The world of investing can often seem perplexing, especially for those who are new to it. But understanding the share market can greatly benefit investors looking to grow their wealth over time. This guide will demystify the concepts, starting with the fundamental question: what is share market?
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What is the Share Market
The share market, also known as the stock market, is a platform where shares of publicly listed companies are bought and sold. If you’re wondering what is share market, it is essentially a place that facilitates the exchange of securities such as equities, bonds, and mutual funds, allowing investors to buy ownership in companies. The market plays a pivotal role in the economy by helping companies raise capital and enabling investors to earn a return on their investments.
Shares represent units of ownership in a company, available for purchase in the share market. When you buy shares, you become a shareholder. This entitles you to a portion of the company’s profits, distributed as dividends, and gives you a stake in its growth.
Understanding Shares in the Share Market
What is share in share market is a common question among beginners. Shares can be categorised mainly into common shares and preferred shares. Common shares offer investors voting rights in major company decisions, while preferred shares provide fixed dividends and no voting rights.
The value of shares in the share market can fluctuate based on factors such as market conditions, company performance, and investor sentiment. The basic principle is that share prices are driven by supply and demand.
For example, if a company is performing well and investor sentiment is optimistic, demand for its shares may increase, pushing the price higher. Conversely, poor performance may lead to a drop in share price due to decreased demand.
How is Share Price Determined
Share price is influenced by various internal and external factors, including:
- Company Performance – profits, sales, and market position affect expectations.
- Economic Indicators – inflation, interest rates, and employment impact markets.
- Market Sentiment – overall optimism or fear can drive share prices.
- Global Events – political instability, policy changes, and disasters affect valuation.
Calculating the intrinsic value of a share involves analysing the company’s financials and growth outlook. A popular method is using the Earnings Per Share (EPS) formula:
EPS = (Net Income – Dividends on Preferred Stock) / Number of Outstanding Shares
Example:
Net Income = ₹10,00,000
Dividends on Preferred Stock = ₹1,00,000
Outstanding Shares = 50,000
EPS = (10,00,000 – 1,00,000) / 50,000 = ₹18
An EPS of ₹18 means each share earns ₹18 in net profit, which helps investors decide whether a stock is worth buying.
Participating in the Indian Share Market
The Indian share market is primarily driven by two major stock exchanges – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These exchanges list companies from different sectors, offering ample investment choices.
To start trading, you need to open a Demat account to hold shares electronically and a trading account to buy and sell them. These can be opened with banks or brokerage firms that are registered depository participants.
Risk and Reward in the Share Market
Investing in shares can yield high returns, but it also involves risks due to market volatility. Share prices can swing based on external news or internal performance. Diversification—spreading your investment across different sectors or stocks—can reduce risks.
One common strategy is rupee-cost averaging, where you invest a fixed amount regularly, regardless of the share price. For example, investing ₹1,000 monthly in a stock helps you accumulate shares at an average cost, smoothing out market volatility over time.
Conclusion and Disclaimer
Understanding the share market is essential for any investor looking to grow wealth and participate in economic progress. However, share market investing carries risks and should be aligned with individual financial goals and risk tolerance.
Before making any decisions, it’s wise to seek guidance from financial experts or do personal research to make informed choices.Disclaimer: This article is for informational purposes only and should not be treated as financial advice. Always assess your own situation and risk capacity before making investment decisions. The share market is unpredictable and can be volatile. Make sure your investments align with your financial objectives and comfort level with risk.
