What is the share market? All of us want to invest in the share market. So, many questions come to our minds. How to invest? Why does the share market go up and down? We will know the answers to all these questions and much more in this post.
The Basic:
See, if you want to start a business and you need money for it. Then what method do you have to gather that money?
You can either ask your family for it or ask your other relatives. If you have savings, then you can invest from it or take a loan from the bank.
But If you want to start a business where a very large amount of money is needed. Like if you want Rs-5 crore then it is very difficult for friends or relatives to have this much money and they give it to you. Maybe the bank can give you one. But from the next month, the bank will start taking EMI from you. And sometimes just to get the business running to make the first profit, 1-2 years time is required.
So if you take this much money from the bank then how will you pay the EMI for the next 1-2 years? In this case, we also cannot take money from the bank. These types of businesses where lots of money is needed at the start but it takes a few years to make a profit. For these types of businesses, the option to take a loan from the bank is not right.
The second option is to find such a person or such an investor who is ready to invest in your business. And in return, you give them some partnership in your business. So in return for the partnership, they will give you money. And because they are also becoming an owner, they are buying a share of the business. So you don’t have to pay them the monthly EMI.
If the business makes money as you decided, that amount of profit is theirs and the rest of it is yours. So in this case, you don’t have to give that partner money until your business makes a profit. But if you want to take someone in your business for money then you won’t be doing the business alone you have to open a Partnership Firm. Where you will give them some share.
So you started a business on your own but because you need money and you cannot take a loan from the bank that’s why, instead of doing business alone you are now in a partnership. Now a partner has come, money has also come and your business is up and running now.
Now if you have to make this business bigger and not much profit has come yet. So now you need more money. Let’s suppose you need Rs-50 crore now at this time comes Venture Capital or Angel Funding companies. They are those specialized companies whose main work is to invest in other emerging companies if they are interested in investing in our company and when our companies become successful they make money by selling their stake.
So you will go to these companies. When you go to these companies for funding they will say “We don’t invest in a partnership, first you make your business into a company.” Because in a company buying and selling shares and increasing or decreasing partnerships is very easy. So any investment company, any Angel company will only invest in your business when it is in a company form.
Now you have to build a company. So you have taken him as a partner and in exchange you gave him 20% partnership in your partnership firm or your business. Also, you took Rs-50 crore from this Venture Capital Company, and in exchange, you also gave them 20% partnership.
Now your business is rapidly growing and some amount of profit is happening but as you have to expand you have to build your branches all over the country and you want lots of money together. So now you need Rs-500 crore. Now this much money that the Venture Capital fund will also refuse to give you and you still cannot go to the bank because you still not making that much profit so you cannot pay the EMI.
Now only one option remains for you. Take money from the public from people like you and me to take Rs-10,000, Rs-20,000 and by combining many people like this together that Rs-500 crore.
What is the share market?
Now here you will need the share market, here enters the share market importance. The share market is a way by which companies offer partnerships in their companies to the general public.
Take as much share as you want. So people invest in their companies and in return they get shares.
Investor’s benefit here is that, if I think that I want to make electric cars tomorrow then I would need a lot of money, I will need more expertise and a very big team. So I don’t have much money or expertise then instead of doing this business on my own, I can buy shares of an electric car-making company.
So through the stock market, I am doing my favorite business, by buying shares. I am becoming a shareholder in it which means I also became a kind of owner of that company. So share market gives an investor the option, gives the opportunity they can invest in their favorite businesses and become a part owner of those business.
The company brings money from the public saying “This is our company and this is what the business we do and these are our last few years’ sales and profit so we will sell one of our shares at this price.” So this whole detail is called Prospectus.
What is an IPO?
When a company brings its prospectus and gives that to the public and asks for money from them. That is called an Initial Public Offer (IPO). We hear this a lot in the news like this company’s IPO coming.
LIC, Indigo, D-Mart, and many companies’ IPOs have come in the past few years. IPO means taking money from the public for the first time. So if you have invested in a company through an IPO then the company got your money and you got that company’s shares.
But now, if after some time, after some months, some years. You want to sell those shares to get that money back. Then the company won’t give you that money. The company has invested your money to buy some plant or machinery. So the company won’t give you your money. Then in this case now comes the stock exchange.
What is a Stock exchange?
A stock exchange is a market where you can sell your shares to other investors like you.
In IPO you buy shares from a company and after that, you see every day the share’s prices going up and down you do buying and selling. That has nothing to do with the company they just one time took money from you and the company went to do its work.
The everyday ups and downs happen because people like you and me keep buying and selling many different company shares that we have; for this, the stock exchange is important.
If you want to invest money in Colgate you think that Colgate is a good company. Then IPO does not come every day Colgate’s IPO came one time and who knows when the FPO will come.
So in this case, if you want Colgate shares today then the stock exchange, exchanges like BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) will help you. So that you can from any other investor, millions of people buy and sell shares every day in the market.
So from anyone of them if someone wants to sell their Colgate shares then they will give a sell order on the stock exchange. I want to sell these shares at this price and that price will be seen on the market. So if you want to buy Colgate shares then you are also seeing that price in the stock exchange. And if you think that price is good then you will buy them.
