What is Share Market?

The share market enables investors to buy and sell shares of publicly listed companies after they are listed on a stock exchange. Companies raise funds by issuing shares through an Initial Public Offering (IPO) in the primary market, while investors trade these shares in the secondary market through registered brokers.

Key points:

• Shares are first issued through an IPO in the primary market.
• Trading after listing takes place in the secondary market.
• Investors require both a Demat account and a trading account to buy or sell shares electronically.
• Stock prices change continuously based on market demand and supply.
• Market performance is commonly tracked using indices such as Nifty 50 and Sensex.
• The Securities and Exchange Board of India (SEBI) regulates the Indian securities market to promote transparency and investor protection.

The share market is a marketplace where shares of publicly listed companies are bought and sold. When you purchase a company's share, you become a partial owner of that business and may benefit if its value increases or if it distributes dividends.

Companies issue shares through the primary market, usually by launching an Initial Public Offering (IPO). After listing on a stock exchange, these shares become available for trading among investors in the secondary market.

Registered stockbrokers facilitate these transactions, while a Demat account stores shares electronically after purchase. This electronic system simplifies ownership management and reduces the need for physical share certificates.

Stock prices constantly change because buyers and sellers place orders at different prices. When demand for a stock exceeds its supply, its price generally rises. 

1. Companies list their shares on stock exchanges

Companies seeking capital can issue shares to the public through an Initial Public Offering (IPO). Once listed, investors can freely trade these shares on recognised stock exchanges.

Listing enables businesses to raise funds while giving investors an opportunity to participate in their future growth.

2. Stock prices change throughout the trading day

Share prices fluctuate based on several factors, including:

• Company financial performance
• Industry developments
• Economic conditions
• Investor sentiment
• Overall market demand and supply

3. Brokers and demat accounts facilitate trading

To invest in the share market, you generally need a demat account, a trading account, and a registered broker. The trading account is used to place orders, while the demat account securely stores your securities after settlement.

4. Who participates in the share market?

Different types of participants contribute to market activity and liquidity.

Each participant contributes to price discovery and overall market efficiency.

5. What do stock market indices show?

Stock market indices measure the performance of selected listed companies and provide an overview of overall market trends.

These indices help investors understand market direction, compare portfolio performance, and monitor investor confidence over time.

6. How is the share market regulated?

The Indian securities market operates under a regulatory framework designed to protect investors and maintain transparency.

The Securities and Exchange Board of India (SEBI) regulates the securities market by:

• Protecting investor interests.
• Promoting fair trading practices.
• Monitoring listed companies.
• Preventing fraudulent market activities.
• Strengthening transparency across capital markets.

The share market comprises multiple segments, each serving a distinct purpose in the investment process. The two primary segments are the primary and secondary markets, while investors can also participate through the equity and derivatives markets, depending on their objectives.

1. Primary market

The primary market is where companies issue shares to the public for the first time, usually through an Initial Public Offering (IPO).

Investors purchase these newly issued shares directly from the company or through authorised intermediaries. The funds raised are received by the company and may be used for business expansion, operational requirements, or capital investment.

2. Secondary market

The secondary market allows investors to buy and sell shares after they have been listed on a recognised stock exchange.

Unlike the primary market, transactions take place between investors. The issuing company does not receive funds from these trades.

3. Equity market

The equity market is where ownership shares of listed companies are traded.

Buyers place bids that represent the maximum price they are willing to pay, while sellers submit asking prices indicating the minimum amount they will accept. When both prices match, the transaction is completed through a registered broker.

4. Derivative market

The derivative market involves contracts whose value is linked to an underlying asset such as shares, indices, commodities, or currencies.

Unlike equity investing, derivatives generally do not involve direct ownership of shares. Instead, investors trade contracts based on expected future price movements.

Companies list their shares on stock exchanges to raise capital from public investors. Listing on a recognised stock exchange also improves a company's visibility and contributes to its overall market capitalisation.

The share market offers investors an opportunity to participate in the growth of publicly listed companies. 

Some of the key benefits include:

Potential for Long-Term Capital Growth

Historically, equity investments have offered the potential for capital appreciation over longer investment horizons. However, returns are not guaranteed, and share prices may fluctuate because of changing market conditions.

Ownership in Listed Companies

If the company grows over time, the value of your investment may increase. Some companies may also distribute a portion of their profits as dividends, subject to their dividend policy.

Portfolio Diversification

Investing across companies and industries can help spread investment risk. Diversification does not eliminate risk, but it may reduce the impact of poor performance by a single investment.

Liquidity

Shares listed on recognised stock exchanges can generally be bought or sold during market hours. This allows investors to convert their holdings into cash more easily than many other long-term investment assets.

Opportunity for Wealth Creation

Long-term investing in fundamentally strong companies may contribute to wealth creation through:

• Capital appreciation
• Dividend income (where declared)
• Portfolio diversification

Investment outcomes depend on market performance, company fundamentals, and individual investment decisions.

You can participate in both the primary market and the secondary market.

In the primary market, investors apply for newly issued shares through an Initial Public Offering (IPOs).In the secondary market, investors buy and sell already listed shares through recognised stock exchanges.

Investing in the primary market (IPOs)

To invest in an IPO, you generally require:

• A Demat account
• A trading account
• A linked bank account

Many investors submit IPO applications through Application Supported by Blocked Amount (ASBA), where the application amount remains blocked in the bank account until the allotment process is completed.

The Indian share market consists of different types of participants, each contributing to trading activity, liquidity, and price discovery. 

Key Factors Affecting Share Prices:

The share market provides access to multiple financial instruments that cater to different investment objectives. 

1. Shares

Shares, also known as equities, represent partial ownership in a company. When you own shares, you become a shareholder and may benefit if the company's value increases. 

2. Bonds

Bonds are debt instruments issued by companies to raise long-term capital.

By purchasing a bond, you lend money to the issuer for a specified period. In return, the issuer generally pays periodic interest and repays the principal on maturity, in accordance with the bond's terms.

3. Mutual funds

Mutual funds pool money from multiple investors and invest it across a diversified portfolio of securities such as equities, bonds, or hybrid instruments. Instead of purchasing individual securities directly, investors own units of the mutual fund. 

4. Derivatives

Derivatives derive their value from an underlying asset such as shares, market indices, commodities, or currencies. Derivative trading involves different risks from investing directly in shares and requires an understanding of these financial instruments.

5. Exchange-traded funds (ETFs)

Exchange-Traded Funds (ETFs) combine features of mutual funds and shares.

Like mutual funds, ETFs hold a diversified basket of securities. Like shares, they are bought and sold on stock exchanges throughout the trading day.

The share market provides benefits for both companies seeking capital and investors looking to participate in financial markets.

Potential for long-term growth

Companies can raise capital by issuing shares, while investors may benefit from long-term capital appreciation if company performance improves over time. Investment returns, however, depend on market performance and are not guaranteed.

Easy buying and selling

Listed shares can generally be bought or sold during market trading hours through recognised stock exchanges.

Regulated market environment

The Indian securities market operates within a regulatory framework designed to promote transparency and protect investors. Recognised stock exchanges and regulatory authorities require listed companies to comply with disclosure and governance standards.

The share market is a marketplace where investors buy and sell shares of publicly listed companies through recognised stock exchanges. It enables companies to raise capital through the primary market while allowing investors to trade listed securities in the secondary market.

To invest in the share market, you generally need both a demat account and a trading account. A Demat account stores your securities electronically, while a trading account enables you to place buy and sell orders through a registered broker.