The share market, or stock market, is a critical component of the global economy. It allows companies to raise capital by issuing shares to the public, while providing investors the opportunity to buy and sell these shares. For those in Kerala and other Malayalam-speaking regions, understanding the share market is crucial for both financial education and making informed investment decisions. This article will explain what the share market is, how it works, and the role it plays in the economy, all in simple Malayalam terms. By the end of this article, you will have a clear understanding of how the share market operates, even if you are a beginner.
Introduction to the Share Market
The share market, known as “പങ്കു വിപണി” (Panku Vipani) in Malayalam, is a place where financial instruments, primarily stocks (also called shares), are bought and sold. When an individual purchases a share of a company, they are essentially buying a small part of that company. These shares are usually traded on stock exchanges like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India.
A stock exchange is a marketplace where buyers and sellers come together to trade shares. This allows individuals and institutions to invest in companies and participate in their growth. Over time, the value of these shares may increase or decrease, depending on how well the company performs in the market.
How Does the Share Market Work?
The Role of Companies and Investors
In the share market, companies issue shares to raise money for their operations, expansion, or other needs. These shares are bought by investors who want to participate in the company’s success and make a profit. Investors purchase shares for two primary reasons: capital appreciation (an increase in share price over time) and dividends (a portion of the company’s profits shared with shareholders).
Trading on the Stock Exchange
When you decide to invest in the stock market, you will typically do so through a stockbroker, a person or firm authorized to buy and sell shares on your behalf. The stockbroker operates in the stock exchange, where buy and sell orders are matched electronically. When you want to buy a share, the broker will check if there are sellers available at the price you are willing to pay. Similarly, if you want to sell a share, the broker will find a buyer for it.
The Importance of Liquidity
One of the key features of the share market is liquidity, which means the ease with which you can buy or sell shares. Because there are many buyers and sellers in the stock market, it is relatively easy to buy and sell shares at any given time. This liquidity helps investors exit or enter positions based on their financial goals.
Types of Shares in the Share Market
There are two main types of shares in the stock market:
1. Equity Shares
Equity shares represent ownership in a company. When you buy equity shares, you become a shareholder and part-owner of that company. As a shareholder, you are entitled to a share of the company’s profits, which may be distributed as dividends. You also have voting rights in the company’s annual general meetings (AGMs) to make decisions on matters such as the appointment of directors.
2. Preference Shares
Preference shares are a type of share that gives its holder preferential rights over equity shareholders. While equity shareholders may receive dividends when the company performs well, preference shareholders get their dividends first. However, preference shareholders typically do not have voting rights in the company.
Why Do Share Prices Rise and Fall?
Supply and Demand
The price of shares in the stock market is primarily determined by supply and demand. When more people want to buy a particular share than there are shares available for sale, the price tends to go up. On the other hand, when more people are selling a share than there are buyers, the price usually falls.
Company Performance
A company’s performance is one of the most significant factors influencing share prices. If a company performs well and shows strong growth in revenue, profits, and overall market presence, its share price is likely to increase. Conversely, if a company faces financial difficulties, legal challenges, or poor performance, its share price will likely fall.
Market Sentiment
Investor sentiment, which reflects the overall mood of the market, also plays a crucial role in share price movements. If investors are optimistic about the economy or a particular sector, they are more likely to buy shares, driving prices up. If investors are fearful or uncertain, they may sell their holdings, leading to a decline in share prices.
External Factors
Various external factors, such as government policies, economic conditions, international events, and global markets, also influence share prices. For instance, changes in interest rates, inflation, or political stability can have an impact on investor confidence and stock prices.
How to Invest in the Share Market?
1. Opening a Demat and Trading Account
To begin investing in the share market, you must first open a Demat (Dematerialized) account and a trading account. A Demat account holds your shares in electronic form, while the trading account is used to buy and sell shares. These accounts can be opened through banks, stockbrokerages, or financial institutions.
2. Choosing a Broker
In India, a broker is required to facilitate trading on the stock exchange. You can choose from a variety of brokers—ranging from traditional full-service brokers to discount brokers who offer lower fees for trading services. Each broker will have its own set of services, charges, and trading platforms.
3. Researching Stocks
Before investing in any share, it is crucial to conduct thorough research. Look at the company’s financial health, management, growth prospects, and industry performance. It is also important to stay updated on news related to the stock market and the sectors you are interested in.
4. Making Your First Investment
Once you have chosen a stock and have opened your accounts, you can place an order through your broker. There are two types of orders: market orders and limit orders. A market order buys or sells a share at the best available price, while a limit order specifies the price at which you are willing to buy or sell.
5. Monitoring Your Investments
After investing in the share market, it is important to monitor your investments regularly. Track the performance of your stocks and keep an eye on market trends. Be prepared for fluctuations in stock prices, as the market can be volatile. Long-term investors often hold their shares through market cycles, while short-term investors may trade more frequently.
Risks Involved in the Share Market
Volatility
The share market is known for its volatility, meaning that stock prices can rise and fall rapidly. While this presents opportunities for profit, it also carries the risk of loss. Investors should be prepared for market fluctuations and avoid making impulsive decisions based on short-term price movements.
Market Risk
Market risk refers to the overall risk of losing money due to factors affecting the entire market, such as economic downturns, changes in interest rates, or political instability. Even well-performing companies can be affected by market-wide changes.
Liquidity Risk
Liquidity risk arises when an investor is unable to buy or sell shares easily due to a lack of market participants. While large-cap stocks tend to have high liquidity, smaller stocks may have lower liquidity, making it harder to trade them at favorable prices.
Conclusion
The share market, or “പങ്കു വിപണി,” offers immense opportunities for wealth creation, but it also comes with risks. By understanding how the market works, the factors that affect stock prices, and the different types of shares available, you can make more informed decisions and take advantage of the opportunities the market presents.
Whether you are a beginner or an experienced investor, continuous learning and research are essential to navigate the complexities of the share market. With patience, knowledge, and a long-term perspective, investing in the share market can be a rewarding experience, helping you achieve your financial goals.
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