Share market is a center of economic transactions where companies raise funds or stocks for investors to buy or invest in. The process that continuously runs in a share market is known as trading. In India, trading takes place in two stock exchanges which are National Stock Exchange (BSE) and the Bombay Stock Exchange (NSE). The NSE came into existence in 1992 and trading started in 1994. On the other hand, BSE has been active since the year 1857. The share market can accumulate high returns on investments. However, one must have thorough knowledge about what the share market is and how they share market works before starting investments.
What is the Share market?
While thinking of investing in the share market, the first question that comes in mind is what is share market? A share market, also known as a stock market is a place where both buyers and sellers deal with financial assets of the company like shares, bonds, etc. A person purchasing a share of a company is actually investing in a company. An investor must always try to make long term investments as it can balance the market risks and fetch expected returns. One can know more about the market from the share market news disseminated by different media. Every investor must be aware of two terms in the case of the share market, and they are bull market and a bear market. Each firm present in the stock market is a part of either of the two markets. Firms belonging to the bull market have shares that are increasing in value, whereas the bear market is composed of such firms whose share prices are decreasing. SBI can be considered as a firm that is mostly present in the bull market as the SBI bank share price always remains high.
Kinds of Share Markets
There are two types of share markets which are the primary market and the secondary market. The features of both the primary market and the secondary market are given below:
Features of Primary Market
- In a primary market, any firm or government can raise money by issuing shares by the process of Initial Public Offering.
- Shares can be issued as private placement and public placement. In the case of a private placement, share allotment is provided to more than 200 persons, and for the private placement, the number is below 200 persons.
- As per the price of the share, it can come at a fixed price as decided by the issuer or it may vary as per the demand of the investors. Shares issued with the variable price is known as the book building issue.
Features of the Secondary Market
- Secondary markets are informal in nature.
- In a secondary market, trade depends on the mutual understanding of two parties for a future settlement.
- It acts more like an auction market.
Types of stocks present in the share market
There are three different kinds of stocks in which an investor can invest in the share market. They are:
- Large-cap stocks: Companies with the market capitalization of more than Rs. 20, 000 crore offer large-cap stocks. Generally, the share prices for these companies remain high, and it is less risky to invest in such companies. Many large-cap companies such as Wipro, TCS and Infosys share price remain quite high all the time.
- Mid-cap stocks: The market capitalization of mid-cap companies is between Rs. 5,000 crore to Rs. 20,000 crore. Investing in companies having mid-cap stocks can be riskier as these are smaller companies having the prominent potential to grow.
- Small-cap stocks: The small-cap companies have the market capitalization of less than Rs. 5,000 crore. It is most risky to invest in small-cap stocks as the companies having small-caps do not have a proper foundation in the market.
How does Share Market work?
Every investor must have a clear concept about how share market works. The share market works like an auction house where investors get a chance to invest in certain firms by purchasing their shares. A worldwide network of exchanges carries out the basic functioning of a share market. In India, it is mandatory for all the firms, brokers, traders and investors to be registered with SEBI.
Ways to invest in the share market
Different aspects of investing in the Indian stock exchange are given below in detail. Investors must have an idea about how to invest in share market. All investors should have an active Demat account as it is a mandatory requirement for trading.
Initial Public Offering is a draft of the offer document that a firm files to the SEBI. All the details regarding the share and its price band are mentioned in the IPO. Once SEBI approves the IPO, the company is able to offer the share to the investors.
Distribution of shares
All the shares are issued by the firm to the investors who bid at the time of IPO. Afterward, the shares get listed in the secondary markets where treading can be executed. Investors who could not bid during IPO can buy shares directly from the secondary market.
Several broking agencies are present in the country that help in connecting the investors and the market. They are registered by SEBI. With the boom of online trading platforms, the importance of the broking agency has increased.
Order processing is done by the brokers for their clients. This is done by the brokers to inform the exchange of the match between a buyer and a seller. The exchange sends a confirmation to both parties once the match is successful. This confirmation is sent to avoid any instances of default. The T+2 type settlement is currently followed by the exchange where the confirmation comes within two business days from the transaction date.
So, these are the details about how a share market works. All the investors should be aware that the returns from the investment will directly get credited to the Demat account.
As the Indian share market is vast, comprising numerous firms, it is advisable for the investors not to take any false move in case of investing. It can lead an investor to incur a loss. Moreover, proper education regarding the stock market is necessary in order to make investments in the right stocks. One must always look for making a long term investment as the market risks can get nullified to a large extent. Any person who has made investments in the share market should have proper knowledge about the current economic condition of the country.