Fundamental Analysis of Indian Stocks | Different Types of Share Market

Fundamental Analysis of Indian Stocks


Fundamental Analysis of Indian Stocks – Investment in stocks means to generate wealth. People have different views in making decisions regarding investing in stocks. Human behavior has different appetite to take risk. Some people make statement according to them it’s risky to make investment in stock market.

But from studies, it is proved that making investment in stock market in right shares helps to beat the inflation for investing it for a long horizon term of 5-10 years. In right place it helps traders to make quick profits.

What is stock market and share market?

A share market is a place where activities of buying and selling of shares happens.

A stock market is same as share market but the only major difference between share market and stock market is that share market only allows to trade with shares while, in stock market it allows to trade with shares, derivatives, mutual funds and bonds.

The basic platform to do trade of buying and selling of shares and others securities trades only in Stock Exchange. In India, the stock exchanges are BOMBAY STOCK EXCHANGE and NATIONAL STOCK EXCHANGE.

Financial instruments traded in a stock market

  • Bonds
  • Shares
  • Derivatives
  • Mutual Fund

Types of Share Market

Here are the two different types of share market:

#1 Primary Market

When the company sells or issues new stocks or bonds for the first time is termed as the primary market. Mainly this activity is followed in a form of initial public offering (IPO). Company get registered to issue a certain amount of shares for which they hire investment bankers. For this process there is a need of underwriter, which helps to review and create the price and other details of the securities.

The securities which are issued by the primary market are subject to strict regulation and companies need to file with Securities and Exchange Commission (SEC). Price is the major thing to cater as it is the most volatile in the primary market as because demand is difficult to determine as the starting of the IPO and so most of the IPO’S are set at low prices.

#2 Secondary Market

In this market the securities which is traded is already sold on the primary market. This market is referred as Stock Exchange. In this market, anyone can purchase or sell securities. A broker usually trades on the behalf of the investors in secondary market. Investors need to pay brokerage fees to the broker. In this market unlike primary market, the price is determined according to the supply and demand in the market.

The volumes traded in this market differentiate on the daily basis so this affects the price of the stock. The price is determined at whatever price both the parties agreed upon. There are many brokerage firms in India which makes trades in behalf of the investors and charge different plans. There are two markets, one is auction market and another is dealer market. Most of the small investors or the investors who does not hold more information trade through dealer markets.

Functions of Stock Exchange

Here are the two Functions of Stock Exchange:

#1 Pricing of Securities

The securities are valued depending on the demand and supply and the company which is associated with gold are valued higher because in these securities the demand is higher. This kind of valuation of securities is helpful to investors, government and creditors.

#2 Safety of transactions

In Stock Exchange, only the listed securities are traded and the exchange check the visibility of the companies then only it get listed to the exchange. The companies which are listed in the exchange need to follow the strict rules and regulations provided by the exchange board and because of this it keeps the safety of transactions.

#3 Liquidity

The stock exchange provides more transparency as when and where the investors want money they can get it. The main aim of stock exchange is to provide stability for the market to proceed sale and purchase of stocks.

#4 Economic Growth

In stock exchange, various companies provide buying and selling of stocks. This process includes disinvestment and reinvestment which helps to invest in more investment proposals and by this it leads to economic growth.

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