Share Market Basics & fundamentals: Beginners guide for investment

 Share Market Basics & fundamentals: Beginners guide for investment

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Investing in the stock-market always scare too many individuals as there are lots of misconceptions, myths about the stock market. Many people said that it is gambling does not go for it. But is it a real thing? Unless and until you analyze yourself you will not believe that the share market is not gambling. It is one kind of business. But before investing in the share market let us understand its basics then you will realize the actual scenario.

Before going directly in to share market let us understand

What is share and how it is formed?

In India following types of business entities are available.

·         Sole proprietorship

·         Partnership

·         Private limited company

·         Public limited company.

The sole proprietorship is related to a single individual having a small business like a shop owner. He is responsible for all the profit or loss.

Partnership: Two or more than two persons who contribute to starting the business is a partnership. Whatever profit or losses in business will be shared by themselves as per their agreement. Here the investment amount is not large.

Private limited company: When two or more than two partners start their business with a large amount of capital and forms a company is a private company. All partners are responsible for profit or loss like in partnership only thing is here the investment amount is more than in partnership business.

Public limited company: Whenever any private limited company grows its business and require a higher amount of money or capital they can get it from bank/financial institute, but borrowing from bank/financial institutes require to pay the interest so they may feel to share some of the ownership to the public so that they can raise a large amount of money and implement their future plan for the development of the business. This is how share comes in the picture.

That means a share is a unit of ownership of a company that may be purchased by an investor. So for the investor who purchases the share gets the ownership of the company as per his percentage shares he is holding with him.

What is share market?

Share market is a place where shares are being sold or buy.

There are two types of share market.

1)      Primary market

2)      Secondary Market

Primary Market: Whenever any company go to the public for the first time by raising IPO (Initial Public Offer) as per SEBI’s rules, regulations, and guidelines. It is done in the primary market means the company directly sell their share to investors.

Secondary Market: After listing the IPO, Traders are transacting between themselves to buy or sell the shares in the secondary market i.e. on the stock exchange. Means people are buying or selling the shares between themselves on the stock exchange. This means they are not dealing with the company directly like.

These shares are traded on NSE or BSE. (These are two primary stock exchanges in India) i.e Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These are regulated by Securities and Exchange Board of India (SEBI).

The first stock exchange was formed in Europe in the 16^th and 17^th centuries. But they were interested in bond selling or buying and not equity.

In the 18^th century the first stock exchange was formed in philipadia America were they allowed to sell or buy shares. The NYSE (New York Stock Exchange formed in 1792.

What is SEBI?

It is a central government-approved body that controls the stock exchanges from any fraudulent transactions or any activities by any parties or company. This was established in 1988 and given statutory power in 1992 through the Sebi act 1992.

Stock Exchanges in India.

NSE

Nation stock exchange established in 1992. Here more than 2000 companies are listed.

BSE: Bombay stock exchange is established in June 1875. and 5000 companies are listed here.

The all-share transactions are done through Demat Account which is compulsory.

The Demat account which holds all your shares, bonds, mutual fund in electronic form i.e. dematerialized

A form like a bank account and these are maintained by CSDL or NSDL. All records are maintained by these two depositories in electronic form.

How the share transactions processed?

Though the share transactions are done on the stock exchange but they are not able to manage all transactions hence here the broker comes in picture.

The broker is SEBI registered representative or financial advisor who carries all buying and selling of shares on behalf of the client by charging the brokerage charges. 

There is another type of broker who is not a registered broker but acts as the agent of the registered broker

There are again two types of broker 1) Full-service broker 2) Discount broker

Full-Service Broker: Who gives all financial transaction services and keeps following with clients but there brokerage charges are higher.

Example: ICICI Direct, HDFC Securities, Share Khan, Motilal Oswal, Ventura, Angel Broking, etc.

Discount Broker: Who just guides online and do not follow up with the client, where the client is responsible for all transactions. Their brokerage charges are lower compared to a full-service broker.

Example: Zerodha, RKSV, Paisa.

