What is stock market?
Stock market is a place where stocks are bought and sold in exchanges. These stock exchanges act like a platform. There are multiple exchanges for a country where the stocks are bought and sold. The major two exchanges in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
What is a stock in stock market?
Stock is defined as one unit of company shares. Each public listed company will have some definite number of shares. When the company goes public, it decides the number of units and price. These units are called as stocks. By owning a stock, you will become a partner in that company. Based on the percentage of holding, you will get rights to know certain information.
As an example, let’s say company decides to go public with 1,00,000 shares at a price of 100 rupees per share. Then based on our analysis of the company, if we think that company does good, then we buy that stock.
How to buy a stock in stock market?
Stock can be bought through a stockbroker. There are many stockbrokers that are present in market. As an example, Zerodha, Upstox, and Grow are some of the stockbrokers that offer platforms where investors can buy and sell the shares
Who is stockbroker?
Stockbroker is an entity who will facilitate the stock market participants in buying and selling the stocks via stock exchanges. They will keep our stocks which we purchased in Central Depository Services Limited (CDSL). There are different types of stockbrokers. One who gives platform and services, others only platform. One of the services include advisory on which stock and when to buy or sell a stock.
What is CDSL?
CDSL – The purpose of CDSL is to act as a central repository for investors, holding their shares, bonds, mutual funds, and debentures in a safe and secure dematerialized format.
About Securities and Exchange Board of India
Securities and Exchange Board of India (SEBI) is the regulatory body of securities and commodities in India. It overseas all the operations of the brokers, companies, etc. It is basically the watchdog of the stock market.
Why stock prices go up and down
Price of anything goes up and down predominately basis on the demand and supply. So what exactly is demand and supply
Demand – More people wanting a product than usual. E.g., During festival season, people buy vehicles or gold than other days. There by increasing the demand for a product.
Supply – The volume of products manufactured during a period. E.g., In a car manufacturing plant, they can manufacture up to 100 cars in a given day.
Coming to our stock market. The number of shares for any company is finite. If the demand increases, then the price of the stock will increase, as more and more people would like to own the stock no matter the price. As an example, when the AI wave started and picked up pace in 2024, many people thought that NVIDIA could benefit from this AI boom. Hence more people bought the stock making the stock price grow substantially. Now the question is, will they buy the stock without any logic to it. No, that’s where Intrinsic value comes into the picture.
What is intrinsic value of a stock?
Intrinsic value of a stock is the price which matches the financials of the business. It is correlated to the current and the future profits of the business.
Intrinsic value is calculated in many number of methods and the popular method is Discounted Cash Flow (DCF) analysis. This simply means the future cash flows of the company discounted at the rate of Weighted Average Cost of Capital (WACC).
Conclusion
Basically, Stock Market provides an opportunity for us to save money for our future and beat the inflation.
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