Indian Shares

Indian Shares

Understanding Indian Shares: A Comprehensive Guide

Introduction

Indian shares, also known as equities or stocks, represent ownership in companies listed on Indian stock exchanges. Investing in Indian shares has become increasingly popular among both domestic and international investors, thanks to India’s burgeoning economy and the potential for high returns. This article delves into the fundamentals of Indian shares, the structure of Indian stock markets, key investment strategies, and the factors influencing share prices.

India is a growing market with the potential to expand quickly, and the Indian stock market has also come true to this point. For decades, the Indian stock market has produced wealth for savvy investors. Nowadays, it is currently drawing more investment than it did previously.

The stock market was an investment instrument owned or controlled by the privileged few a few decades back. However, as technology develops and becomes more widely available, the general public is becoming more interested in the stock market and taking advantage of this fantastic opportunity.

What is the Share Market? 

A stock exchange is “a body of individuals, whether incorporated or not, constituted to regulate or control the business of buying, selling or dealing in securities.”

“Securities refers to shares, bonds, scrip, stocks, debentures stock, and other marketable securities of incorporated companies or similar, government securities, and rights or interest in securities.”

In India, the share market is a term used to refer to the two major stock exchanges in the country— the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE). There are also 22 regional stock exchanges.

What are Shares and Types of Shares?

what are shares

In the past few months, the share market has made headlines every morning. Investing in shares has emerged as the most popular way of generating long term wealth and fulfilling your financial goals. In fact, FY21 witnessed a whopping increase of 142 lac retail investors in India itself. Today, stocks or equities account for 12.9% of the total investments in India. 

What Is the Meaning Of Share?

A share represents a unit of equity ownership in a company. Shareholders are entitled to any profits that the company may earn in the form of dividends. They are also the bearers of any losses that the company may face. In simple words, if you are a shareholder of a company, you hold a percentage of ownership of the issuing company in proportion to the shares you have bought, often managed through a share market app.

Shares can be further categorized into two types. These are:

• Equity shares
• Preference shares

They vary based on their profitability, voting rights and treatment in the event of liquidation.

Equity Shares Meaning

These are also known as ordinary shares and comprise the bulk of the shares being issued by a particular company. Equity shares are transferable and are traded actively by investors in stock markets. As an equity shareholder, you are not only entitled to voting rights on company issues but also have the right to receive dividends.

These dividends, however, are not fixed. Equity shareholders also partake in any losses faced by the company, limited to the amount they had invested. Equity shares can be further divided based on:

• Share capital
• Definition
• Returns

Classification Of Equity Shares based on Share Capital

Here is a look at the classification of equity shares based on share capital:

• Authorised Share Capital: Every company, in its Memorandum of Associations, requires to prescribe the maximum amount of capital that can be raised by issuing equity shares. 

• Issued Share Capital: This implies the specified portion of the company’s capital, which has been offered to investors through the issuance of equity shares.

• Subscribed Share Capital: The portion of the issued capital, which has been subscribed by investors is known as subscribed share capital.

• Paid-Up Capital: The amount of money paid by investors for holding the company’s stocks is known as paid-up capital. 

Classification Of Equity Shares based on Definition

Here is a look at the equity share classification based on the definition:

• Bonus Shares: Bonus share definition implies those additional stocks which are issued to existing shareholders free-of-cost, or as a bonus.
• Rights Shares: Right shares meaning is that a company can provide new shares to its existing shareholders – at a particular price and within a specific period – before being offered for trading in stock markets.
• Sweat Equity Shares: If as an employee of the company, you have made a significant contribution, the company can reward you by issuing sweat equity shares.
• Voting And Non-Voting Shares: Although the majority of shares carry voting rights, the company can make an exception and issue differential or zero voting rights to shareholders.