The share processing is carried out through three accounts .i.e. Bank Account, Trading Account, and Demat Accounts and these are interlinked with each other. As you buy any share the funds from bank account will be transferred to trading account and shares will be transferred to Demat account by the broker and vice versa for selling off the shares.

Indian stock market timing:

Start 09:00 end 015:30 hrs.

Pre-open trading session starts from 09: 00 to 9:15 where no transaction takes place only orders are placed in NSE or BSE on 50 stocks of the NIFTY index. And normal stock trading option starts from 09:15 to 15:30 hrs.

What is SENSEX?

Sensex is an indicator of performance of top 30 companies from all sectors listed in Bombay stock Exchange calculated on the average of these 30 companies.

NIFTY is an indicator of performance of top 50 companies from all sectors listed in National stock Exchange calculated on the average of these 50 companies.

Sectors defined in the stock market:

1)      FMCG

2)      Bank

3)      Auto

4)      Pharma

5)      IT

6)      Metal

7)      Media

8)      Reality

9)      Oil & Gas

10)  Telecom

11)  Health

12)  Power.

Index i.e. Sensex or Nifty is also defined on Market Capitalization

Market Capitalization of any company is means the= share price X share price.

1)      Large Cap 2) Mid Cap 3) Small Cap

Large Cap: the Company whose market capitalizing is more than 20000 cores

Mid Cap: the Company whose market capitalizing is more than 5000 cores and less than 20000 cores

Small-Cap: the Company whose market capitalizing is less than 5000 cores

Basics of Trading

Trading is done in two types 1

§  Equity

§  Derivatives

1.      Future

2.      Option

§  Call

§  Put

Equities are for any numbers from one number to the max.

Derivatives are derived from equities but in derivatives a certain number of equity lot is decided.

Common Terms used in Shares Market.

Stop Loss: A predefined order to sell the stock when it reaches a particular value of the stock this is to limit the loss or gain.

Intraday: When any share sells on the same day it is called intraday.

Delivery of Share: When you buy any share it will get deposited in your Demat account after two days (T+2 days) this is because of the transaction time period from transferring from one account to another account. This is called the settlement period.

BTST: Buy sell today and sell tomorrow is called BTST

STBT: This is related to the derivative. Sell today and buy it tomorrow. This is not possible in cash market.

Bonus Share: If the company makes more profit than expected then it may decide to issue bonus shares to the existing shareholders to increase the dividend pay-out.

Dividend: If the company makes a profit and if it has sufficient capital for further improvement then board of directors can decide to give part of the profit in cash to existing shareholders.

Stock-split: Whenever the company wants to increase transaction in share market in order to increase the liquidity, then it may decide to split the share face value. This will increase the number of shares. This mostly happens when the share price of the company goes high, in that case, people are reluctant to transact at a high price and if the company splits the stock resulted in an increase in number of shares and this will lead to a reduction of share price in that case many people can transact in the share market. But this does not affect the market capitalization value.

Bull and Bear Market:

if Sensex or Nifty is expected to go on the higher side then it is called a Bullish market and if Sensex or Nifty is expected to go on the lower side then it is called as Bearish  market.

Same fundaments applicable to stock price if the stock price is expected to rise then it is called bullish and if it expects to on lower side then it is called bearish stock price.

Market Trend: The market direction tells us the market scenario.

52 weeks High and Low: If the share price increased to the highest the level at which it has traded during the previous 52 weeks level then it is called 52 weeks high and if it reaches to lowest level l at which it has traded from the previous 52 weeks level then it is called 52 week low.

All-time High/Low: The highest traded value ever since the listing of the share is called All-time high. And the lowest traded value ever since the listing is called all-time low.

Upper Circuit: The stock exchange set the price limit for all the individual shares on the given trading day. The low as well high limit varies from 2%, 5%, 10% or 20%. It is decided by stock exchange selection criteria. Whenever the highest price of that share reaches it is called the upper circuit and whenever its lowest price reaches it is called a lower circuit. This is for the particular trading day only.

This is to restrict the high volatility of the share market whenever any news gets published for that particular stock.

Volume: Volume indicates the total transaction which includes buy or sell of a particular stock on a particular day.