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How Indian share market works & what is its impact on you?

Tribe's Weekly
Tribe's Weekly
Many of you have invested a lot of money in the share market hoping to get a good return. But do you know how the Indian share market works?
How Indian Share Market Works & its impact
How Indian Share Market Works & its impact
Share market works in the following order :
1. A company gets listed through an IPO
2. Shares get distributed in the Secondary Market
3. The stocks issued can be traded by the investors with the help of stock brokers and brokerage firms
4. When you order then your broker forwards the buy order to the stock exchange
5. This exchange then searches for this sell order for the same share
6. When the stock exchange finds the sell order for the same price it completes the transaction
This process takes around 2 to 3 days from ordering.
How a company gets listed?
How company gets listed on the Market?
How company gets listed on the Market?
There are 2 ways through which companies can get listed on stock exchanges IPO & New Listing.
  1. IPO is a process through which a new or unlisted company offers its shares to the public for the first time.
  2. A new listing is a process by which a company which is already listed on the exchange approaches another exchange. However, each exchange has its eligibility criteria to get listed.
When a company is listed on the stock exchange by either of the above processes, its shares are distributed to the secondary market.
What is Stock Broker?
A stockbroker is a dealer, agent or firm who may provide financial advisory, and investment management services & execute transactions of purchase or sale of stocks & other financial instruments. Stock brokers have their own fees & commissions for these services.
When a buyer or a seller places an order to buy or sell a share(s), it is placed through a stock broker where the broker then forwards the order to the stock exchange.
What is Stock Exchange?
What is a Stock Exchange?
What is a Stock Exchange?
The stock exchanges in India are the markets where stocks, bonds & commodities are traded. NSE (National Stock Exchange) & BSE (Bombay Stock Exchange) are major stock exchanges in India. There are 7 working stock exchanges in India.
These exchanges work according to SEBI’s well-defined guidelines. However, companies that are listed on a stock exchange are allowed to trade in it. The entire process of trading on the stock exchange is conducted over an electronic limit order book.
When a buy/sell order is received from a seller, then the exchange looks for a sell/buy order that matches the order received and then completes the transaction.
Now that you know how the stock market works, let us elaborate on some concepts in the stock market:
Stock Market Indices:
It is an index that measures a stock market which helps investors to compare current stock price levels with past prices and predict market performance. As an investor, you can identify the market’s pattern by looking at the indices, and use it to decide which stock can prove to be a winning bet.
If any stock has given higher returns than the index, it’s said to have outperformed it. On the other hand, if it has given lower returns, it’s said to have underperformed.
There are various stock market indices based on the stocks taken into account to create the index.
NSE Nifty index consists of the top 50 largest & most frequently traded stocks within the NSE. It was first created in 1996 and is currently maintained by India Index Services & Products Limited (IISL), which is regulated by an organization created by the Indian credit rating agency CRISIL and the National Stock Exchange.
There are many other indices like The New York Stock Exchange which is also known as the largest stock exchange in the world with a capitalization of over $24.29 trillion. NASDAQ is the second-largest stock exchange in the world with a capitalization of $19.34 trillion.
How pricing of Stocks is determined
The prices of shares on a stock market are determined in various ways. The most common way is by auction process where buyers & sellers place bids to buy or sell a particular share at a price they desire. buying price and selling price coincides, the trade is completed.
How stock prices are Determined?
How stock prices are Determined?
The market consists of millions of investors and traders who bid for the share that they are willing to buy or sell. Do you know though there are millions of investors and traders in India, those count for only 3% of the total Indian population.
For every stock transaction, there must be a buyer and a seller. If there are more buyers for a specific share than sellers, then the stock price will trend up and if there are more sellers of the stock than buyers, the price will trend down.
Stock market impact on economy
Now that we are clear about the concept of the stock market, let’s see how it will impact our economy and you.
Impact of Stock Market on Indian Economy
Impact of Stock Market on Indian Economy
The increase & decrease in stock prices can influence various factors in the economy that have a positive or negative impact on the economy. Alternatively, different economic conditions that are out of our control can also affect the market.
Impact on a Consumer   
Stock markets are volatile. The price of a share rises and falls making the markets volatile. As a consumer, it helps them earn money and get good returns for their investment. But sometimes you also lose your money which may lead you to a state of panic.
If the market is bullish, performs well & is generally on the rise. This rise indicates confidence among investors & individuals.
Impact on a Wealth
In a bull market, due to confidence people increase their investments. This has a positive influence on the economy. Sometimes people also increase their investments in market-linked products that help get inflation-beating returns in the long term.
However, a bear market negatively impacts economic growth. This retards growth.
Impact on a Business Environment
Stock market performance influences the business environment. When the market performs well, businesses are likely to raise capital that can fuel their growth.
On the other hand, when markets are down, businesses are not willing to spend, which negatively impacts goods and services and gross domestic product.
Conclusion
The Indian share market is an amazing way to invest money for investors. It is a great place to invest your hard-earned money provided you are able to take the risk that comes with this investment & earn good returns. The stock market provides massive scope for trading in shares and capital markets.
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Tribe's Weekly
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