STOCK MARKETS

Tune in to a business news channel, pick up a business

newspaper or the business page of any newspaper, listen to
business news on the radio or visit any business site on the

WEB, you will invariable come across the following terms or

phrases :

SENSEX, NIFTY, NASDAQ etc.

SENSEX falls 1500 points during the days trading
NIFTY recovers 500 points
the BEARISH trend
the BULLISH trend

What does all this mean ?

To understand all this, let us first understand

What are Stocks or Shares

How are stocks traded
What are Stock Markets or Stock Exchanges
What is BSE, NSE and other Stock Exchanges
What is SENSEX, NIFTY and other Indices

In fact, let us understand the business of Trading in Stock

Markets
What is a SHARE?
A share is a piece of ownership in a company. Buying shares in
a company makes you a partial owner of that company. More
the number of shares you buy, the bigger your ownership stake
becomes in the given company and more is the say you can
have in how the company is run.
Ownership of a share entitles you to one vote for every share
owned. It also entitles you to a share in the profits of the
Company (disbursed in the shape of dividend. Therefore, it is
imperative that before you invest in a companys share, you
analyze its financial performance (past years), its future plans
and the current financial performance.
The purpose of buying shares in a company is twofold. One, to
invest in the Company to generate profit in the form of
dividends (as and when the company announces the same)

and/or to generate profit by trading your shares at prices higher

than at what you bought them for.
How are the shares traded
Like we have markets for buying or selling commodities viz.
Groceries, condiments, garments, medicines, toiletries etc. we
have markets (commonly called Stock Exchanges or Stock
Markets) for the purpose of buying or selling shares.
Now that one can do ones shopping on line, one can shop for
shares and trade them (buy or sell) on line as well.
One has intermediaries in the Stock markets called the brokers
who buy and sell stocks on ones behalf and charge a fee for all
such transactions. The fee is called brokerage. You can place
your BUY or SELL orders on the broker who then transacts
the deal on your behalf.
Today, all major stock exchanges in India conduct business online.
A company wishing to raise capital from the market by offering
shares to the public for the first time (called the INITIAL PUBLIC
OFFER or IPO in short) makes an offer to the prospective
investors by publishing :

Its prospectus
Its financial results/performance
Future plans and
Puts a price (and a premium) to its shares

A company wishing to raise additional capital from the market

alsso would make an offer to the prospective investors by
publishing :

Its prospectus
Its financial results/performance
Future plans and
Puts a price (and a premium) to its shares

Raising of capital by any company from the public domain has

to be approved by The Securities and Exchange Board of India
(SEBI).
Investing in shares during the capital raising drives of a
company is investing in the Primary Market while when you buy
or sell shares that are individually owned, you are trading in the
Secondary Market.
While prices in the Primary market are regulated and approved
by SEBI, Prices in the secondary market are market-driven,
depend on the past performance of the Company, its future
plans as also external factors viz., Government fiscal policies,
the foreign exchange rates, prices of certain commodities (like
crude oil) in the international market etc.
The two major stock markets in India are :
BOMBAY STOCK EXCHANGE (BSE)
NATIONAL STOCK EXCHANGE (NSE)
Bombay Stock Exchange (BSE) : Established in Mumbai in
1875, is the largest Stock Exchange in Asia. It is located on
Dalal Street in Mumbai. Obtained permanent recognition from
the Government of India in 1956 under the Securities Contracts
(Regulation) Act, 1956. Its index is called Sensitive Index,
SENSEX in short. SENSEX is tracked world-wide. Surveillance,
Clearing and settlement functions of this Exchange are ISO
9001:2000 certified.
National Stock Exchange (NSE) was established in 1994
and is located at Bandra East in Mumbai. The NSE is a national
exchange integrating the country's stock markets through
nationwide automated on-line screen operations and electronic
clearing and settlement
SENSEX and NIFTY are the indices of Bombay Stock Exchange
and The National Stock Exchange respectively. SENSEX is
based on 30 scrips while
NIFTY is more broadly based on 50 Scrips.

SENSEX

Calculated on the Free Float Market Capitalization method

Based on 30 Shares with a base value of 100 for the year 1978-79
Closed at an all time high of 26147 on Wednesday, the 23rd July
2014
Is widely recognized as the leading Index of the Indian Stock
Markets

NIFTY

Calculated as a weighted average of the prices of 50 select shares.

The base is defined as 1000 at the price level of 3rd November 1995
Closed at an all time high of 7796 on Wednesday, the 23rd July 2014

Trading in the Primary and Secondary markets is regulated by

SEBI. The Securities and Exchange Board of India. It acts as a
watch dog to protect the interests of the investors in the Stock
Market. Companies wishing to raise capital in the primary
market through Initial offer or additional issues are required to
take necessary approvals from SEBI.
THE BULL & THE BEAR
A bull attacks its opponent by thrusting its horns in the air while
a bear swipes its paws down.
These actions are metaphors for the movement of a market: if
the trend is up, it is considered a bull market. And if the trend is
down, it is considered a bear market
BULL MARKETS

Characterized by optimism
High investor confidence and expectations
Resulting in increased buying which pushes the prices up
Certain Fiscal policies of the Government
External Factors viz. Political, International Market Trends etc.

BEAR MARKETS

Bear markets are characterized by a fall in Prices

Loss of investor confidence

Certain Fiscal policies of the Government

External Factors viz. Political, International Market Trends etc.

BEARISH TREND is described as a continuous fall in the value

of market indices while the BULLISH TREND signifies a
continuous rise in the value of stock as well as the indices.