The share market commonly called the stock market is important in the context of the Indian financial system. It offers the firm’s a means through which they can solicit funds. It also offers the investors a place through which they can purchase shares in companies that are publicly traded. To make the right choice and manage your investments. Further, it’s vital to gain basic or additional knowledge on how the share market works in India. In this article we will discuss full details of the stock market.
What Is the Stock Market?
In layman’s terms, the stock market may be defined as a public or market where there is buying and selling of shares or stock of incorporated public companies. But more meaningfully, the Indian stock market provides an efficient means of channelizing funds from savers or suppliers of funds to borrowers or users. These funds are used by the corporations to expand, for research and other actualization efforts beneficial to the country’s economic contribution.
The stock market is governed or we can say regulate all works by SEBI in India. That guarantees equality and the prevention of fraud in share trading as well as the investors own rights. The two which are recognized are the National Stock Exchange of India Limited (NSE) and the Bombay Stock Exchange Limited (BSE). These exchanges are the marketplace where the acquisition of shares is as well as the sale is conducted electronically. Other small exchanges include Multi Commodity Exchange of India (MCX) and National Commodity and Derivatives Exchange Limited (NCDEX) which deal in commodity markets.
Types of Stock Markets
In India, the stock market consists of two main segments:
- Primary Market: Firms come to the market to tap the public for capital for the first time through a Floatation. IPO happens when companies offer its stock for sale to the public for the first time. In essence, investors are buying into the company.
- Secondary Market: While some of the shares are floated in the primary market others are traded in the second market also known as the secondary market. Special emphasis to the fact that investors can purchase from/out of other investors and sell to/out to other investors. These are carried out through the various stock exchanges for example the NSE and BSE.
How Share Market Works in India
If you are new and want to enter in the share market. But, you know how Share Market works in India If not. So, Lets me explain, that the stock market is supply and demand structured, or which dictates the price of stocks. That is, if demand for a particular stock is high, the price per stock increases while the demand decreases, the price decreases as well. Through stock trading, investors want to get rich quick by purchasing the stocks at a low price as compared to their sale at a higher price.
How to Enter in Stock Market
To participate in the Indian stock market, investors must open two accounts: A Demat account and a Trading account.
- Demat Account: This account has the shares in its electronic form. While the physical certificates are handed over to the investors, shares can be credited to dematerialized accounts for easy trading in shares.
- Trading Account: Through this account, an investor is in a position to make a bid or offer for a security. It can be associated with the investor’s Dematerialised account, thus the freedom to transfer between the two accounts.
Major Players of the Indian Stock Exchange
Several key players are involved in the functioning of the stock market:
- SEBI (Securities and Exchange Board of India): SEBI is the Indian regulatory body who looks into the activities performed in the stock market sector. They guarantee brokers and companies that engage in trading within the market adhere to appropriate and accurate standards. SEBI also has the objectives of protecting investors and the market from what may be regarded as manipulation.
- Investors: Bargainers are people or other structures, which purchase and sell securities in the stock market. Investors may be long-term investors, who are in need of capital gains, or daily speculators who wish to turn a quick profit out of the price variations.
- Stock Brokers: Stock brokers help the investor to engage in the business through representing them at the stock exchanges. They are SEBI registered which allows them to enable their clients to buy as well as sell shares.
- Depositories: Two major depositories are operating in India which electronically hold the shares namely National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). These depositories provide a Demat account which investors have to subscribe to in order to hold their shares.
- Clearing Corporations: These organizations play the central role of guaranteeing the execution of trades between a buyer and a seller. They ensure that securities and funds are passed in the right manner and if not the right time frame.
Role of IPOs
An IPO refers to a process by which a business organizes the sale of its shares in the market for the first time. In the case of a company that is looking forward to going public, it will hire merchant bankers, legal advisors, and some number of professionals in the IPO. The company registers the offer document with SECI, the important aspects of the company and the number of shares being offered are included in the draft offer document. However, After receiving SEBI’s sanction for the IPO, the authorized fraction of shares are issued to the investors and floated on the Stock Exchange. Once listed, such shares can be resold in the market commonly referred to as the secondary market.
Stock Market Volatility
Fluctuations in the stock market may be defined as the increased and frequent movements of the stock prices. High volatility suggests that the roll must be higher than the price, which is both good news for some investors or bad news for some as the stock’s price can change rapidly. On the other hand, low volatility refers to relatively smaller movement of prices in the differentiated products.
Main Factors of Stock Market Volatility
Several factors contribute to stock market volatility, including:
- Economic Indicators Liquidity: Changes in interest rates, inflation, or GDP growth can cut short investors’ feelings and result in fluctuation in the prices as indicated in the table above.
- Global Events: There are always market fluctuations due to political instabilities, calamities and other economic disturbances in the global market.
- Investor Sentiment: Realisations of news, rumors, or market gossip have a way of generating volatility in stock prices.
Ways of Investment in the Stocks Market
Stock market investment is a complex process that needs a lot of planning and strategies. Here are a few tips to consider:
- Research Before Investing: Every company stock must always be evaluated in terms of fundamental factors like company health, growth, and competitiveness before pure buying of the shares.
- Diversify Your Portfolio: They should not invest heavily in a single stock. It was also understood that spreading over various sectors and assets might help in managing risks.
- Invest for the Long Term: The general public may experience losses in the short run, however the long term investment as we see have a decent return.
- Stay Informed: Subscribe for the most recent release on company financial statements, annual reports or any updates in the market.
- Risk Management: Don’t ever put in your savings or money that is segregated for any purpose. To prevent large losses place stop loss orders to protect yourself from large dips in stock prices.
Conclusion
The stock exchange in India is one of the significance in the development of the nation as it offers financial resources for growth to various companies that why we have to enter in the Share market and but we ahve tot know that how share market works in India. It also provides an opportunity for investors to expand their cash rich through purchasing shares in these companies. It looks at the structure of the market for stocks, the part played by various market players, the chances of winning and the probability of losing.
FAQs About Share Market Works in India
Ans. The stock market is a platform where buyers and sellers trade shares of publicly listed companies. It helps companies raise capital and offers investors opportunities to grow their wealth.
Ans. In the primary market, companies issue shares for the first time through an Initial Public Offering (IPO). The secondary market is where these shares are traded between investors.
Ans. The stock market works on the principle of supply and demand, where the price of shares is determined by investor interest. Buyers and sellers meet through stock exchanges like the NSE and BSE.
Ans. An IPO (Initial Public Offering) is when a company offers its shares to the public for the first time, allowing investors to purchase ownership stakes in the company.
Ans. Market volatility refers to the rapid and unpredictable fluctuations in stock prices, often influenced by factors like supply and demand, investor sentiment, and economic conditions. It presents both opportunities and risks for investors.
