What is an Equity Market?
An equity market is a market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.
Understanding Equity
Equity consists of funds that shareholders invest in a company plus a certain amount of profit earned by them that is retained by the company for further growth and expansion.Equity is a primary asset class when it comes to investing and diversifying one’s portfolio. Trading in equity needs in-depth analysis and research of the share market, services that Angel Broking offers to all of its investors. Additionally, derivatives allow equity to diversify beyond just shares into securities such as bonds, commodities and currencies.
Types of Equity Markets
Primary Market: Every company that proposes to go public must come out with an initial public offering (IPO). During the IPO, the company offers a certain portion of its equity to the public. After the closing of the IPO, the shares are listed on one of the stock exchanges, which are an important component of the stock market. The primary exchanges in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Secondary Market: After the listing of the IPO shares, these are traded on the secondary market. This platform offers the initial investors an option to exit their investments. In addition, investors who failed to procure shares during the IPO can purchase these from the secondary market. Trading in the Indian stock market is commonly done through brokers. The brokers act as intermediaries between the stock exchanges and the investors.
How to Invest in Equity Market?
A person cannot go directly to the stock market to buy or sell shares. Buying and selling of stocks has to be done through brokers. Opening a demat account for trading is compulsory. In order to be able to invest in share market in India, the following procedures need to be followed. PAN card or an Aadhar card is a mandatory requirement for investing in India.
Get a broker
A person cannot go directly to the stock market to buy or sell shares. Buying and selling of stocks has to be done through brokers. They are individuals, companies or agencies registered with and authorised by Sebi to trade on the stock exchanges. Brokers will charge a brokerage fee or brokerage for the assistance they provide.
Get a demat account
Once you have a broker, the next step is to open a demat and trading account. This account will hold the stocks that you have purchased and will reflect them in your name. Shares cannot be held in physical form and they form part of the dematerialized or demat account.
What are the Risk and Calculative Risk in Equity market?
Equity market risks can be broadly classified as systematic and unsystematic risks. The source of systematic risk is the market or global factors such as rising oil prices, currency movements, changing government policies, and changes in inflation and interest rates. Unsystematic risks, however, are owed to factors unique to a company or an industry. Management and labour relations, increased competition, entry of new players, and customers’ preference for a company’s products are some of the factors that generate unsystematic risk.
Unsystematic risks are also known as internal risks and are diversifiable. In other words, these risks can be mitigated by adding stocks from different industries. Systematic risks, however, are non-diversifiable. Diversification cannot help in bring down the market risks. It is the stocks with high internal risks that require evaluation as their internal factors/policies have a significant bearing on their fundamentals and their price performance.
What is a demat account?
Demat Account or dematerialized account provides facility of holding shares and securities in electronic format. During online trading, shares are bought and held in a Demat account, thus facilitating easy trade for the users. A Demat Account holds all the investments an individual makes in shares, government securities, exchange-traded funds, bonds and mutual funds in one place.
How is Transparency maintained?
NSE was set up by a group of leading Indian financial institutions at the behest of the government of India to bring transparency to the Indian capital market…NSE offers trading, clearing and settlement services inequity, equity derivatives, debt, commodity derivatives and currency derivatives segments. It mandates listed companies to disclose major operational developments within 45 minutes/1 day/1 week, etc. It mandates listed companies to disclose financials update quarterly, half-yearly, annually. It calls for disclosure of shareholding information of the listed companies every quarter. Any bulk/block deals are disclosed immediately. Any changes in management/KMPs are to be disclosed to the exchanges.
What are the Historical returns in the Equity Market?
The Sensex has remained the essential gauge for the health of the Indian economy and still demonstrates vitality. Sensex, which has been a barometer for the Indian economy, has given 17%+ returns over the last 40 years. If you had invested in Sensex 40 years ago, your returns would be much higher than gold or fixed deposits. The reputation, integrity and track record of this benchmark fully reflects the fundamental role that indices play in today’s financial market. Sensex is a witness of the evolution of the Indian economy, having passed many milestones in the last 40 years. The benchmark closed for the first time above the 10,000 mark in 2006, above 20,000 in 2007 and reached 30,000 in 2017,”
What are Right Issues in Equity Market?
A rights issue or rights offer is a dividend of subscription rights to buy additional securities in a company made to the company’s existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive(can be dilutive) pro rata way to raise capital. Rights issues are typically sold via a prospectus or prospectus supplement. With the issued rights, existing security-holders have the privilege to buy a specified number of new securities from the issuer at a specified price within a subscription period.
What is a Bonus in Equity Market?
A bonus issue of shares is stock issued by a company in lieu of cash dividends. Shareholders can sell the shares to meet their liquidity needs. Bonus shares increase a company’s share capital but not its net assets.
Want is a Dividend in Equity Market?
A stock dividend is a dividend payment made in the form of additional shares rather than a cash payout. … These distributions are generally acknowledged in the form of fractions paid per existing share.
Example: Rs. 10,000/- invested in Wipro 40 years back: What will be the returns today?
If I had the technology to send a message back in time, I would tell my father in 1980 to “Use Rs.10,000 to buy 100 shares of Wipro as a one-time investment and never sell it for the next 30-35 years.” If he had done that his investment would now be worth about Rs.741 crores. Yes, you read that right. Crores, not thousands or lakhs. Initial investment of Rs.10,000 (100 shares) you now would end up with 1,92,00,000 shares of the company because of all the stock splits and bonus shares. The current stock price of Wipro is about Rs.386 per share, as of 26 February, 2019.
Rs.386 × 1,92,00,000 = Rs.741,12,00,000 or about Rs.741 crores. That is a CAGR (Compound Annual Growth Rate) of 41.42%.
Conclusion:
Equity market investing can help investors meet their future financial requirements by beating the rising prices due to inflationary pressures. Understanding the stock market basics and learning more about the market and its regulation, and following a disciplined approach to share market investment can provide huge returns in the long run.
