What is Share Market? Indian stock Exchange, Sensex and Nifty

 

Hello dosto, This is my fifth blog and in this blog you will get to know what is share market, How does it works? What are it's advantages and disadvantages? And how you can invest in it? Let us find out more about share market.

What is Share Market?

Share market, stock market or equity market - all three mean an equivalent . These are market where you can buy or s a company's shares .

Buying share of a company means buying some percentage of of that company that is , you become the holder of the percentage of that company . If that a company makes a profit , some percentage of that profit would also be given to you . If that company incurs a loss,  a percentage of that loss would even be borne by you . For example - presume you have to establish a start up , you have 10000 rupees that's not enough . So ,you asked your  friend to invest another 10000 rupees and offer him a 50-50 partnership. 

So, whatever your company earns profit in future , 50% of it would be yours and another 50% would be your friend's . In this case you have given 50% of the share to your friend in this company. The same things happens on a large scale in the stock market . The sole difference being , instead of going to your friend , you attend the whole world and invite them to shop for shares in your company. 

History of Share Market

The origin of share market was around 400 years ago . Around the 1600s, there was Dutch East Indian company like the British East India company . There was an identical company in the country of Netherlands today, known as Dutch East india company . In those times people used to indulge in lots of exploration using ships. The entire world map had not yet been  discovered so, the companies used to send ships  to discover new lands and trade with far away places . The journey used to be over thousands of kilometres abroad the ship. Huge amount of money was also required for this . Not one person possessed such amount of money individually in those times . So , they publicly invited people to invest money in their ship. 

When these ships would travel long distance so as to go to other land and come back with treasures from there. They were promised a share of these treasures eventually. But this was a very risky affairs because during those times , more than half of the ships failed to come back . They got lost or broken down or got looted . Anything could happen to them .

So , invester realised risky Nature of this enterprise  . So, instead of investing in a Singal ship , they preferred to invest in 5-6 of them so, that atleast one of them had a chances of coming back . One ship adjust to approach multiple investors for money . So, this created a bit of a share market . There had been open biddings of the ship on their docks.

Gradually , this technique became successful because the cash crunch faced by the companies was supplemented by the folks . And a common people got the chance to earn more money . You must have read in the history books about how rich East India company and Dutch East India company became during those times . 

Today each country has its own stock market and every country has become greatly dependent upon the Stock Exchange . 

What is Stock Exchange

Stock exchange is that place , that building where people buy and sell shares of the businesses .  The market are often divided into two types -

1. Primary Market 

2. Secondary Market

Primary Market is where the businesses sell their shares . The companies decided what exactly would be their share prices . Although some regulations are there in this too. The companies cannot manoeuvre too much because a lot of its depend upon the demand,  how much price are the people willing to pay for the company's shares . If the value of the company is 1 lakh rupees , it sell 1 lakh of its share and offers share at 1 re per share . If it's demand is high and lot of people want to it's share , the company would obviously be able to sell its share for a higher price. What the companies do  nowadays  is decide upon a range , there's maximum and minimum price . They plan to sell their shares within that range . When companies sell their shares within the share market, they never sell 100% of them . The owner always retains majority of the shares to stay possession of his deciding power . If you sell all the shares then all the buyers of the shares would become the owner of the company . Since all of them become owners, all of them can take decisions regarding that company. The individual who has more than 50% of the shares would be able to make decisions regarding the company. Therefore , founders of the company like better to retain more than 50% of the shares . 

The people that have bought shares of the company can sell it to the other people . This is called secondary market where people buy and sell shares amongst themselves and trade in shares . In the primary Market, the company set the price of the shares . The companies can't control the price of the shares in the secondary market. The shares price depends upon the demand and supply of the shares . So, the price of the shares fluctuates depending upon the demand and supply. 

Indian Stock Exchange 

There are two popular stock exchange in india one is Bombay stock exchange which has around 5400 registered company   and other is National stock exchange that has 1500 registered companies. With so many companies registered in stock exchange, if we want to observe overall , wheather the price of the Shares of the companies are moving up or down.

How do we view this ?

To measure this , some measurements have been put in place that is " Sensex and Nifty".     Nifty consists of 50 selected stocks from the top 50 companies and it shows the price fluctuations of the shares of the top 50 companies listed on NSE. Sensex shows the average trend of the top 30 companies of the Bombay stock exchange whether the Shares of the companies are moving up or down. The full form of Sensex , that is "sensitivity index"  displays the same .

How to sell yours company's shares?

If a company wants to sell it's shares on the Stock exchange then it is termed as 'Public Listing'. If a company is selling its shares for the primary time , then it is called " initial public offering". During the days of East india company , it was very easier to get this done, anyone could sell  the Shares of their company to the public. 

But today , this procedure is very long and complicated because it is easy to scam the people . Anyone could get listed on the stock exchange with a fake company and exaggerate the worth and achievements of its company . They might mislead the people and the people would foolishly invest in his company . He then could abscond with the cash . So, it's become extremely easy to scam somebody . India in its history, has been a witness to a lots of scams like these . For example- Harshad Mehta Scam , Satyam scam and many more. So , as and when these scam happened , the stock exchange realised  that they need to make their procedure strong and scam proof.  For this the rules and regulations were made stronger due to they are very complicated rules today. To protect the investors from this scam SEBI was established.

Security and Exchange Board of India

SEBI is a regulatory body that looks into issues like which companies should be listed on the stock exchange and whether it's being done in the right manner or not . SEBI was found out with the most purpose of keeping a check on malpractices and protect the interest of the investors and to encourage the development of stock exchange and to manage the activities of stock market. 

How can you buy shares

During the time of East india company, one could go to the docks where the ships departed from and indulge in bidding and buy and sell stocks . Before the dawn of internet, one had to physically attend the Bombay stock exchange building to do this . However with the internet in place you merely need three things that is 

1. A bank account 

2. A demat account

3. Trading account

Bank account because you would need your money , a trading account to allow you to trade and invest money in company and a Demat account to store the shares of the company that you buy in a digital form . 

Tody Most of the banks started offering 3in 1 account  . 

People like us would be called retail investors, that is common people  who want to invest in stock market. A retail investor always requires a broker for some help . A broker is someone who brings together the customer and therefore the seller .

For us brokers could be our banks, third party app or even any other platform. When we invest through a brokers in the stock market, a broker retains some money as a commission . This is called "brokerage rate". Banks mostly charge brokerage rate of around 1% . But 1% is little high . That's not what proportion it should be . If you look properly , you would discover platforms  that charge a brokerage rate at around 0.05% or 0.1% . This brokerage rate is disadvantage for those who wants to indulge in lot of  trading of stocks . 

Should you invest in Share Market?

An important question arises is whether you should invest money in Share Market?

A lot of individuals compare it with gambling because tons of risk is involved in it. And it is correct to say because this is indeed some sort of gambling . If you are not aware of the type of company ,its performance and the parameters of the company and its financial records. If you don't observe it's history and accounting information then , in a way this is a kind of gambling. Because you'd have no idea of how the company would perform within the future. You ought to never do that because it is extremely risky. 

And obviously, when there are people that do this job day in and day out, for example - the traders , who are the expert in this field and have more knowledge about the Stock market. They obviously would outperform the others because they need a thought of how this all works . 

So, you should never Directly invest in Share Market and instead rely on the experts .

If you felt like you have learnt something form this blog then , share this . Write down in the comments to let me know whether you find it useful or not.

Thank you .....