What is Equity Share ?

An equity share (also know as stock or scrip) is the part ownership of any company which is listed on the stock exchange. The companies get listed on the stock exchange to raise the capital required either to expand business, to pay off debt or any other financial requirement. In order to raise capital, companies come up with Initial Public Offers (IPOs) in which retail investors can participate through banks or using their Demat Acounts. In case of over subscription, the allocation happens through draw & shares are allocated o successful bidders & refund is process for unsuccessful bidders. This entire process takes place in Primary Market whereas once stock gets listed on exchange the buying & selling happen in Secondary Markets

Types of Equity Shares

Based on Market Capitalization, equity share can be divided into three categories :

1. Larger Cap Stocks

Also called Blue Chip companies, these are Top 100 well establish corporate house with a proven track record of performance & are the largest set of companies listed on stock exchange. The market indices i.e. NIFTY 50 & SENSEX are weighted average of top 50 & 30 large cap stocks respectively & hence the benchmark indices move further or down based on performance of these companies. These companies are well capitalized & considered safer bets as compared to rest of the companies. A novice investor can start his investing journey by large cap stocks & over period of time when he starts understanding the stock market, can move to mid & small caps for better return on investment

2. Mid Cap Stocks

As per the definition by Security & Exchange Board of India (SEBI), the companies ranked from 101 to 250 as per MCap are classified as mid cap companies. These companies have good presence in their respective industries but not as well established as large caps. Mid cap companies tend to give better return than their large cap peers in long run but the associated risk is also higher. Investing in mid cap stocks requires better understanding of market & business & hence beginners should invest in these companies with proper guidance through financial advisor.

3. Small Cap Stocks

As per SEBI’s guidelines, all companies which are ranked 251 & beyond in Mcap are called small cap companies. These companies are generally not so well established & don’t have a performance track record. Several small cap companies grown into mid cap & eventually large cap, thereby generating huge wealth for investors but at the same time majority of these companies suffer from the changing market scenarios & erode the investor money completely. Small caps are extremely volatile & a small correction in benchmark indices leads to huge capital erosion in small caps. Stock selection in this category needs special skills & hence investment in this space should be done in consultation with expert or through mutual fund route.

Why to Invest in Stocks ?

– Average inflation rate in India for last 10 years is (2012-2021) is 5.88%
– Fixed Deposit rate from all leading banks has hovered between to 7% in last 2 years

– Interest earned from Fixed Deposit are taxable as per income bracket

– Investing in FDs eventually can’t beat inflation, thus reduce your purchasing power

How to Invest in Stocks ?

– Open a Trading & Demat Account

– Decide how do you want to invest

– Study & pick the stocks you want to invest

– Start your investment Journey

Finance Bazar is franchisee partner with IIFL & provides all services through their online platform

Important Terms to Understand Markets

1. Capital Markets
Capital Markets are market places where trading of any kind of financial assets take place. It includes debt instruments like bonds, equity instruments like stocks & derivatives and commodities.
2. Stock Markets
It is subset of Capital Markets where trading of equity instruments like stocks & derivative (futures & options) happen. Stock market are huge in size & forms a significant part of the capital markets where retail investor can buy & sell all equity instruments.
3. BSE
BSE (formerly known as Bombay Stock Exchange) is the oldest exchange of not only India but the entire asia subcontinent. It was established in year 1875 & in 2017 it became the first stock exchange to be listed.
4. NSE
NSE stand for National Stock Exchange & it is the second main stock exchange operating at national level. It is pioneer in implementing technology & bringing n electronic or screen based trading in India & started it’s operations in 1994.

5. S&P BSE SENSEX
SENSEX is acronym for S&P BSE Sensitivity Index which is a measurement of the stock market movement. The index is weighted average of the stocks of top 30 well established companies whose stocks are traded frequently. The weightage of each stock depends upon the free float market capitalization of the company.
6. NIFTY 50
NIFTY 50 is one of the two major stock market indices used in India, other one is the SENSEX. NIFTY 50 is the weighted average of top 50 companies listed on National Stock Exchange. The companies are taken from across different sectors
7. SGX NIFTY
SGX NIFTY is derivative product of NIFTY 50 traded on Singapore Stock Exchange. It’s widely used global cue in India to analyze pre-opening of indian market.

8. Dow Jones
Dow Jones Industrial Average Index is a stock market index widely used in United States of America & across the world. It is weighted average of stock prices of largest 30 companies listed on New York Stock Exchange. Dow is tracked in India by all stock market analysts as it’s direction sets the tone for local stock markets.

9. NASDAQ Composite
It’s stock market index which contains stocks listed on Nasdaq Stock Exchange. Nasdaq is dominated by information & technology companies & it’s tracked across the globe to see the direction of IT sector.

10. Sectoral Indices
As the movement of SENSEX or NIFTY 50 represents the overall direction of the market, the more accurate movement is visible by the respective sectoral indices. Bank Nifty is the most traded sectoral index on NSE which is weighted average of large banks.