Master the Basics of Stock Market Investing
Very often people are in the grip of stock market and therefore, it is very important to understand the basics of the stock market.
It probably feels overwhelming to many people, most especially those who have never invested in the stock market before. However, it is necessary rudiments to apprehend by any investor interested to invest. In this blog, we will try to demystify the jargon related to stock markets such as Sensex, NIFTY, IPOs etc in layman’s language making it easy for you to function once you are invested in the stock market.
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| Master the Basics of Stock Market Investing |
What is the Stock Market?
Let’s briefly review what the stock market is: it is a place where the securities, namely shares, of diversified organizations are traded. It can be described as an exchange, where people buy and sell stakes in companies. When people use terms such as Sensex or NIFTY, these are actually indices of certain chosen stocks in the particular market.
Understanding Indices: Sensex and NIFTY
Stock market indicators are referred with the generic name of barometer and some of them include Sensex and NIFTY. SENSEX is the scrip sensitive index of the Bombay Stock Exchange (BSE) that comprises top 30 stocks and NIFTY is the National Stock Exchange (NSE) sensitive index that comprises of top fifty stocks. When they sayomething like: ‘Sensex has gone up by 100 points’ it implies that overall, the price of the stocks in these indices has gone up.
How can a company get funds?
Whatever the case, when a business gets to a point where it wants to expand, it has to expand its capital base. For example, think about a famous Pani Puri stand located in Delhi which decided to grow. At one point, they might borrow from friends or relatives by offering an item of value as collateral. But in some cases, as the business expands they have to go to the banking institutions and investors for more services.
Angelic and Venture Capitalists
There is nothing quite like taking funds without debt, and one of the stunning methods of achieving this is through Angel investors. These are people who come up with ideas and run companies and in return offer a stake in the company to investors. For example, if an angel investor invest ₹1 crore for 10 percent equity in Pani Puri business then he will get 10 percent of sales profit without interference in day-to-day business.
If the business is going to grow even bigger and it demands more money, venture capitalists may come into the picture. These are firms that put more of their capital in businesses in return for stakes especially with companies that are likely to expand fast.
Going Public: The IPO Process
If a company desires to source a large amount of capital from the public the best way it can undertake this is through an IPO. This is the first time when the company goes out to market to sell its stocks. The process involves underwriting or involving an investment banker in the evaluation of the company’s financial stability and determining the kind of capital required or the number of shares to be floated.
Steps to Launch an IPO
- The company needs to create a file and submit it to SEBI in order to gain permission to proceed with the IPO.
- Finally once the shares of the company have been approved the company will select the most appropriate stock exchange on which to list the shares.
- Determining the offer price is important especially the retail price if it is overpriced the company can end up not selling any shares and as a result no IPO.
- If the shares are listed they can be sold by investors and the company gets cash inflows for its expansion.
The Role of Stock Exchanges
A BSE and the NSE are stock exchange markets where the buying and selling of the shares take place. They avail platforms within which the trading of shares can take place with due regard to the share market features. The stock exchange trading started with physical trading while today trading is conducted electronically due to efficiency in the trading process.
What Influences Stock Prices?
There are several factors that have an effect on stock prices these include the following,: Retail traders, institutional traders, and rating agencies. When dealing with investing, a retail investor refers to a small holder who is an investor or trader in the stock market. The large investors, such as mutual funds, purchase large numbers of shares at once and the rating agencies give information about the markets and performances of various organisations.
Market sentiment and its consequences
It is safe to say that the market sentiment influences the movement of stock prices most of the time. Good news would precipitate buying hence the prices would go high relative to situation where there is negative news which would compel people to sell forcing the prices low. What this means is that even if you are part of a well performing stock, forces from the outside may bring down the price of the stock.
Consequently, the reliability of information is very important.
They have to use accurate up to date information when making their investment decisions. No one refuses to gamble, but it is important to remember that the stock market is a long game, and making choices based on mere rumors, or spotten tips is a sure way of losing. This is why doing our research and trusting the agencies we work with is the key to successful investing.
A simple guide on getting into the stock market at the beginning.
To start investing, you'll need three key accounts:
- Savings Account: This is where your money to invest will be coming from.
- Demat Account: This account maintains your shares in what we call electronic form.
- Trading Account: This is used in getting and selling shares through stock exchange business.
Thanks to advancement in technology, these accounts can be opened easily. Most native apps operate directly from your mobile device, and you can actively control your investments. Once the KYC verification is done, it becomes quite easy for customers to trade the stocks, and they may even invest in IPOs.
Final Thoughts
Being able to decipher the stock market is very important to anyone who is interested in growing their investment portfolio. Just as in any new environment, one can move around much more confidently by knowing what an index is, what an IPO is, and the part that various types of investors play. Investing isn’t a destination, it’s a marathon that takes time, energy, research, and knowledge, to thoroughly make the right decisions.
