Basics of share/stock market for beginners
What is exactly the stock market
This question comes in your mind when you hear…
If you had colpal / MRF in 1990s worth 1 lakh ..now you had Crores
If you had TCS stock in its IPO ( remember this word…IPO) worth 1 lakh …it would have been 13-15 lakhs.
Some dialogue in movies. someone lose lakhs of the amount in stock market
Or someone just triples the money in one day. Is it even possible? Do you think?
Then you try to watch the stock market channel but Ohhh Dear God. Scary diagrams like in below pictures, constantly moving prices, news, Global markets, Brent, gold price, and whatnot.
before learning the basics of the share market for beginners, I am hoping the above questions are part of your mind.
What is the stock market and why it’s needed ??
Now let’s make this simple. Imagine you have a business in Mumbai.Any legal business.
Hotel / Liquor / mining / IT company / Automobile / Tuition classes / Import & export / Agriculture production/ bank / Media channel / pharma company / Finance, as I said any legal company .now how u will generate money to expand your business from Mumbai to Pune or India or even another country??
You went to Bank. But they charging too much interest .plus what if you had a loss or any natural calamity like corona ??
Investment firm .that will minimize your risk but what if u generate profits.Some of or maybe Half of your profit goes to an investment firm. Your best efforts are not properly justified.
Now comes stock market part ..so Read very very carefully
Fundraising by the company in the Stock Market
This is just an example
If any business is worth 1 Crore .let’s say owners (the proper word is PROMOTERS) hold 70% of it .they will ask the public to invest in their company and allocate 30% of their business open for the public to invest in it… got it?. Yes, then let’s go ahead.
Now 30% of 1 Crore means 30 lakh is allocated to public .but they divided it into parts ( Shares ) .let’s say 30 × 1 lakh. Purpose to divide this amount so that all people can buy (no monopoly )
Now if each share price is 30₹ …for 30 lakh amount, we have a total 1 lakh share.
Let’s say the company has no loans, no civil or criminal cases, future contracts or orders, and ready. Fundamentally very strong company. So people will invest their money, means they will buy shares ..more n more DEMAND. what happens if there is more DEMAND? the price will fly like a rocket.
Now, as shares are going up so fundraising plan working. As I said earlier 70 lakh with PROMOTERS and 30 lakh with the public …
Meanwhile business is also growing. The business expanded so 70 lakh capital grows up. It becomes 1 CR 50 lakh. The stock market benefited Business
More demand for shares.30 × 1 lakh = 30 lakh grows up and the stock becomes 50 so 30 lakh becomes 50 lakh. Investors who are in the stock market as you and I got benefited.
Now we understand the concept of stock market .let’s get back to Reality and some terms ..
What is the Stock Exchange?
If you want to buy shares you can’t go to the office of Reliance or TCS there is a body that will monitor all activity, let’s say Intermediator between Business Promoter and Investors. That body is called Exchange.
Now there are 21 stock exchanges in India like Madras stock exchange, Madhya Pradesh stock exchange, Ahmedabad stock exchange, etc.
But two main stock exchange Important for us are
NSE ( National stock exchange ) formed in 1992.
BSE (Bombay stock exchange ) formed in 1875.
National stock exchange NSE was established in 1992 as the first dematerialized electronic exchange in the country.
Below is the Bombay stock exchange Asia’s Oldest Stock Exchange. Location Mumbai formed in 1875
Now you don’t have to go to Exchange to buy shares of the company..you have a Broker , someone who will help to form a bond between buyer and seller.
Example of Broker -: Zerodha, Upstox, Motilal Oswal, 5 paise, Angel broking etc.
Why you need NSE when you have BSE??
BSE was not computerized, It used to take Months to place an order, yes u read correctly, Months ..Broker used to shout like sabzi mandi. To buy shares there was a need to make the process faster and simpler
So came NSE in 1992 and also one electronic exchange in the country to simplify things. Also in the next coming years, BSE got computerized too.
Please read the article (basics of share market for beginners) up to here again if you understood then let’s go-ahead
What is a Demat Account?
The Full form of Demat account is a Dematerialized account in simple words. Dematerialized means Electronic, just like in bank you need Account saving or current just like that you need Demat account here.
who will provide it? Business ..Nope, not at all.
