Share Market Basics for Beginners
Rich don’t work for money. They have money work for them.Robert Kiyosaki.
There are generally 4 ways to earn money. i.e. Employee, Self Employed, Business, and Investment. This is called ESBI Concept. If you want to become wealthy and financially independent, then you need to be either a businessman or an Investor. The rich don’t work for money. They have money work for them. You can invest in different assets. Like Fixed Deposit, Gold, Real Estate, Share Market and more. Out of these, share market is the most rewarding platform. It has given the highest Return on Investment (ROI) as compared to other investing products. But if you start investment with out any prior knowledge, then you are signing on your own death note. Let’s go in detail. We will discuss Share Market Basics for Beginners in this article.
What is Security :
The definition of securities as per the Securities Contracts Regulation Act (SCRA), 1956, includes instruments such as shares, bonds, scrip’s, stocks, other marketable securities of similar nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the Central Government. Basically investors can invest in securities like Shares, Government Securities (Debt Instruments), Derivative Products and Units of Mutual Funds.
What is Share :
When a company wants to expand, it needs money for that. So it can go to a bank for loan. Or it can take money from ordinary people like you and me. And in return it will give us some shares of that company. Share is nothing but unit of ownership of a company from where you bought it. It is also known as equity and stock. Let’s take an example. Suppose you are planning to open a restaurant in your locality. For that you need 10 lakh rupees. But you only have 50% of the required amount. So you have asked your friend to give you another 5 lakh rupees. In return he will be your business partner. 50% of the company will belong to you and another 50% of the company will belong to your friend. Now he is also the owner of the restaurant. In short he will buy 50% of share or ownership in your company. If your company makes profit, then it will go to both of you. Or if you company makes loss, both of you will bear it.
What is Share Market :
Share market is the place where you can buy and sell shares. It is also known as Stock Exchange. Almost all countries have their own share markets. In India there are two major stock exchanges. One is Bombay Stock Exchange (BSE) and another one is National Stock Exchange (NSE). These are regulated by Securities Exchange Board of India (SEBI). It is also known as Police for Share Market.
|Sl No.||Stock Exchange||Short Name||Region|
|1||New York Stock Exchange||NYSE||United States|
|3||Japan Exchange Group||JPX||Japan|
|4||London Stock Exchange||LSE||United Kingdom/Italy|
|5||Sanghai Stock Exchange||SSE||China|
|6||Hong Kong Stock Exchange||SEHK||Hong Kong|
|8||Toronto Stock Exchange||TSE||Canada|
|9||Shenzhen Stock Exchange||SZSE||China|
|10||Bombay Stock Exchange||BSE||India|
|11||National Stock Exchange||NSE||India|
The share market has two interdependent segments. One is Primary Market. And another one is Secondary Market.
Primary Market :
The primary market is where securities created ( by means of an IPO – Initial Public Offering) in other words provide the channel for sale of new securities. If a company wants to list its shares on share market for the first time, then it can list only in the primary market. Then people can buy and sell the shares of the company in the secondary market.
Initial Public Offering (IPO) :
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors. Meanwhile, it also allows public investors to participate in the offering.
Seconday Market :
Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and / or listed on the stock exchange. Majority of the trading is done in the secondary market.
Bombay Stock Exchange (BSE) :
Bombay Stock Exchange is the oldest stock exchange in Asia. It was established in 9th July 1875. It is located on Dalal Street, Mumbai. The BSE is the world’s 10th largest Stock Exchange with an overall market capitalization of more than US$2.2 trillion on as of April 2018. There are more than 5000 companies listed on BSE.
SENSEX stands for Sensitive Index. It is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. The 30 constituent companies which are some of the largest and most actively traded stocks, are representative of various industrial sectors of the Indian economy.
