Before Wealth, Comes Knowledge
Have you been hearing about the stock markets and how some people have become wealthy by investing in them? It can indeed be a great source of wealth, but you cannot just start investing in it without knowing the basics first.
Investing isn't Magic, it's Smart Basics!
Like most other things that allow you to make money, the stock markets are also slightly complex, and you need to first learn about them. Having said that, the world of stocks might seem like a complex maze, but here's the truth: stock investing isn't just for financial wizards—it's for everyone.
From Dreams to Wealth, Start Here with Stock Market 101!
Whether you're dreaming of your first home, a comfortable retirement, or simply want your money to work harder, the stock market can be your ally. We have prepared this guide for the beginners like you, and we will turn those puzzling financial concepts into opportunities for financial growth for you. But first, let's start from the basics!
To do business, companies need money (capital). It helps them to grow the business, develop new products, or expand into new businesses or markets
Promoter Contributions
Initial funding from founders to start the business
Venture Capital
Initial funding from founders to start the business
Bank Loans
Borrowed funds from banks to support operations
Public Shares
Capital raised by selling ownership stakes to the public
Imagine a bustling marketplace where instead of fruits and vegetables, people buy and sell pieces of companies. That's essentially what the stock market is!
The stock market (also known as a “share market“) is the market where the shares of companies are bought and sold. You can go to a share market and buy the shares of a company that you feel may do well in the future. You can also sell the shares of a company that you had bought earlier.
Did you know?
A stock market is not a single entity but a collection of markets (stock exchanges) where shares are bought and sold. Apart from shares, many other financial instruments and asset classes like derivatives, bonds, and mutual funds are also transacted in a stock exchange.
The Indian stock market is a complex ecosystem with various entities (known as market participants) who play a crucial role in making the stock markets work smoothly and safely. Here are some of the key participants:
Stockbrokers
Intermediaries facilitating stock transactions
Depositories
Entities holding securities in electronic form
Clearing Corporations
Organizations ensuring trade settlement
Regulators
Authorities overseeing market operations
Stock Exchanges
Platforms where securities are bought and sold
Companies
Entities issuing stocks to raise capital
Retail Investors
Individual investors trading small amounts
Institutional Investors
Large organizations investing substantial funds
National Stock Exchange (NSE)
Established in 1992, the National Stock Exchange Of India Ltd. is India's largest stock exchange by trading volume. It was the first to introduce electronic trading to India, making stock trading more efficient and widely accessible to all.
Bombay Stock Exchange (BSE)
Bombay Stock Exchange (BSE): Founded in 1875, the BSE Ltd (formerly Bombay Stock Exchange) is Asia's oldest stock exchange. While smaller than the NSE in terms of trading volume, it's home to the SENSEX, a key index that tracks the performance of 30 financially sound companies.
These exchanges provide the infrastructure and systems necessary for seamless trading of stocks and other securities.
As of October 2024, shares of 2300+ companies are available for trading in NSE, and 5500+ companies are traded in BSE.
A stock exchange is again divided into two parts:
Primary Market
This is where the companies raise money from the public by selling there shares.
Secondary Market
Where the investors buy and sell shares among each other.
We will understand the roles of these segments a little later.
Companies are at the heart of the stock market. These are businesses that decide to “go public“ by listing their shares on a stock exchange. By doing so, they:
When you buy a stock, you're buying a small piece of ownership in one of these companies.
Investors
They typically buy stocks with a long-term perspective, hoping to benefit from the company's growth over time. They might hold stocks for years or even decades.
Traders
These participants buy and sell stocks more frequently, often trying to profit from short-term price fluctuations. They might hold stocks for days, hours, or even minutes.
Both investors and traders can be individuals (retail investors), high-net-worth individuals (HNI), or Hindu Undivided Families (HUF).
Foreign Institutional Investors (FII) are big investors from countries outside India, like foreign mutual funds, banks, and hedge funds that invest in Indian stocks and bonds. They bring in foreign money, and their buying or selling can impact the market significantly.
&Domestic Institutional Investors (DII) are large Indian institutions, like mutual funds, insurance companies, and banks, that invest in the Indian stock market. They help stabilize the market, especially when foreign investors pull out money.
Both FIIs and DIIs influence stock prices and overall market trends by investing large sums.
Stock brokers are registered members of stock exchanges (like NSE or BSE) who execute buy/sell orders on behalf of investors. Examples include Zerodha, ICICI Direct, and Sharekhan.
Banks
Banks: Retail banks are important in the Indian stock market because they help people invest their money. They offer services that allow customers to buy and sell stocks, mutual funds, and bonds. Many banks also keep customers' securities safe and help with trading.
These institutions hold securities in dematerialized form and facilitate the transfer of securities between buyers and sellers. The two depositories in India are-
These institutions ensure the smooth settlement of trades, ensuring that both buyer and seller fulfill their obligations. The two main Clearing Corporations in India are:
The stock market regulators are-
Securities and Exchange Board of India (SEBI)- The Securities and Exchange Board of India (SEBI) is the watchdog of the Indian stock market. Established in 1992, SEBI's main responsibilities include:
SEBI sets rules and regulations that all other market participants must follow, ensuring a fair and transparent market environment.
