What is the Stock Market?

The stock market plays a pivotal role in the economy, providing businesses and investors opportunities to invest and build wealth. It is also known as the share market or equity market. 

For anyone entering the business realm, it is essential to understand the "whats" and "hows" of the stock market. 

The stock market is not just for investors or business professionals but presents a chance to anyone looking for growth by investment. This blog will provide a comprehensive review of the stock market to give a head start. 

 

Learn More about the Stock Exchanges through this Video

 

 

History of the Stock Market in India

From informal meetings under the Banyan trees to becoming one of the largest growing marketplaces, the history of the stock market in India dates back over 150 years. 

Stock trading in India began in the 1830s when East India Company securities were sold in Mumbai. Premchand Roychand established the Bombay Stock Exchange in 1875, India's oldest stock exchange. 

Afterwards, the National Stock Exchange (NSE) was formed in 1992, introducing an organized system providing transparency in stock trading. Electronic trading offered a faster and more secure way of transacting. Apart from the NSE, the Securities and Exchange Board of India was also established to regulate the stock market and protect investors.

With the rise in technology, investors use online platforms for trading, which has brought many people to invest in the stock market.

 

Key Features of the Stock Market 

The stock market has a defining role in the financial system, helping investors and business professionals. 

Here are the key features of a stock market:

• The stock market is regularized by authorities for fair trade.
• There are platforms for the stock exchange: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). 
• Some indicators reflect the market's performances: SENSEX for BSE listings and NIFTY 50 for NSE listings. 
• Investors can buy their way into the companies or sell the stocks.
• The pricing of a stock depends on its demand, the economic conditions, and investor sentiment. 
• The entrance and exit in the market are quick and easy due to the stocks' high liquidity (easy conversion to cash). 
• A slight fluctuation in the market can lead to a great win or a significant loss. The investment in stocks comes with risks. 

 

Factors Affecting the Stock Market 

Several factors influence the rise and fall of the stock market. Understanding all these factors helps investors make better decisions. 

The key factors affecting the stock market are listed below: 

• Economic factors such as inflation
• Strength of GDP 
• Exchange rates influence foreign investments. 
• Government policies 
• Supply and demand of stocks 
• Media influence 
• Investor psychology leading to overbuying or rapid swelling 
• Performance of the company
• Position of the global market 
• Pricing of commodities such as oil and gas 
• Geopolitical tensions 

 

How does the Stock Market work? 

To understand the position of a stock market on a random Wednesday, you need to understand the workings first. The stock market operates in a dynamic system connecting companies looking for investments. 

Let's have a look at the breakdown of the workings of the stock market: 

• Companies wanting to raise money list their shares through an Initial Public Offering (IPO) 
• Stock exchanges provide a platform for buyers and sellers to trade on a regulated platform. 
• Investors do not get directly involved in buying or selling on stock exchanges; they have stockbrokers or trading platforms like Zerodha, Upstockx, Groww, and Angel One. 
• SEBI ensures fair trading on all platforms 
• Trading: Buy or sell stocks to make short-term profits 
• Investments: Buy stocks and hold them for an extended period to earn long-term profit. 

 

Career Opportunities in Stock Market 

The stock market comes with unpopular mainstream career choices; however, prestigious job positions such as analysts and investment bankers deal with stocks daily. 

Anyone planning to pursue a career in commerce will have a head start with the knowledge of stocks; for example, a Portfolio Manager manages the investment portfolios for clients, and an investment banker helps companies raise capital. 

Here is a list of professions with the stocks' knowledge playing a part: 

• Chartered Accountant
• Company Secretary
• Chartered Financial Analyst

 

Key Differences between Stock Market and Stock Exchange 

To many people, the stock market and the stock exchange mean the same; however, there are differences between both terms. 

The Key Differences between Stock Market and Stock Exchange: 

 

Stock Market	Stock Exchange
The stock market covers a broad term referring to an entire system of buying and selling	The stock exchange refers to a platform for trading stocks and securities.
Includes all stock exchanges	Only specific stock exchanges, e.g., BSE, NSE
The complete Indian stock market	BSE, NSE, New York Stock Exchange, NYSC, London Stock Exchange, LSCE, Tokyo Stock Exchange, TSC

 

Role of the Stock Market in a Nation's Growth 

The stock market plays a vital role in the growth and development of a country by acting as a connection between companies and investors. A well-performing stock market generates a stronger economic condition, contributing to the national income.

Let us look at the key reasons for the importance of the stock market in a nation: 

• Companies raise capital through stocks for expansion; e.g., Reliance Industries expanded to telecom networks, introducing a new age of Indian digital growth. 
• The stock market offers investment opportunities for entrepreneurship, creating employment in various sectors. 
• A well-performing stock market brings foreign investment and more significant economic activity. 
• Provides financial stability across banking sectors, reducing the dependence on bank loans. 
• It helps in financing government projects through bonds and securities, reducing tax burdens. 
• Encourages innovation and technological advancements, e.g., companies like Zomato, Paytm, and Nykaa raised funds and expanded their businesses. 

 

See Also

• What is Commerce?
• Depreciation
• Carriage inward vs Carriage Outward
• Ledger in Accounting

 

Frequently Asked Questions (FAQs) 

Are stocks and shares different entities? 

Stocks usually indicate ownership in a company, whereas shares refer to ownership in a specific company. 

What does SEBI do? 

SEBI is a regulatory authority in India that ensures fair trade amid the stock market. 

What is the meaning of Sensex and Nifty 50?

Sensex and Nifty are the indices in the stock market referring to the overall performance. 

Sensex indicates the top 30 companies on the BSE, and nifty 50 indicates the top 50 companies on the NSE. 

Are trading and investing two different things?

Yes, trading is buying or selling stocks for a short period, whereas investing is buying and holding the stocks for a long time.