Here, I will tell you a story that will help you get a basic understanding of the Stock Market. So, let's start.
The story starts with our HERO. So, every hero has a superpower, and our hero's superpower is "TEA." Yes, tea, our hero makes amazing tea; everyone loves his tea, even I do😋 . He thinks, Why not open two more tea stalls and expand.
Our hero has a lot of talent but not a lot of money. So, our hero goes public. Our hero takes his idea to the public, i.e., his customers, and says, pay me Rs.10 and become my business owners. Not a complete owner, just a part of the owner.
IPO or Initial Public Offering is where Investors pay a small sum of money and become owners of a small company share. With this idea, our hero becomes "SUPERHERO," our hero gets capital (Money) to expand, and people get shares to show their ownership. Earlier, people used hard copies of certificates in lockers, but today it is all "dematerialized" your shares and lockers.
Our hero can now grow his business with the capital. Now, along with tea, our hero can sell biscuits as well. Our hero doesn't forget those who invested in his shop. He gives his investors a small portion of his profits, also called "DIVIDEND," which excites investors and jeeps them happy. Excitement about our hero's business spreads across town, and people who had not invested in the hero's business earlier today want to invest in it.
N the future. Essentially that's what "SHARE MARKET" is. People "buy and sell" shares in different companies, but these transactions happen thousands of times each second. Like you have a market for fruits and vegetables. Similarly, you have the share market to buy. They are so interested that they are ready to pay Rs.15 for a share because people think the hero is so talented that they can sell the same share for Rs.30 to others in the future. Equity shares.
There are two main markets in India Bombay Stock Exchange(BSE) and National Stock Exchange(NSE). Earlier brokers used to meet in one spot at a fixed time and sell shares by calling out the prices. Today, everything is done on computers, just like fruits are stored in a godown/warehouse and are bought to the market using trucks and tempos. Similarly, your shares are stored in a "Demat Account" and are traded through a "Trading account."
The price of a share depends on market forces. Basically, demand and supply
•More sellers and fewer buyers, the price goes down⬇️
• fewer sellers and more buyers, the price goes up⬆️
So, what are SENSEX and NIFTY 50? These may seem complicated but are actually easy to understand. Let's go to the story; how do we know if our hero's stall is doing well? If we compare the performance of nearby shops, then we get a "BASELINE" to measure performance, and that's what an index is. So, Sensex is the index of 30 of the largest and most actively traded companies on the BSE, and Nifty50 is 50 companies.
When I was young, a samosa (a snack) used to cost Rs.5 today; it costs 20. In my childhood, I used to get 4 samosas for Rs.20. Today, I get 1, and this is called inflation. The money in your piggy bank doesn't grow on its own, but its value keeps reducing little by little every year. So, investing is not a privilege it is a necessity today. Do not decide which stock to invest your money in is based on anonymous tips on the internet. Firstly, understand what a company does and only then invest yo your hard-earned money.
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