While SEBI is the primary regulator, other bodies also play important roles in the broader financial ecosystem:
Reserve Bank of India (RBI): As India's central bank, RBI regulates banks and manages monetary policy. It also oversees the foreign exchange market, which can impact the stock market significantly.
Ministry of Finance (MoF): This is a Ministry of the Government of India that is responsible for overall financial policy. It works closely with SEBI and RBI to shape the regulatory environment of the financial markets of India.
Insurance Regulatory and Development Authority of India (IRDAI): Regulates the insurance sector. Since the insurance companies invest heavily in stocks, the policies framed by IRDA are important for the stock markets.
Pension Fund Regulatory and Development Authority (PFRDA): It oversees the pension sector, another area that interacts with the stock market.
Investing in stocks can be an exciting journey towards wealth building. It can ultimately lead you to financial independence and growth. Let's break down the essentials to get you started on the right foot.
Let's first recap what we learnt earlier.
A stock (also called a share) represents partial ownership in a company.
When you buy a stock, you become a shareholder, owning a small piece of that company.
The number of shares you own determines your level of ownership and potential returns.
Companies issue stocks to raise capital for growth, new projects, or other business needs. The process through which this is done is called an Initial Public Offering (IPO).
An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time. The IPO is also done through the Primary Market of the stock exchanges.
IPOs provide an opportunity for investors to buy shares in a company at the outset of its public trading, potentially benefiting from future growth.
IPOs are kept open for a few days during which investors can bid for the shares. The dates and price range in which bidding can be done are announced well in advance by the company.
Once the IPO process is complete, the shares are made available for buying and selling among the investors in the Secondary Market of the stock exchanges. This process is called “Listing.“.
There are two reasons for this. As a shareholder, you can get:
Capital appreciation: You get to participate in the company's financial success through increases in the stock's value and
Dividends: A portion of the company's profits are paid out to shareholders every year. This is known as a “dividend.”. As a shareholder, you can earn these dividends in proportion to how many shares you hold in the company. This can also, in many cases, give you very handsome returns.
Like any investment, stocks come with both potential rewards and risks.
Benefits:
Risks:
There are two main approaches to participating in the stock market:
Long-term Investing:
Short-term Trading:
As a beginner, we recommend that you start with a long-term investing approach.
This will allow you to learn about the market, understand company fundamentals, and potentially benefit from the long-term growth of the economy while minimizing the impact of short-term market volatility. You will also not be under any pressure to identify stocks for short-term trading every day.
Remember,
successful investing is not about getting rich quickly but about making informed decisions aligned with your financial goals and risk tolerance.
Think of getting started with the stock market like setting up a new smartphone—you need a few basic things in place before you can begin.
The first thing you need to do is choose a stock broker and connect with them. They will help you set up the following essential accounts you'll need to start your investment journey.
1 Demat Account: Your Digital Share Locker
You'll need to link a bank account to your trading and Demat accounts. This account handles all your money movements—paying for shares you buy and receiving money when you sell them.
If you already have a bank account, you can use it. There is no need to open a new one specifically for trading.
2 Bank Account: For Transfer Of Money
You'll need to link a bank account to your trading and Demat accounts. This account handles all your money movements—paying for shares you buy and receiving money when you sell them.
If you already have a bank account, you can use it. There is no need to open a new one specifically for trading.
3 Trading Account: Your Gateway to the Markets
A trading account is needed for buying and selling shares in the stock market. It works hand-in-hand with your Demat and bank accounts. Think of it as the shopping interface that connects you to the stock market.
Before you can start trading, you need to complete the Know Your Customer (KYC) process. This is a one-time verification where you provide:
Proof of Identity (Aadhaar, PAN card, etc.)
Proof of Address (utility bills, passport, etc.)
PAN card (mandatory for all stock market transactions)
Recent photograph
Bank account details
This might sound like a lot, but don't worry! The process has become largely digital and quite straightforward. Your stock broker will help you to complete the KYC process fast!
Want to get started right away?
Check out our detailed guide on how to start online stock market trading.
When you buy shares,
You will send a “Buy” order to the stock exchange you choose (i.e. NSE or BSE) through your trading account.
The money needed for paying for the shares are deducted from your linked bank account.
The shares will be automatically sent to your Demat account.
When you sell shares,
You will send a “sell” order to the stock exchange through your trading account.
The shares you have sold will be taken out of your Demat account
Your bank account will be credited with the money you receive from the sell
Just like you wouldn't buy a house without checking its condition, location, and price, you shouldn't invest in stocks without proper research.
Let's explore two main approaches to finding promising stocks: fundamental analysis and technical analysis.
