NEWS AFFAIRS 7 : WHERE EVERY STORY HAS IT'S AFFAIR!
Last updated on September 4th, 2024 at 10:24 am
The Basics of Stock Market Trends
The share or stock market is where people buy and sell shares, which represent ownership in a company. It’s a place where these shares are traded, and you can buy or sell them through a formal marketplace.
When you buy shares, you’re buying a small part of that company, which lets you earn money if the company does well.
There are places called stock exchanges like the “NSE or BSE” in India, where these buying and selling activities happen. Companies use the share market to get money they need to grow, and investors use it to try to make money from their shares. The share market is important because it shows how the economy is doing and how people feel about it.
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The value of your stock goes up or down depending on how well the company is doing and how the market is behaving.
Owning stocks can be a way to make money. If the company does well, the value of your stocks might go up, and you could also get some extra money called dividends, which come from the company’s profits. Stocks are a big part of the stock market and let people invest in companies and share in their success.
Stock Market Trends In India, you can invest in shares in two main ways:
Initial Public Offering (IPO): When a company first offers its shares to the public, you can buy them. You usually need at least Rs 2 lakh to invest in an IPO.
Follow-On Public Offer (FPO): If a company is offering more shares after its initial listing, you can buy them. For an FPO, you generally need at least Rs 1 lakh.
To invest, you should check upcoming IPOs or FPOs, research the companies, and decide which ones you want to invest in.
Once you own shares, you can earn dividends if the company makes a profit, and you have voting rights on important company decisions, like choosing board members or approving major changes.
The price of shares changes every day based on how many people want to buy or sell them. The final price at the end of each trading day is called the closing price.
In the Indian stock markets, some key elements include:
Listed Companies: These are businesses that have their shares available for public trading on the stock exchanges. There are many companies listed in India, though not as many as in the USA or China.
Market Capitalisation: This is the total value of all the shares of listed companies combined. As of September 2021, this value in India was over Rs 260 lakh crore, making it one of the biggest stock markets in the world.
Stock Exchanges: These are platforms where buying and selling of shares happen. In India, the main stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Liquidity: This means how easily shares can be bought or sold without affecting their price much. Indian stock markets are considered quite liquid, meaning it’s relatively easy to trade shares.
These elements make the Indian stock markets important for companies looking to raise money and for investors looking to trade shares.
The share market in India has three main parts:
Primary Market: This is where companies first offer their shares to the public through Initial Public Offerings (IPOs). It’s not always open; it only operates when a company decides to sell new shares.
Secondary Market: This is where people buy and sell shares that are already listed. It’s active all the time, with trading happening every day the market is open.
Stock Exchanges: These are the platforms where buying and selling of shares happen. In India, the National Stock Exchange (NSE) is the largest, with a huge market value of over Rs 2.27 trillion crore.
In summary, the primary market deals with new shares, the secondary market handles existing shares, and stock exchanges are where all this trading takes place.
What Should You Look For When Buying Shares?
Dividend Income: This is money the company gives to its shareholders from its profits. It’s like a bonus for owning shares. Higher dividends can be a sign that the company is doing well.
Company Fundamentals: These are the basic things about the company that show how strong it is. This includes its financial health, how well it’s run, and its potential for future growth.
Performance Over Time: Check how the company has been doing in the past and how it plans to improve in the future. A company that grows steadily is often a good investment.
Stock Price: Compare the current price of the stock with its value. If the stock price is too high compared to its value, it might not be a good buy. If it’s low, it might be a good opportunity.
Who Are Share Traders?
Share traders are people who buy and sell shares. When they buy shares, they are buying the right to earn a part of the company’s profits and own a piece of its assets.
Buying and Selling Shares
- Buying Shares: When you buy shares, you’re investing in a company and hoping that it will grow and make money. If the company does well, its share price might go up, and you could make a profit if you decide to sell them later.
- Selling Shares: When you sell shares, you’re giving up your ownership in the company. Ideally, you sell them at a higher price than you bought them for to make a profit.
In simple terms, when you start trading in the share market, you should:
- Look at how much money the company shares with its shareholders (dividends).
- Understand the company’s overall health and potential for future growth.
- Compare the current stock price with its value to make sure you’re buying at a good price.
By keeping these basics in mind, you can make more informed decisions about buying and selling shares.
Break down the three types of shareholders into simpler terms:
Face Value Shareholders
These shareholders buy shares at the price set by the company when the shares are first offered. This price is called the “face value.”
They don’t get any extra perks or benefits beyond owning the shares. They simply own a part of the company at the initial price.
Direct Benefit Shareholders
What They Get: These shareholders receive additional perks.
Extra Dividends: They might get extra payments, called “coupons,” on top of the regular dividends.
Annual Meetings: They also have the chance to attend special meetings where they can talk directly to the company’s top managers and share their opinions.
3. Growth Option Shareholders
What They Get: These shareholders also receive dividends but enjoy extra advantages.
Guaranteed Growth Plan: They can take part in a special plan where they help decide which customers will get a larger share of the company’s profits. This means they have a say in how the company’s profits are distributed and potentially benefit from the company’s growth.
Summary
- Face Value Shareholders: Buy shares at the initial price and don’t get extra benefits.
- Direct Benefit Shareholders: Get additional perks like extra dividends and special meetings with company managers.
- Growth Option Shareholders: Receive dividends and have the chance to participate in decisions about how profits are shared, along with other benefits.
In essence, each type of shareholder has different levels of benefits and involvement with the company.
How Share Prices Work ?
Company Value and Share Price:
Company Value: If a company (like Company A) is making a lot of money, its shares are usually worth more. So if you own shares in Company A, those shares are more valuable.
Comparison: If Company B is making less money, its shares are worth less compared to Company A’s shares.
Price Changes:
Up and Down: Share prices can go up or down based on what people think about the company’s future. If people believe the company will do well, the price might go up. If they think the company is struggling, the price might go down.
Competitors: What other companies in the same industry are doing can also affect the share price.
Tracking Prices:
Daily Updates: You can see the share prices in newspapers or online trading platforms.
Closing Price: At the end of each trading day, the stock market marks the final price of shares. This is called the closing price.
Profit or Loss:
Buying and Selling: If you buy a share in the morning and sell it at the end of the day at the closing price, the difference between the buying price and the closing price is your profit or loss for that day.
Example
Company A: Let’s say Company A’s shares are worth Rs 100 in the morning. By the end of the day, the share price might go up to Rs 110. If you sell your share at Rs 110, you make a profit of Rs 10.
Company B: If Company B’s shares were worth Rs 100 in the morning but dropped to Rs 90 by the end of the day, and you sell at Rs 90, you have a loss of Rs 10.
In simple terms, share prices change based on how well people think a company will perform. You can make a profit or loss depending on how much the share price goes up or down from when you bought it.
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