Share market in India holds a promising place for investors. The reason is the huge growth potential seen in the Indian economy and consequently the Indian share market or Indian stock market.
Lot of investors, foreign as well as domestic, are betting on the Indian economy. India is expected to become the biggest economy in the world in the coming years. So, there are plenty of opportunities to create wealth in the Indian stock market.
India is a developing country. Lot of infrastructure work is being done and still a lot of is yet to be done.
Industry is the backbone for the development of any nation. There are several sectors of the industry ; Energy, Power, Real Estate, Banking, Oil and Gas, Cement, Pharmaceutical, Automobiles, Metals, Fast Moving Consumer Goods (FMCG) etc.
Population in India is on the rise, and it is second highest after China. Huge population will have huge demand in future. This demand is to be met by the industry.
These are the reasons for higher growth potential in Indian economy and the Indian share market. That is why you should not miss the opportunity to be a part of this economic development.
Share market is the best tool to participate in this growth opportunity and create wealth by investing in share market. Learn about Indian stock market through this beginners guide and take advantage of this growth story.
We shall be talking about the share market basics in Indian share market. It is a beginners guide about how to invest, especially, in share market in India or start share trading so that you can also avail those opportunities.
We will try to answer the most common queries a beginner may have to start investing in Indian share market or start share trading for quick profits.
What is Stock Market?
Stock market or share market is the financial market for stock trading and investing. The stock market is considered the best asset class for investing compared to real estate and precious metals.
Some people are confused just at the very first step itself. They can not differentiate between the stock market and a stock exchange.
It is just like we need a vegetable market to buy vegetables or a cloth market to buy clothes. To buy stocks, we need a stock market.
In a vegetable market or cloth market, to buy anything, we go to a particular shop. In this shop, different types of vegetables or clothes are available at different prices. We can choose anyone of our choice by paying its market price.
In stock market or share market also, there are different types of shops to buy stocks. These are called as stock exchanges. Share trading takes place at these stock exchanges.
What is a Stock?
A stock or a share is your share in a company. When you buy a share, you become eligible for the profits or the losses that company makes.
It is wrong to say that you become partner in that company after you buy stocks of that company. You have only a stake in the company, depending upon the number of share you buy.
You are authorized to cast votes in corporate decisions when you are a shareholder in a company.
What is Initial Public Offering (IPO)?
Initial public offering or IPO is the method by which a company enters the stock market first time by offering its shares to the investors.
IPO is issued by the company for a predetermined issue price in a fixed number of shares called as Lots. Investors can subscribe to the IPO and become a shareholder in that company.
After completeing the subscription process for a few days, the IPO is listed on the stock exchanges. Depending upon the price on which the IPO lists, the IPO subscribers get the profits or the losses on their investment.
What Are Mutual Funds?
Mutual Funds offer a relatively low risk investment option to the investors.
Mutual Funds are managed by AMCs or asset management companies through professional fund managers.
Each mutual fund scheme consists of a portfolio of different stocks. The performance of these stocks determines the performance of that mutual fund scheme.
The performance of the scheme is reflected by the NAV or net asset value. NAV keeps changes with the performance of the stocks and the stock market.
The difference between the NAV at which you sell the mutual fund scheme and the NAV at which you bought that mutual fund scheme determines your profit or loss on investing in mutual funds.
You can invest in mutual funds in lump sum amount or in small installments through systematic investment plan (SIP).
Indian stock markets provide one of the best platforms to buy stocks for trading and investing.
There are two major stock exchanges of India. There are small stock exchanges also but we will talk about our big stock exchanges only.
These are :
National Stock Exchange (NSE)
Bombay Stock Exchange (BSE)
National Stock Exchange (NSE)
National Stock Exchange or NSE is the leading stock exchange in India. This is situated in the financial capital of India, Mumbai.
NSE was established in 1990s by major financial institutions which include Life Insurance Corporation of India (LIC), State Bank of India (SBI), Infrastructure Development Finance Corporation (IDFC) and ICICI Bank. This is the major stock exchange in India.
NSE provides the most advanced, fully automated, screen based trading terminal.
In the recent times, NSE has overtaken Bombay Stock Exchange in terms of total turnover of trades done on the exchange.
NSE offers trading in Equity, Derivatives, Mutual Funds, Exchange Traded Funds(ETFs) and Currency. Recently, NSE announced trading in Volatility futures, the India VIX Futures.
Trading on NSE commences from 9:00 AM and closes at 3:30 PM from Monday to Friday.
9:00 AM to 9:15 AM is the session for pre-opening in which share trading starts in high liquidity shares. After 9:15 AM, the normal share trading starts, in which all the stocks listed on the exchange are tradable.
There are days of trading holidays which are notified by the stock exchange at the start of each new year during which the exchange remains shut and no trading happens.
Stock exchange also carries on stock trading on some festival days during which otherwise there is a holiday or just to check the functioning of the trading system which are of very short duration (usually 2-3 hours).
What is Nifty in Indian Stock Market?
Nifty is a well diversified Indian stock market index involving 50 stocks which are traded at the National Stock Exchange.
NSE keeps reviewing the index from time to time and stocks are added or deleted from the index as the NSE finds necessary but the number is kept fixed at 50.
Nifty values reflect the changes in the prices of those underlying 50 stocks.
NSE provides option to trade in the Index under the name of Nifty. So, you can trade in Nifty through Nifty Futures or Nifty Options. Turnover wise trades done in Nifty remain highest on day to day basis.
The Nifty trading provides much needed portfolio hedging tool to the investors against major falls in the stock markets.
