Stock Market Basics India-How to Invest in Shares
There is a great saying that a country’s economic condition can be judged by its total market capitalization. So, on the other way, a stock market’s total valuation/capitalization reflects a country’s economic prosperity.
India has become the world’s 7th largest stock market by its market capitalization or valuation.
India is blessed with rapid growth in equity markets for the last couple of years which might prosper its overall economy in the coming future as well. Considering this today I have decided to write a blog post on Stock Market Basics India-How to Invest in Shares.
In this article, we would learn about the Stock market basics in India and how to invest in shares. The Bombay Stock Exchange replicates the BSE SENSEX and the National Stock Exchange replicates the NIFTY are the two most popular stock exchanges in India.
India’s current stock market capitalization is nearly $2.08 Trillion. Though India has acquired 7th position worldwide in terms of stock market capitalization or valuation, there is still a long way to go.
As per Morgan Stanley’s report, India has the potential to reach $6.7 Trillion market cap by 2027. At present India’s Market cap to GDP is 77% which is quite below the world average. USA market cap is $27 Trillion at present.
More and more investors must participate in stock market trading in India so that we can reach or beat the $6.7 Trillion market cap target by 2027.
⇒Stock Market Basics India/Stock Market India Basics-Some interesting Facts
As the main objective of this blog post is to provide some information to the investors on how to invest in shares or stock market India basics, you must know some basic information regarding Indian stock market. Let’s have a look at the following.
India’s current share market capitalization is nearly $2.08 Trillion.
1 Million = ₹10 lakh = 1,000,000
1 Billion = ₹100 crores = 1,000,000,000
1 Trillion = ₹1 lakh crore = 1,000,000,000,000
$1= ₹69.15 as on 12.04.2019. So, $2.08 Trillion = ₹143.832 Trillion. This seems a lot but do remember about the USA’s market cap which is almost 13.5 times of Indian market capitalization.
Before investing in the equity market you need to open a demat account. This account works as a trading account. Through this account, you can start buying and selling stocks of good quality.
There is no such formula or shortcuts in the stock market that can make you rich at once. You should stick to the basics and have the patience to grow your wealth.
The stock market should be considered as a test cricket match where is patience is tasted every now and then. There is no room for impatient investors.
If you don’t have any degree of endurance, you would end up giving lots of money to the brokers and you will make them rich instead of yourself.
Start with little money and keep on investing on a regular basis. Don’t put all your investments at the one go. If you do this there is a strong possibility that you would lose all your money.
Read and acquire information regarding the stocks you would like to buy. Learning is a continuous process. If you want to earn from the stock market desperately, remember that Learn while you earn.
Remember that buying some stocks means you are an owner of that company proportionately. Therefore, would you want to own a company that has no substantial future?
I think your answer will be NO. The Securities and Exchange Board of India regulates both the Capital market and Mutual Funds industry in India.
⇒What are some Golden Rules on Stock Market Basics India?
Here are some golden rules for the beginners on stock market basics India that you must follow to know how to invest in shares.
Stock market basics India 1⇒ Risk-taking capacity:
If you are an investor who does not have the capacity of bearing any kind of market risk or volatility, investments in equity shares are not your cup of tea.
Because share prices keep on changing within seconds and minutes and that might cause you huge panic that you may lose money if you have zero risk tolerance.
Although you can buy shares in the stock market and keep invested for a long period of time without going for daily trading, you can earn a substantial amount of money in that case.
Endurance, perseverance, knowledge, information, continuous learning are some important aspects to become a successful investor.
Stock market basics India 2⇒ Buying quality stocks:
There are basically many ways to judge a good quality stock or share. But you just need to stick to fundamentals being a beginner investor.
When you get experienced you can fine tune this ability more to search for quality stocks and earn a lot of money in the long term.
So, while searching for good quality stock, you must keep in mind the products which are very popular in India or in great demand. You must research about some popular products which people love to use and will always remain in demand.
In the beginning, you may find it very difficult but you have to have found this out. It is not as difficult as you think. You just need time and efforts to do some research.
Even the big, established companies do thorough market research before launching any new product. Take an example of JIO, which completely changed the market perceptions on mobile communication systems and evolved as a new trendsetter.
Think of the products which you or your friends, relatives personally use and have a good review for it and want to use it again and again.
Like in India whenever you think of buying a car/bike tyres, the first name that would come to your mind is MRF. Is not it? Though the MRF tyres stock price is very expensive, I am just giving an example.
Similarly, most of the people use toothpaste of Colgate in India. When you talk about noodles, the first name that comes to your mind is Maggi of Nestle company.
These are a few examples of good quality products of some reputed brands. Quality product leads to quality stock and the probability of good earning from its shares.
Stock market basics India 3⇒ Financial conditions:
Next comes the financial conditions rule. You should analyze the financial health of a company. How sound is the company financially?
Like if a company’s product is very popular but it is over debt-ridden, you should avoid this company’s stock. Ideally, the Debt Equity Ratio should be 1.
A company with an ideal debt(loan) equity capacity can bloom in the future. Also, stocks of the highly debt-ridden company are considered very much risky. You should avoid that also.
So, you need to study some financial ratios of a company which is delivering good quality products liked by all. This is called financial ratio analysis.
These financial ratios are the financial health indicator of a company. You can use the Moneycontrol website for stock specific information.
Stock market basics India 4⇒ Buying Cheap stocks:
One most important point I want to mention here is that there is no such good or bad stock in the capital market. The price level at which you are buying the stock is the most important factor.
The price at which you are buying the stock can make your investment a good or bad one.
As a rule of thumb, you should always focus on buying a quality stock at a cheap price. When the capital market is going through a bull phase, it lures or attracts many investors.
As a result, you end up buying a good quality stock at a very high price. But when the market is not doing well and showing extreme volatility, most of the beginner investor sell their stock holdings at red and flee away from the capital market.
But this is why you need to have stock market basics India in place.
For example, if you buy a TATA Nano car at the price of a Honda City, will it be a good buy? The answer is NO.
Though the Nano car is very much popular in India due to its price affordability. Thus, buying always good stock is not sufficient, you need to buy cheap as well.
Similarly, if you buy a Honda City at the price of a Maruti Suzuki Swift is definitely a good cheap deal.
Stock market basics India 5⇒ Avoid Rumors / Free Tips:
You need to avoid or stay away from all sorts of rumors. Just stick to basics and avoid rumors. Don’t take any emotional investment decision. Don’t let your emotions control you in terms of stock market investments.
However, if a company is facing any temporary problem or going through some issues which are not permanent, and the stock price is going down, you need to take advantage of this situation.
This is not a rumor but temporary glitches which can be overcome by the company. So, you need to distinguish between rumors and temporary problems.
Further, you should stay away from free market tips. You receive many messages, emails, like a share, is available at a target price this, stop loss at that and many more.
If this is so certain why that person is giving you free advice without himself investing in that stock directly. In today’s world do you think there is any freebie?
Why would one give you free advice on the stock market? Does not he have any other job?
Many times that fraudsters spread false buying tips and being lured by those tips beginners start buying. As a consequence, demand rises so does the price of the stock.
This helps the fraudsters to sell their stocks at a high price and exit from the market while suggesting you to buy.
Your perseverance, endurance, knowledge, information should let your emotions in control to become a successful investor.
If you follow the fundamentals of Stock market basics India and stick to it without fail, in the long run, you would be able to acquire a lot of wealth.
Don’t try to make a quick profit from intraday trading, make a basic plan, use your bank account prudentially to buy a small number of good quality stocks and hold for a long term to become a successful trader.