Numbers! That’s one word that lays a foundation to your mathematics in school and to your business when you’re an adult. Stocks are also all about numbers! All the figures on a business news channel on TV may be Greek and Latin to you, but if you get into the basics, following stocks is indeed not that difficult writes Deepa Kalukuri.
Understanding stocks is not difficult as the news shows put them through. It’s like a playing a video game but only your favorite batman is replaced with that stock broker who gives you the right advice to invest at the end of the bell. Before investing, make sure you know the market behavior well or you are bound to lose thousands and crores of investments. We have jotted down a simple guide to give you the basic knowledge of what the stock market is all about. Remember these dos and don’ts before you decide to invest.
DOS AND DON’TS
- Never deal with any market intermediaries who are not registered with the SEBI or the Exchanges.
- Make sure you give clear instructions to your agent/ broker/ depository partner.
- Before you get a broker involved, do a thorough check about his and his company’s profile, credentials and fundamentals.
- Keep a copy of every transaction between you and the stock brokerage.
- Never trust any online spam websites which may give you incorrect or malicious information.
- Always follow the stocks patterns and company information only on the exchanges’ official websites.
- Always remember every investment carries risk; make sure you are financially sound to take a hit if the market crashes or you investment is bearish.
- You need to follow the trading activity time to time as the prices spurt suddenly.
- Never believe on stock market rumors, always cross check with the broker or the exchange website.
- Never leave the custody of your account on Demat and the transactions with an intermediary.
What are stocks/shares all about? – In simple words, it’s a share in the entrepreneurial ownership in the company. A company’s assets and revenues are represented as claims in the form of a share. If you invest in buying more shares of a company, your ownership widens. Do not fret, equity, stocks, shares —they all mean the same.
Who is a shareholder? — You are! If you have invested little on shares then you are a small but important part of the company. However, like mentioned above, the more shares you invest in you become a more active and important shareholder. You do not have a say in the business decisions of the company, but you do have a share in the returns and risks.
Do you need a broker? — If you are a beginner or a businessman who has no time, yes! You will need a broker to read trading patterns right from the opening bell to the closing bell. A broker is a subject matter expert who is proficient with his knowledge on stocks. He will buy and sell the securities for his clients, either at the exchange counter or online.
Which companies to invest in? — There’s is no stock bible to refer to in this case. Your investment in a company depends on a lot of factors. The risk the company has dealt with in the recent past; remember the coalgate scam? A lot of Nifty50 companies bore the brunt. Make sure you follow news and sit with your trustworthy stock broker to decide on what to invest in and how much.
DECODING STOCK TERMS
Equity Share — If you invest in equity shares which are a fraction ownership, it means that you are a shareholder and you have voting rights in the company. It also means that if you invest in an equity share you will bear the entrepreneurial risks associated with the company’s stock behaviour.
Securities — It’s a financial tool which represents ownership in a public trading company or a creditor relationship with a government body. It’s a negotiable instrument which represents the financial value of any asset. Companies issue securities in financial markets (stock market).
Dividends — When a company’s board of directors decide on a certain portion of the earnings which would be distributed among the shareholders, it’s called a dividend. In simple words, it’s the returns the shareholders receive from the company they have invested in.
IPO — Initial Public Offering (IPO) is the process through which a private company can go public and announce the sale of its shares to public.
Bonds — Bonds are debt instruments which are issued for a period of at least more than a year in order to raise capital by borrowing.
SEBI — Securities and Exchange Board of India, is the main regulator for the securities market of the country. It has statutory powers to make amendments and implement regulations with regards to the exchanges like NSE and BSE.
NSE — National Stock Exchange is the top most stock exchange of India and is located in Mumbai. NSE’s index CNX Nifty (Nifty 50) is used as a barometer to determine the capital market behaviour of Indian companies. Most of the top investors include the banks and government institutions like the LIC. The list has top revenue generating companies from all over the country.
BSE — Bombay Stock Exchange is the oldest stock exchange in South Asia. It’s located on Mumbai and is also Asia’s fastest exchange. According to the latest list, more than 5000 companies are listed with the BSE. Just how the NSE’s index is Nifty 50, the BSE’s index is called Sensex. The list has small, medium and large scale companies.