Basics of The Indian Stock Market

What is the stock market?

Stock Market is a platform where buyers and sellers trade listed securities. These securities are generally stocks of a company. Stocks represent part ownership in the company. So, anyone who basically wishes to invest or partly own the company can buy the shares of that particular company and vice versa.

The Indian stock market has 5,000 listed companies on BSE and over 1,600 companies on NSE.

The Indian stock market is regulated by Security Exchange Board of India (SEBI). This regulator acts in the favour of investors and prevents any illegal activities or trading in the market.

Open a Dematerialization (Demat) Account:

A demat account has to be opened to invest in the stock market or anywhere in the world. This demat account should be opened with a registered SEBI broker. The shares you have purchased are kept electronically in your demat account. When you want to sell these securities, they are debited from your demat account. So, basically demat acts as a store for your securities.

There are many brokers where you can open your demat. But I personally like Zerodha. Because buying stocks in Zerodha for a long time does not require any brokerage. Zerodha currently has more than 2.5 million users.

If you want to open a demat account then I would advise that you open an account with Zerodha.

Open Your Demat Account With Zerodha to Click Here

When can you trade?

The markets open at 9:15 am and are open till 3:30 pm. The days of operation are from Monday to Friday. Saturday and Sunday the markets remain shut.

Where can you trade?

In India there are two exchanges where you can trade.

• The National Stock Exchange (NSE)
• The Bombay Stock Exchange (BSE)

What are the timings?

As we all know the normal trading hours in the Indian Markets start from 9:15 am to 3:30 pm, but there are other trades also that happen prior to this and probably even post this timing.

Below is the list of the timings and what trading activities happen during these hours:

Morning Block Deal Window:

Takes place between 8:45 am till 9:00am. Block Deals are deals where shares are directly sold between 2 parties and not via markets. These Block deals are huge in terms of quantity of shares

Pre-open market:

It happens between 9:00 am to 9:15 am. In this time all the matters are matched at a single price which becomes that day’s opening price.

Normal Trading Hours:

During this period the normal trading activities of the stock markets takes place where everyone participates in trading. The timings are from 9:15 am to 3:30 pm

Closing:

It happens from 3:30 pm to 3:40 pm where the closing price of the stock is decided based on the last trades of the day.

Post Close:

Execution of the trades at the closing prices are determined during this time. This activity happens from 3:40 PM to 4:00 PM.

What are Stock Market Indices:

Indices are a group of companies that are clubbed together and given a value. The two most popular Indian Indices are:

• Nifty 50- Represents top 50 companies
• Sensex- Represents top 30 companies

As, a beginner investing in companies of Indices would be a good option as the risk of losing money reduces as it consists of the top companies in India so chances of them not performing are less.

Terms you should know:

When you are trading in the stock market you will come across many terms that if you need to know. Some of the important terms you should be knowing are:

1. Bid price- Bid price is the price at which the buyer is willing to buy the security from the seller.
2. Offer price- Offer price is the price at which the seller is willing to sell the security to the buyer.
3. 52 week high- It is the maximum price at which the stock has traded within a period of one year or 52 weeks.
4. 52 week low- It is the minimum price at which the stock has traded within a period of one year or 52 weeks.
5. Market Capitalization- The market cap is the total value of a company. It represents how much is the company worth in simple terms. It is decided by the price of the stock multiplied by the outstanding number of shares in that company.
6. Earnings per share (EPS)- EPS means how much is the company earning for its shareholders per share. So, if a company earns 100 crores and has 50 crores outstanding shares the company earns Rs 2 per share and its EPS is 2. An investor should look to invest in companies who have a good EPS.
7. Dividend Yield- It is the percentage of dividends a company gives to its shareholders. More dividend yield means the company pays more dividends and vice versa. A company with a dividend yield of more than 2% is considered a healthy dividend-paying company.
8. PE ratio- Known as the price to earnings ratio or the price-earnings multiple. It shows the relationship between the stock price and earnings of a company. For example, the stock price is 35rs and the earnings per share for the year is 3.5rs. Thus, the PE would be the stock price upon earnings giving it a PE of 10, which essentially means that the company would take 10 years to earn back the amount that you have invested initially. Though this does not happen as the company is growing as so is the EPS of the company.
9. Book Value- It refers to the value of all the assets of the business. If the business is sold today how much would the company realize per share after selling all its assets.
10. Promoter Shareholding- Promoter shareholding refers to the amount of business owned by the owners of the business. A company having more than 50% of promoter holding is generally considered as a good sign as it shows that the owners have confidence in their business.

If you want to learn more about investing, then you can read 👇

➤ How to Start Stock Market in India
➤ Best Youtube Channels to Learn Indian Stock Market

Some must have apps for investing:

• Stock Edge
• Moneycontrol

Best Books for Beginners:

• Rich dad poor dad
• The Intelligent Investor
• One up on wall street

Summary:

So, in conclusion, we come to know that the first step for entering and investing is to open a Demat account. You may have different approaches towards making money by short term trading or long-term investing, there is no correct way. You must follow that suits you well.

But, as in the previous article we saw, long term compounding gives unreal gains in the market. As Ramdeo Agarwal has said “Buy right, sit tight” can be a good way of investing. In conclusion, you can follow big investors like Rakesh Jhunjunwala, Ramesh Damani, Sankaran Narain, and try developing a mindset like them.