Apart from that, Nifty trading gives versatility to trading arsenal of the market traders via Nifty Futures & Nifty Options.
Bombay Stock Exchange (BSE)
Bombay Stock Exchange (BSE) or Mumbai Stock Exchange is one of the oldest and leading stock exchange in India.
BSE was established in 1875 and this is in fact the first stock exchange of Asia. The headquarters of BSE are situated in Mumbai.
BSE offers one of the best and efficient trading platforms for the traders and investors in share market in India.
Turnover wise BSE has been taken over by National Stock Exchange (NSE). But, still BSE holds a unique and prestigious place in financial markets of the world.
What is Sensex in Indian Stock Market?
BSE is popular as Sensex, the term was given by a technical analyst Deepak Mohoni in 1990s.
Sensex is also an Indian stock market Index made up of 30 large cap stocks.
The movement in Sensex values reflects the fluctuations in market prices of these stocks in the form of Index movement.
Sensex offers trading facilities in Equity, Derivatives, Mutual Funds and Debt instruments.
Recently, BSE offered provision of trading in Index via derivatives on the lines of National Stock Exchange. This added more versatility to the share trading and a hedging instrument for the long term investors holding major portfolios.
Investing In Indian Stock Market
Share market in India allows you share trading, investing through shares or mutual funds.
The basic difference between trading and investing is the time period for which you keep your money in the stock market.
Share trading can be for a single day (day trading), few days (swing trading) or few weeks to months (positional trading). Investing on the other hand requires you to stay in the market for years, usually more than 5 years.
Share trading can be done as :
- Cash Trading
- Futures & Options Trading
- Margin Trading
Investing in Indian stock market can be done as :
- Investing in Stocks
- Investing in Mutual Funds
- Investing in Unit Linked Insurance Plans (ULIPs)
Let us walk through what you need to do to start trading stocks in India.
Learn Basic Technical Charts and Technical Indicators
Studying the price action for stocks on technical charts is known as technical analysis. It gives you insights into the otherwise darkness of the market action. It guides you where you should enter in a trade and where you should exit.
Candlestick charts are the most popular and most widely used technical charts for technical analysis. This chart consist of candlesticks for any particular period and each candlestick gives much needed information to the traders.
Combined with technical indicators, the candlestick charts give a powerful trading system to take informed trading decisions. The important and widely used indicators are moving average convergence divergence (MACD), relative strength index (RSI), Stochastics and Bollinger Bands.
It is important that you learn about technical analysis as much as you can before you start trading in Indian stock market. For that, you can join online courses or search online books on the internet.
Free candlestick charts for Indian stocks can found at many websites like tradingview.com investing.com or moneycontrol.com. You can also download a free software by Edelweiss with all the required utilities.
To make the job of doing research on stocks, you can use an Indian stock market screener to find the right stocks for trading.
Open A Trading Account
To start share trading or investing in Indian stock market, you would need a trading account or a dematerialized account (Demat Account).
The demat account keeps your shares in dematerialized form instead of physical documents. Demat account allows you share trading also, under the trading account number.
There are so many online stock brokers available there. You can get your trading account opened with any of them.
The major ones are the ICICI Direct, Zerodha, HDFC, SBI, Kotak etc. You can open your trading account with any of them. All of them provide online stock trading facility.
To open a trading account with any of them, you can visit their office or the concerned bank in your locality. After submitting the required documents, your trading account get opened in a week or so.
You may open a trading account with ICICI Direct online instantly which is free of any charge. Nominal annual account maintenance charges are applicable only from second year onwards.
It is a 3 in 1 account which includes your trading account, demat account and a savings account. Connected savings bank account with trading account ensures your account and transactions are secure and easy to execute.
The trading account give you the facility for Futures & Options trading, investing in mutual funds and buying other financial products like insurance policies, fixed deposits and public provident fund (PPF) accounts.
Capital is the cash you need to invest in share market. As investing is associated with lot of risk, it is important that you allocate the capital for investing which can risk to loose.
Thus, it is important that first you make your savings and create an emergency fund to deal with financial emergencies before you invest in the stock market.
You can invest in one time lump sum or in regular installments. The later helps in rupee-cost averaging and lowers the stock market related risks.
Start In Small Steps And Manage The Risk
As a beginner in trading in stock market, it is important to know the risk and keep your risk to the minimum. Starting in small baby steps will help you keep your risk to the minimum and protect your capital.
As you gain experience, you can increase your position size according to your risk taking ability.
Keep Emotions Out Of Trading
Human emotions are the enemy of a trader. These emotions are – fear and greed.
Fear of losing money in trading and the greed of getting more and more. Creating a trading plan helps you keep the human emotions in check and execute your trades with ease.
Keep Learning
Share trading in share market is an ever learning process. It takes time to have some hold on share trading or investing in stock markets.
The best way to learn trading stocks or investing is to keep reading business newspapers and magazines regularly like economic times, business standard to name a few.
Do watch business news channels like CNBC daily for some time.
There are websites to learn Indian stock market analysis like Moneycontrol, Economic Times, Livemint etc.
This helps you to master the commonly used terms in stock markets and the related news concerned to share market in India specifically.
Final Word
Share market in India is a sea of opportunities for traders and investors. You just have to pick the right choice for you whether it is trading stocks or investing in mutual funds to generate extra source of income and build wealth.
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Thanks a lot dear for sharing such a wonderful and amazing post..
i am new beginner..at the age of 45… yes basics and so on i will learn… but i need a guidance at this age what will be the safe play for having normal life by 60 yrs.
Thanks for the sharing