So, because of millions of investors, this market runs well every day and the prices go up and down. So how can you buy and sell these shares? Can we buy it straight from the stock exchange’s website? No, if you want to purchase shares then you have to go to a share broker and you have to open a Demat and Trading account there. And yes you can do it from your computer or mobile at home.
What is the Demat account and trading account?
A Demat account is where your shares are stored. As your money is stored in your savings account like that in Demat, the shares that you have bought are kept there safely. It is like a locker for shares.
A trading account is one where you buy and sell. Your money will come and shares will go or shares will come and money will go. Where this transaction happens is called a Trading account. So both of these accounts can be opened at once at a broker.
Now how can you open these two accounts at the broker? So it is very easy and completely online and in 5 minutes your account is opened online. So there are many brokers in the market. Among them, my favorite is Zerodha because their app is very good and the transaction charges or brokerage is very low.
You will find the account opening page here…https://zerodha.com/?c=YM2291&s=CONSOLE you can immediately open your account by clicking on it and completing the sign-up process.
How to buy and sell shares?
Do you know the process of buying a share? How do people buy shares? So first when you want to buy a share you want to buy a total of Rs-20,000 worth of shares. You have to log in to your broker’s mobile app or website and your bank will be connected there When you open an account with them they will take your bank details and your bank will be connected from the broker’s app.
So first you have to bring Rs-20,000 from your bank to your trading account which can easily be done in one click. After that, you have to place an order, to place an order there are two exchanges in India.
Exchange means that you can think of it as a market where many people come to buy and sell their shares. So the two main exchanges are NSE and BSE. There are around 2113 companies listed in NSC and the Bombay Stock Exchange has more than 5000 companies listed. Many companies are listed in both of these exchanges.
So you can buy from any of them it doesn’t matter much. In the search bar of the broker app, you just put the name of the company that you are buying, like Colgate. Then its price will show up and you can buy or sell with just one click. This is a very easy process.
What is Sensex and NIFTY?
Now you have heard many common words in the stock market like Sensex and NIFTY or many times we read in the newspapers that today the market fell by 200 points, rose by 300 points. So what is the meaning of all these words? How the market does rise and fall? So what is Sensex?
Sensex is the index of BSE and Nifty is the index of NSE which tells people about the situation of the market today.
How do we measure inflation? We create a basket of things like potato, onion, sugar, salt, or 15-20 such necessary things and see the average price increase or decrease monthly or yearly. we don’t check the prices of all the things in the world only the necessary 15-20 things. So every month it’s checked how much the price has increased and according to that, it is assumed how much inflation has increased or decreased.
For that, how much the share market has risen or fallen for this, not all of the 5000 companies’ share prices are checked. Just the 30 big companies from different sectors of BSE like it can be a pharma company or an IT company or it can be an engineering one.
So a total of 30 companies from different sectors are gathered and every day how much have those 30 companies’ prices have risen or fallen their average is made and they tell that today the market fall by 300 points or 200 points. And it is being assumed that whatever is happening in these 30 companies from that it can be guessed correctly that what is happening in all the 5000 companies of the share market.
And like that, NIFTI is the name of the NSEs index which tells people what the share market doing. Because these are two different stock exchanges they both have their own index and their own ways to measure the share market’s situation.
Why do people buy shares?
Now the question is why do people buy shares? And how can you earn from shares? See, banks give loans because they charge interest against that loan, and that interest is their earning. But how do you earn in shares? People buy shares in the hope that as the company’s profit will increase in the future they will earn from it.
So my hope is that the company will make more profit in the future. But if the company makes more profit then what benefit will I get from it? Does the company give its profit to the shareholders? There are two ways to earn from shares.
First, the share price is increased which we also call Capital Appreciation. And second, the companies give Dividend.
When does their share price increase?
So, when do their share prices increase? See, if you bought a share for Rs-100 today and after some time it became Rs-200 then the difference will be the profit.
So how does the price increase? Let’s take a simple example of it. See in IPL which players’ values are the most? Which players are the most expensive at the auctions? Those players whose performance is good are very good players. Like that, in the share market, those share prices will rise which makes more profit every year, every month. So as the profit increases the share price will also increase in the long term.
So an investor’s biggest aim is they search for those companies in the market whose profit will increase further ahead. And the second way is Dividend. Dividend means that the company’s own profit is distributed to its shareholders. If that company has made a lot of profit and the company’s directors meaning those who manage the company think that a little stake in it should be given to our owners or shareholders. So they can also feel good so sometimes companies can do it. But yes, this is not necessary and it depends on the company’s board of directors if they want to give the money or not.
Most investors buy shares in the hope that the share price will increase and not for the Dividend.
When to sell shares?
Now, when to sell shares? When you think that the company’s future is not good the company’s profit can decrease. They are facing a lot of competition or nowadays their products don’t see or anytime you think that the company’s profit will decrease. So then shares are sold.
But there are more than 5000 companies in the market. So which companies’ profit will increase how it is known? For this, you have to read everything about the company what is the company’s history? What is their business model? What are their products? Are their products selling at the market? Are the customers happy with their products? And the company’s debt level?
By reading their annual report, you have to know how much profit they are making. How much they are making from sales? What is the company’s growth? And many other ratios should be analyzed.
Also, Read | How to conduct fundamental analysis for stock selection: 10 key points
Happy Investing..!