Exchange, no again.,
Broker, yes you guessed right .it’s Broker like Zerodha, Upstox, Motilal Angel Broking who open it for you. That’s where you buy and sell shares. Nowadays it’s so simple that you can also get more info on a stock. like High low it made on a particular day, Fundamental information on the company, pledged shares, data for the particular duration to do technical analysis of stock, Different Indicator for Analysis ( which we will study later )
You can open demat account using our link for free cash call and free stock portfolio review*
How much Market capital and the stock does the exchange have?
NSE -: Market cap: US$2.27 trillion (April 2018)
Location: Mumbai, India
BSE -: Market cap: ₹151,970.87 billion (US$2.1 trillion) (March 2019)
Location: Mumbai, India
Founded: 9 July 1877
( source Google )
Now comes the last part.for which you all are eager to know.
NIFTY AND SENSEX…
How do you know the Market is Up or market is down ?? what’s the measurement index ???
Will you check all 1900+ stocks in NSE or 5000+ stocks in BSE…no way
That’s why the Nifty for NSE ( National stock exchange ) made up of 50 stocks. Weighted average of 50 stocks in NSE and in almost 13 sectors ( metal, IT, bank, pharma, etc. )
And SENSEX ( Sensitive Index ) for BSE which is a weighted average of 30 stocks in BSE.
So it becomes simple now.
If Nifty / Sensex is UP .Market is up
If Nifty / Sensex is down .market is down
Now, how much money needed for you to buy or sell a stock?
There are stocks from 2-3₹ to 50k.most important is you check the past performance of company ..pledged money /shares, current scenario, quarterly results, and all other things. To put your Hard earned money at safe.
What I have seen so far newcomers look for small price stock to invest more and more into it and ignore high valuation stock due to less capital.
Do you really think, more stock price means more risk ??? If that so then what’s the price of coal, silver, gold, diamond ?? Same way in the stock market you will get the valuation.
There is a reason stock like HUL, TCS, Reliance, Asian paints, Maruti, Bajaj-Auto, BAJFINANCE, Bajajfinserv, Nestle are at a high price because people are buying it both short term and especially long term over the months or even years.
Will you put your Hard earned money as investment by buying coal as long term investment or gold ??
Or you wish to bet your money on coal that it will turn into gold one day. Personally I would not do that gamble and unfortunately, you realize it only after having a loss in your hands. So do check past records and rightful price.
Remember you buy Good fundamental stock when it’s not rising ., But when the world is fearful to buy And when the world is greedy time to book profits.
Police of the Stock Market
Last part guys, what if Business gave fake numbers or fake news to manipulate stock?
Or what if your broker cheats you?
Or what if the Promoter buys more and more to make the stock rise by spreading the good rumor of company?
That’s why there is one body called SEBI ( security and exchange board of India ) .this is the police of the Indian stock market to prevent all the fraudulent activities in the stock market.
IPO bole toh ???
If any business wants to get listed in exchange ( have its own stock ) .then it has to file for IPO .. the word we saw before ..it’s ( Initial Public offering )
There are a lot of strict conditions for this and it’s rightfully so or else there will be fraud activity.
Now let’s revise again what we learned in the basics of share market for beginners -:
Businesses want the public to invest in their company there comes stock /share and for its activity, we have stock market
Exchange act as Intermediator between Big company and Investors
BSE is Bombay stock exchange ..oldest in Asia but non-electronic.. parameter to measure its strength is SENSEX ( 30 stocks )
NSE is the National stock exchange. Electronic form ..came in 1992 ..to measure its the strength we have Nifty ( 50 stocks ) or it can be of 100 too
To measure sector strength ..we also have Nifty bank ( 12 bank stocks )
Nifty Pharma ( 10 pharma stocks ) etc….
The broker is the one who brings buyer and seller together ..help u buy or sell stocks ..but for that, you need Demat account.
( I am authorized sub-broker of Upstox ..by which u can open free Demat account)
IPO means the process through which Business or any corporation gets clearance to come into the stock market.
SEBI which prevent any fraudulent activities in the stock market they are the police of the Indian stock market
Guys, please do revise this again.if you don’t understand the basics of share market for beginners . In the next article, we will be going to study charts-in-stock-market Stay Tuned !!
Next article: Charts-in-stock-market