|Sl No.||Company Name||BSE Scrip Code||Industry|
|1||INFOSYS LTD.||500209||IT Consulting & Software|
|2||TATA CONSULTANCY SERVICES LTD.||532540||IT Consulting & Software|
|3||RELIANCE INDUSTRIES LTD.||500325||Integrated Oil & Gas|
|4||ICICI BANK LTD.||532174||Banks|
|5||HDFC Bank Ltd||500180||Banks|
|6||HCL TECHNOLOGIES LTD.||532281||IT Consulting & Software|
|7||BHARTI AIRTEL LTD.||532454||Telecom Services|
|8||INDUSIND BANK LTD.||532187||Banks|
|9||STATE BANK OF INDIA||500112||Banks|
|10||LARSEN & TOUBRO LTD.||500510||Construction & Engineering|
|11||TECH MAHINDRA LTD.||532755||IT Consulting & Software|
|12||AXIS BANK LTD.||532215||Banks|
|13||ITC LTD.||500875||Cigarettes-Tobacco Products|
|14||BAJAJ AUTO LTD.||532977||2/3 Wheelers|
|15||OIL AND NATURAL GAS CORPORATION LTD.||500312||Exploration & Production|
|16||TATA STEEL LTD.||500470||Iron & Steel / Interm. Products|
|17||NTPC LTD.||532555||Electric Utilities|
|18||MAHINDRA & MAHINDRA LTD.||500520||Cars & Utility Vehicles|
|19||ASIAN PAINTS LTD.||500820||Furniture-Furnishing-Paints|
|20||POWER GRID CORPORATION OF INDIA LTD.||532898||Electric Utilities|
|21||BAJAJ FINSERV LTD.||532978||Holding Companies|
|22||Titan Company Limited||500114||Other Apparels & Accessories|
|23||NESTLE INDIA LTD.||500790||Packaged Foods|
|24||ULTRATECH CEMENT LTD.||532538||Cement & Cement Products|
|25||SUN PHARMACEUTICAL INDUSTRIES LTD.||524715||Pharmaceuticals|
|26||Bajaj Finance Limited||500034||Finance (including NBFCs)|
|27||MARUTI SUZUKI INDIA LTD.||532500||Cars & Utility Vehicles|
|28||HOUSING DEVELOPMENT FINANCE CORP.LTD.||500010||Housing Finance|
|29||HINDUSTAN UNILEVER LTD.||500696||Personal Products|
|30||KOTAK MAHINDRA BANK LTD.||500247||Banks|
National Stock Exchange (NSE) :
National Stock Exchange is the second largest Stock Exchange in India in terms of number of companies listed. And it is the largest stock exchange in India in terms of daily turn over and number of trades, for both equity and derivative trading. It was established in1992. It is the first dematerialized stock exchange in our country. It is located in Mumbai, Maharashtra. And there are more than 1900 companies listed on NSE.
Nifty stands for National Fifty. It is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. It is one of the two main stock indices used in India, the other being the BSE SENSEX.
|Sl No.||Company Name||Industry|
|1||Adani Ports and Special Economic Zone Ltd.||SERVICES|
|2||Ambuja Cements Ltd.||CEMENT & CEMENT PRODUCTS|
|3||Asian Paints Ltd.||CONSUMER GOODS|
|4||Aurobindo Pharma Ltd.||PHARMA|
|5||Axis Bank Ltd.||Axis Bank Ltd.|
|6||Bajaj Auto Ltd.||AUTOMOBILE|
|7||Bajaj Finance Ltd.||FINANCIAL SERVICES|
|8||Bharat Petroleum Corporation Ltd.||ENERGY|
|9||Bharti Airtel Ltd.||TELECOM|
|10||Bharti Infratel Ltd.||TELECOM|
|13||Coal India Ltd.||METALS|
|14||Dr. Reddy’s Laboratories Ltd.||PHARMA|
|15||Eicher Motors Ltd.||AUTOMOBILE|
|16||GAIL (India) Ltd.||ENERGY|
|17||HCL Technologies Ltd.||IT|
|18||HDFC Bank Ltd.||FINANCIAL SERVICES|
|19||Hero MotoCorp Ltd.||AUTOMOBILE|
|20||Hindalco Industries Ltd.||METALS|
|21||Hindustan Petroleum Corporation Ltd.||ENERGY|
|22||Hindustan Unilever Ltd.||CONSUMER GOODS|
|23||Housing Development Finance Corporation Ltd.||FINANCIAL SERVICES|
|24||I T C Ltd.||CONSUMER GOODS|
|25||ICICI Bank Ltd.||FINANCIAL SERVICES|
|26||Indiabulls Housing Finance Ltd.||FINANCIAL SERVICES|
|27||Indian Oil Corporation Ltd.||ENERGY|
|28||IndusInd Bank Ltd.||FINANCIAL SERVICES|
|30||Kotak Mahindra Bank Ltd.||FINANCIAL SERVICES|
|31||Larsen & Toubro Ltd.||CONSTRUCTION|
|33||Mahindra & Mahindra Ltd.||AUTOMOBILE|
|34||Maruti Suzuki India Ltd.||AUTOMOBILE|
|36||Oil & Natural Gas Corporation Ltd.||ENERGY|
|37||Power Grid Corporation of India Ltd.||ENERGY|
|38||Reliance Industries Ltd.||ENERGY|
|39||State Bank of India||FINANCIAL SERVICES|
|40||Sun Pharmaceutical Industries Ltd.||PHARMA|
|41||Tata Consultancy Services Ltd.||IT|
|42||Tata Motors Ltd.||AUTOMOBILE|
|43||Tata Steel Ltd.||METALS|
|44||Tech Mahindra Ltd.||IT|
|45||UPL Ltd.||FERTILISERS & PESTICIDES|
|46||UltraTech Cement Ltd.||CEMENT & CEMENT PRODUCTS|
|49||Yes Bank Ltd.||FINANCIAL SERVICES|
|50||Zee Entertainment Enterprises Ltd.||MEDIA & ENTERTAINMENT|
Investment is buying of various financial instruments such as stocks (shares), commodities and currencies with a goal of making profit in the long term. You need to learn Fundamental Analysis if you want to earn good amount of money in investing. Long Term Investors may hold positions for several years. Thus the job of an investor is completely different from traders. It should be noted that, in long run, long term investors make big money as compared to what is made ever by traders, keeping exceptions aside.
