportunity to participate in a new program called the Guaranteed Growth Plan. Under this plan, they will vote on customers that will receive a more significant percentage of its profits.

Example of Share Value in Indian Stock Market 

The price (or value) of the share depends on the company's value and how many shares it has issued. Suppose Company A is making more money than Company B. In that case, its shares will be worth more - and so will your share in Company A.

The price goes up and down depending on what people think about the prospects for the company and what they believe its competitors are doing. The price is marked every day in newspapers or online trading; most importantly, it's marked at the end of every day when the stock market closes.

The closing price is used to calculate how much you would have made if you had bought a share earlier in the day and sold it at close - this is called profit or loss for that day. 

Wrapping Up 

The Indian share market is a fascinating field for all investors. It is a great place to invest your hard-earned money and earn excellent returns on them. The Stock Market is a great way to add to your wealth and investments. It provides a massive scope for trading in shares and capital markets, not limited to anyone.