Understanding the Stock Market

Introduction to the Stock Market

• Newcomers often have questions about how the stock market works, how people earn money, and how they can earn money.
• This session will clear all basics related to the stock market.
• Important to share knowledge as many people need this information.

What is a Stock?

• Example: Starting a restaurant with partners.
• Business expansion requires funding, making a company form (private limited) necessary.
• Selling shares to investors for capital.

Valuation of a Company

• Example: Investor buys 10% shares for ₹1 crore, making the company’s valuation ₹10 crores.
• Importance of understanding valuation in layman terms.

Taking the Company Public

• Expanding requires more capital; hence, the need to go public.
• Process involves satisfying various regulatory norms.
• IPO (Initial Public Offering): First time shares are offered to the public.

Listing on the Stock Exchange

• NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are primary exchanges in India.
• Post-listing, shares are tradable by the public.

Categories in IPO

• Retail investors: Invest less than 2 lakhs.
• HNIs (High Net Worth Individuals): Invest above certain amounts.
• Institutional investors: Large firms like LIC investing large sums.

Post-IPO Trading

• Shares bought in IPO can be traded on the exchange.
• SEBI (Securities and Exchange Board of India) regulates the market.

Factors Influencing Share Prices

• Demand and supply, company performance, news, and market sentiment.
• Various other factors also play a role.

Indexes

• Sensex: Tracks top 30 companies on BSE.
• Nifty: Tracks top 50 companies on NSE.
• Bank Nifty: Tracks performance of banking sector.
• Indexes help gauge overall market or sector performance.

Ways to Earn Money in Stock Market

Investments

• Long-term investment: Holding shares for years.
• Example: Buying Reliance stock at ₹2600 and selling it years later at ₹10,000.

Trading

1. Swing Trading: Holding shares for short-term (weeks/months).
2. Intraday Trading: Buying and selling shares within the same day, involves margin trading.
3. Future Trading: Contracts to buy/sell at a future date.
4. Option Trading: Buying and selling options on shares or indexes.

Intraday Trading

• Uses margin; enables trading with more funds than available.
• Example: Short selling, betting on price drop.
• Must complete buy/sell within the trading day (9:15 AM - 3:30 PM).

Futures Trading

• Gives more time than intraday, involves expiry dates.
• Uses lots and margin.

Options Trading

• Call options: Bet that stock price will go up.
• Put options: Bet that stock price will go down.
• Profitable with small investments.
• Example: Predict price movement of Nifty.

Commodity and Currency Trading

• Metals like gold and silver can be traded as futures.
• Currency pairs (e.g., EUR/INR) can also be traded.

Analysis Methods

• Fundamental Analysis: Evaluating company financials, PE ratios, etc.
• Technical Analysis: Using indicators, price actions, support/resistance levels.
• Both types are critical for informed trading/investing.

Learning and Education

• Essential to learn before investing or trading.
• Resources available to learn fundamental and technical analysis.
• Consistent profits come from learning and not just listening to tips.

Final Thoughts

• Important to open a Demat account for trading/investing.
• Share the information to help others.
• Commit to learning before starting to trade or invest.