Gaurav Kodnani is an SYJC Commerce student. He loves playing cricket, reading the Economic Times and watching the stock market trend everyday. His current motto is work hard and excel in his studies.
The stock market dream sequence
Date: 25/6/21, Time: 6.15 pm
“Gaurav, uth jaa - arey uth jaa! Market kya mast khatam hua hai. Tujhe toh pata hena ki Market 4 baje bandh ho jata he.” (Gaurav - wake up! It was a good day for the market. You know that it closes at 4 pm, right?)
“Pata hai, Tata Steel ne lead kiya hai, IT Stocks aur banks sab upar rahe aaj.” (I know, Tata Steel led; IT Stocks and banks have remained on the top.)
“Arey woh sab theek hai, lekin tujhe pata he Tata kitni upar gayi aaj. Almost saare Tata Companies ne lead kiya he. Tata Steel ki baat kar raha hena tu, almost 5% change hua uska stock price aaj. 5% se upar gaya.” (All that is fine, but do you know how much Tata’s stocks have rocketed. Almost all Tata companies have led. Tala Steel has gone up by 5%.)
“Kya baat hai, maine socha tha ki 4% upar jayega, but ye to 1% jyada upar chala gaya. And 1% means a lot in the stock market. Adani’s ka kya hua?” (Woah what! I thought it was 4%, but it’s more! And even 1% means so much in the stock market! What happened with Adani’s stocks?)
“Adani’s ka bhi upar gaya lekin less than 1%.” (Adani’s stocks have also gone up but less than 1%)
I woke up from my dream. You must be wondering what is all this? The answer is - The stock market.
What is the stock market?
In simple words, the stock market is a kind of market that is different from the commodity market. In a stock market, the stocks of various companies are sold and purchased through a stock-broker.
What is a stock?
A stock is also known as a share or security of a Company. It is one of the major sources of owned capital of a company.
According to Section 2 (84) of the Companies Act, 2013, “A share is a share in the share capital of a company and includes stock.”
What is share capital?
Share capital means the total number of shares that a company has. For e.g. The total share capital of a company is 10,00,00,000 i.e. 10 crores.
Share Capital is also known as Authorized Capital, Registered Capital or Nominal Capital.
Authorized Capital: Authorized Capital refers to the maximum number of shares a company is legally allowed to issue or offer to the shareholders. It is authorized by the Memorandum of Association (MoA) of a company.
At the time of registration of a company, the company prepares two important legal documents - Articles of Association and Memorandum of Association. In MoA, the maximum Share Capital of a company is mentioned.
Registered Capital: It means that the share capital is registered with the company and it pays stamp duty for it at the time of registration.
Nominal Capital: It means the maximum capital that a company can raise through public. Normally, a company does not raise the full share capital through the public. Therefore, Share Capital of a company is also called Nominal Capital.
For eg: A company has a total share capital of Rs. 10,00,00,000. It means that it can raise a maximum of only Rs. 9,99,99,999 through public.
How does one purchase stocks?
Earlier on, companies used to issue a share certificate in physical form to the shareholders of the company. Share certificate is a legal document and acts as an evidence of ownership of shares for the shareholders of the company.
Nowadays, the shares are purchased and sold by the company in dematerialized form i.e. electronic form. You have to open a Demat A/c with your bank and give it standing instructions. For example, purchase 1000 shares of a company or as much as you want to purchase of any company and make the payment. Your bank will automatically purchase the shares and deduct the amount from your A/c.
What are the types of shares of a company?
There are two types of shares of any company - Equity Shares & Preference Shares.
Equity Shares
Equity Shares are those shares which have a fluctuating rate of dividend. Equity Shareholders are known as the ‘real risk bearers’ of the company. It means that if a company does not earn or earns less in a financial year, it is ok if they don’t get dividend i.e. income. They are also known as the ‘real masters’ of the company. An equity shareholder gets many rights along with the shares. They have the right to attend Annual General Meeting, right to vote at the meeting, right to appoint proxy, right to inspect statutory books i.e. those books through which one comes to know whether the company is following the legal formalities or not, etc. Thus, it is rightly said that equity shareholders are the ‘real masters’ of the company.
The Indian Stock market in brief
Before going to this topic, you should know about Securities and Exchange Board of India (SEBI). SEBI was established in 1992 after the Harshad Mehta Scam as a Statutory Authority. My Sir refers to it as the ‘Papa of Securities Market’. It was established to protect the interest of investors. Its latest rules and regulations were made in 2018 and it has become very strict. Before you invest in any company, you have to take the permission of SEBI. You cannot defy the rules. If you do, you may have to face unpleasant consequences. The headquarters of SEBI are in Mumbai.
In a stock market, stocks are traded - stocks are purchased and sold. The most famous Stock Exchanges are BSE (Bombay Stock Exchange) & NSE (National Stock Exchange). The index of BSE is known as Sensex while the index of NSE is known as Nifty 50.
The headquarters of these Stock Exchanges are in Mumbai. It is famously known as Dalal Street. Till now, the biggest Stockbroker of India is Rakesh Jhunjhunwala. He is currently the ‘Big Bull’ of the market.
Now, when investors want to invest in a particular stock, they will obviously give a buy signal to the market. Then, something magical happens and the stock price of that stock goes up i.e. rises and shows a green signal. The green signal indicates that that particular stock had a positive change on that day. On the contrary, if the investors are not willing to invest in a particular stock, that stock gives a red signal which means it had a negative change on that day.
In simple words, when investors are interested in investing, the stock gives green signal and when investors are not interested, it gives a red signal i.e.- the stock is being sold but no one is investing.
What is bull run and bear run in the stock market?
Let me ask you a simple question - How does a bull attack? By its horns, right? The bull runs and attacks by its horns and thrusts the opponent upward into the air. In the same way, when the market is continuously rising, it is said that the market has turned ‘bullish’. It is known as the ‘bullish trend’. So, to conclude, when there is a bullish trend going on, the stock market gives a green signal. A bull in the stock market is also known as Tejiwala in Hindi.
Bear is just the opposite of bull. It growls and attacks with its paw pushing the opponent downward. In the same way, when investors are not interested in investing in most of the companies and the share price goes down, it is said that the market has turned ‘bearish’ and is known as ‘bearish trend’ or in other words, ‘Market Crash’. So, to conclude, in a bearish trend, the market gives a red signal. A bear in the stock market is also known as Mandiwala in Hindi.
This all depends on the economic changes. Now, let me not go into detail about this but always remember the market goes down whenever there is inflation and it goes up whenever there is deflation.
Special thanks to my sister, my parents, Shilpa Ma’am, Jayesh Sir, Ananya Ma’am, Meetal Ma’am and Varun.
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