A term which we come across everyday is “Stock Markets”, daily newspapers are suffused with news like ‘ Nifty ends above 8200, Sensex up by 204 pts’ or ‘ Nestle India shares gain and ITC amongst the top traded shares’ So what exactly is a Share, Nifty, Sensex, how one determines the price of these stocks, what is a bearish or bullish market; these are the questions that arises in minds of various individuals and now here we’ll understand all these concepts in simpler terms.
When a company is incorporated, it raises capital so as to run its business. The capital is raised by issuing shares to general public, when a person buys a particular number of shares of a company he/she becomes owner of that company till that limited amount. For eg: A company raises 1,00,000 capital by issuing 1000 shares of ₹100 each. If a person buys 10 shares,ie, spends ₹1000 (100×10) , he/she becomes eligible to share the profits and losses of business till that limited amount. There are various types of shares but we will take that topic in the next article.
These shares are traded on an online platform. There are various stock exchanges ( around 22 in India) where stocks are traded, the most popular ones are- National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Under these stock exchanges there are various stock indices, a stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. An Index is calculated with reference to a base period and a base index value. An Index is used to give information about the price movements of products in the financial, commodities or any other markets. NSE and BSE have various indices, the ones which are most talked about are : NIFTY and SENSEX. Nifty which is a short for National Fifty shows the average of 50 stocks traded under it and Sensex which is a short for Sensitive Index shows the average of 30 stocks traded under it.
As one figures out the price of a product with the help of supply and demand curves, in similar manner prices of stocks are also determined. If demand exceeds the supply, price of the stock rises and when supply exceeds the demand, the price of the stock falls down. Sometimes, there comes a time when the prices of a stock is falling sharply, so the parent company coming to the rescue does something called “Buy-Back” of Shares which is simply buying your own shares to increase the demand. We will study this topic in detail in future.
Now, lets take a look at some important terms of stock market:
- Bearish Market- It is a market condition where investors anticipate the prices of stocks to fall in future, pessimism spread over the market and therefore people start to sell their shares in the market in order to avoid future losses.
- Bullish Market- It is a market condition where investors anticipate the prices of stocks to rise in future, optimism spread over the market and therefore people start to buy new shares in view of earning more profits in future.
- Chickens- Chickens refer to the people who are afraid to lose anything, their fear overrides their need to make profits and hence they only look upto to money market ( Market where short-term securities are sold and bought involving negligible risks) , since they never take risks, so they never earn huge profits.
- Pigs- Pigs refer to the people who are ready to take high-risks. They want to make profits in a very short span of time and hence they invest in various companies without doing much of their research work. This sometimes turns out to be against their interest as well.
Stock Market is quite a vast concept, the above article intends to solve the basic confusions regarding the same. Hope it helps.
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