Classification Of Equity Shares based on Returns

Based on returns, here is a look at the types of shares:

• Dividend Shares: A company can choose to pay dividends in the form of issuing new shares, on a pro-rata basis.
• Growth Shares: These types of shares are associated with companies that have extraordinary growth rates. While such companies might not provide dividends, the value of their stocks increases rapidly, thereby providing capital gains to investors.
• Value Shares: These types of shares are traded in stock markets at prices lower than their intrinsic value. Investors can expect the prices to appreciate over some time, thus providing them with a better share price.

Types of Shares in India

1. Common Shares:

• Represent ownership in a company.
• Provide voting rights.
• Entitle shareholders to dividends, which are part of the company’s profits.

2. Preferred Shares:

• Generally do not provide voting rights.
• Have a higher claim on assets and earnings than common shares.
• Typically offer fixed dividends.

Beginner’s Guide to the Indian Share Market

While purchasing shares, you should be looking at how much dividend income does this company give out? What are the fundamentals of this company? How does this company improve its performance over time? One should also consider how expensive or cheap this stock is right now? 

For a newbie, there are many things to learn and do when you start trading in the share market. Here we will discuss the basic principles and the process of buying and selling shares. 

The people who buy and sell shares are called Share traders. While buying, they purchase the right to own the company’s assets and earnings for a certain amount of time. During this time, they get dividends that come out from the earning of the company.

There are three types of shareholders: 

1) Face Value: These shareholders buy shares at their face value, which means the company’s price at which they were offered to them, which gives no future benefits. 

2) Direct Benefit: These shareholders get benefits such as coupons that offer extra dividends over and above their face value or get other benefits such as an annual meeting with top-level managers where they get to voice their opinions directly to them. 

3) Growth Option: These shareholders also get dividends, but in addition, they get extra benefits such as the opportunity to participate in a new program called the Guaranteed Growth Plan. Under this plan, they will vote on customers that will receive a more significant percentage of its profits.

Factors Influencing Share Prices

1. Economic Indicators:

GDP growth rates, inflation, and employment data impact investor sentiment and share prices.

2. Corporate Performance:

Financial health, earnings reports, and future outlook of a company play a significant role.

3. Global Factors:

International events, such as geopolitical tensions and global economic trends, can affect Indian markets.

4. Government Policies:

Changes in taxation, regulation, and economic policies influence investor confidence and market dynamics.

5. Market Sentiment:

Investor behavior, driven by emotions and market psychology, often leads to price fluctuations.

Benefits and Risks of Investing in Indian Shares

Benefits:

• High Growth Potential: India’s rapidly growing economy offers substantial growth opportunities.
• Diversification: Adding Indian shares to a global portfolio can enhance diversification.
• Dividend Income: Many Indian companies offer attractive dividend yields.

Risks:

• Market Volatility: Indian stock markets can be highly volatile, influenced by both domestic and international factors.
• Regulatory Risks: Changes in regulations or government policies can impact market performance.
• Economic Uncertainty: Economic downturns or unfavorable macroeconomic conditions can affect returns.

FAQ: Investing in Indian Shares

Conclusion

Investing in Indian shares offers a compelling opportunity for both novice and seasoned investors, thanks to India’s dynamic and rapidly growing economy. By understanding the fundamentals of the Indian stock market, including its structure, the types of shares available, and the factors influencing share prices, investors can make informed decisions to optimize their portfolios.

Whether you’re interested in long-term investments to benefit from compounding returns or short-term trading to capitalize on market fluctuations, the Indian stock market provides a wide range of options. The key is to conduct thorough research, stay informed about market trends, and develop a clear investment strategy aligned with your financial goals.

While the potential for high returns is significant, it’s essential to be aware of the associated risks, such as market volatility and regulatory changes. Diversifying your investments and staying updated with economic indicators and corporate performance can help mitigate these risks.

In conclusion, with the right knowledge and approach, investing in Indian shares can be a rewarding endeavor, offering the potential for substantial growth, diversification, and income through dividends. By leveraging the insights and strategies outlined in this guide, investors can navigate the Indian stock market with confidence and aim to achieve their financial objectives.