Trading is buying of various financial instruments such stocks (shares), commodities and currencies with a goal of making profits in short term. Traders may hold positions from as low as some minutes to as long as some months. There are also various types of trading styles. Such as Day Trading, Swing Trading and Positional Trading.
Day Trading :
Day Trading involves taking a position in the markets with a view of squaring that position before the end of that day. A Day Trader typically trades several times a day looking for fractions of a point to a few points per trade, but close out / square off all their positions by day’s end.
Swing Trading :
Swing trading is a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing Traders primarily use technical analysis to look for trading opportunities. These traders may utilize fundamental analysis in addition to analyzing price trends and patterns.
Positional Trading :
Postional Trading is opposite to day trading. As the goal is to make profit from the move in the primary trend rather than profiting from fluctuations that occur during the day. Positional Traders hold trades for an extended period of time. They are like the investors in stocks albeit with a shorter time perspective, which is not necessarily limited but generally takes a week, months and is not concern with day to day fluctuations.
How to Start :
At first you need three things to begin with. Bank Account, Demat Account, and Trading Account.
Bank Account :
You need an active bank account, so that you can add money to your trading account and withdraw money from your trading account.
Trading Account :
Trading account is required in order to buy and sell shares, commodities and other financial instruments.
Demat Account :
Demat account is required in order to store your shares (stocks) in digital form if you want to take delivery of the shares. There is no requirement for demat account if you do only day trading and don’t take delivery of the stocks.
A broker is one who will help you create demat and trading account. There are lots of brokerage firms available in India. You can choose one according to your requirements. They will charge some amount of money as their commission whenever we place an order (buy or sale shares).
Points to consider before selecting a broker :
- Broker should be SEBI registered.
- Broker should located as near as possible.
- Services offered (NSE, BSE, FNO, Commodities, etc.)
- Brokerage Rates.
- Convenience of placing orders for BUY / SELL (By phone / Online Trading).
Documents required while creating demat and tradig account :
- PAN Card (It is mandatory).
- Bank account proof with Bank attestation.
- Ration card.
- Any one of the following (Photo Proof).
- Driving License.
- Voter ID.
Some of the Trusted Brokerage Firms :
Free Brokerage Firm
- Angel Broking
- 5 Paisa
Full Service Brokerage Firms
- Kotak Securities
- ICICI Direct
- Motilal Oswal
Books on Share Market :
There is a saying that a little learning is dangerous. And that is applicable in share market too. You need proper understanding of how market moves, its various fundamental and technical aspects. You can watch youtube videos, join online or offline classes and read books. There are lots of books on share market and investment. You can easily find those on amazon and flipkart. If you make some investments on those books too, then it will drastically increase your learning curve. Below I have provided some of the popular and useful books on to start with. Most of them are available in both hard copy and ebook format. Purchase them and start reading.
- One up on wall street – Peter Lynch.
- The intelligent investor – Benjamin Graham.
- Beating the street – Peter Lynch.
- Stocks to riches – Parag Parikh.
- Bulls, Bears and other Beasts – Santosh Nair.
- Japanese candlesticks charting techniques – Steve Nison.
- Mind over markets – James F. Dalton, Eric T. Jones, Robert B. Dalton.
- Technical Analysis of the financial market – John Murphy
- Rich dad, poor dad – Robert Kiyosaki.
- Rich dad’s cashflow quadrant – Robert Kiyosaki.
Money is not the cause of all evils. Instead, lack of money is the cause of all evils. Share market is the place where you can solve all your financial problems. But be alert. It’s not a get rich quick scheme. You need proper financial knowledge, discipline, hardwork and most importantly patience. Financial knowledge is more important than academic knowledge.
At first invest in your knowledge. Then invest in share market.Knowledge Dustbin.