In this, we look at numbers to understand the profitability, liquidity and asset-liability position of the companies. We analyse the following:
Financial Statements: The Company's Health Report
Every company must prepare three key financial documents:
Before buying a share, you need to check these documents carefully to understand how well the company is doing financially and how strong it is. For understanding this, we use “Financial Ratios.”
Here are some important ratios that can tell you if a stock is worth considering:
Price-to-Earnings (P/E) Ratio
Price-to-Book (P/B) Ratio
Debt-to-Equity Ratio
Return on Equity (ROE)
Dividend Yield
Numbers alone don't tell the whole story. You should also know:
While fundamental analysis tells you WHAT to buy, technical analysis helps you decide WHEN to buy or sell. It's like studying weather patterns to predict rain!
Basic Technical Tools
Price Charts
Trend Analysis
Support and Resistance
Moving Averages
Basic Chart Patterns
Remember: Good investors often use both fundamental and technical analysis. It's like using both a map and a compass for navigation—they work better together!
Once you learn how to do fundamental and technical analysis, you will need a tool that will help you practically implement your learnings.
That is why we have developed StockEdge, a smart assistant for making informed investment decisions in the Indian stock market. After using StockEdge, you will see that finding good stocks doesn't have to be complicated always.
StockEdge is a comprehensive stock market analytics app developed by Kredent InfoEdge Private Limited. It is designed specifically for Indian investors to simplify their stock research and analysis through powerful screening tools, real-time data, and educational resources.
Think of StockEdge as your personal market expert who works 24/7 to help you find and analyze the best stocks. It's like having a professional analyst right in your pocket, simplifying complex market data into easy-to-understand insights.
Smart Stock Screening
Simple Yet Powerful Analysis Tools
All-in-One Platform
Start Your Stock Market
Journey with StockEdge
Download the app from your app store
Create your free account
Access basic features at no cost
Upgrade anytime for premium features
Let us discuss steps on how you can select fundamentally good stocks for long-term investment using StockEdge-
Determine the Fundamental Parameters-
First, determine the parameters you want to set to filter out strong fundamental companies. StockEge has a defined set of fundamental scans as shown.
Select the Parameters-
Select your desired scans based on fundamental parameters such as-
You can keep adding more scans based on your determined set of fundamental parameters.
Analyze Stock Fundamentals-
From the filtered results, select stocks that catch your interest as shown.
Analyze each stock's detailed financials, which may include:
Examine Historical Performance
Look for consistent growth or specific price movements that align with your investment strategy.
Assess Management Quality
Research management commentary, presentations, and any available interviews to gauge management's vision and strategy. Check insider ownership and institutional holdings to understand management alignment with shareholder interests.
Evaluate Market Sentiment
Look at recent news articles and updates related to the stock to understand market sentiment and potential catalysts. Review consensus ratings or analyst opinions to see broader market perspectives on the stock.
Create a Watchlist
If you find stocks that meet your criteria, add them to your watchlist for future monitoring. Take the help of the alert features for price movements or news related to your selected stocks.
Ready to start your systematic stock selection journey?
Ready to start your investment journey? Let's break down the process into simple, actionable steps that will help you make your first investment with confidence.
Setting Your Financial Goals
Start by asking yourself:
What are you investing for?
When will you need the money?
Remember: Clear goals help you make better investment decisions!
Understanding Your Risk Tolerance
Know yourself before you invest:
Ask yourself:
Creating Your First Portfolio
Golden Rule: Never invest all your money in one place!
Making Your First Investment
Smart Stock Screening
Keep Learning
Stay Regular
Be Patient
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Access our beginner-friendly resources
Join our community of learners
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Success in the stock market isn't just about making the right investments - it's about continuous learning and adapting. This is because, the stock market is always evolving:
To stay relevant, and earn consistent profits, you will need to regularly update and upgrade yourself with fresh knowledge about the stock markets.
Remember: Even the most successful traders and investors of the world never stop learning!
At Elearnmarkets, we have educated thousands of beginner, intermediate and advanced markets participants over the years. Here are some of the learning resources we offer:
1 Structured Learning Programs
We offer an array of live, recorded and hybrid programs suited for markets participants of all skill levels. These include courses on
2 Trading Mentorship Program
This is our flagship program wherein the students get the best market knowledge from our carefully chosen panel of experts. They also get mentored by these experts, get their doubts cleared and handheld rigorously till they become confident enough to trade in the market on their own.
3 Expert-led Masterclasses With Live Trading Sessions
We conduct masterclasses with one or more experts who teach the concepts and also show the participants how to implement the learnings in live markets. These sessions are held over one or more days and are highly popular among our learners.
4 Expert-Led Webinars
Our panel of market experts conduct these free and paid webinars on various aspects of investing and trading. You can also purchase recordings of past webinars in case you can't attend the live sessions.
5 Elearnmarkets School
This is a comprehensive library of knowledge modules on everything that you will need to know about the financial markets are a beginner or intermediate level market participants. Do check it out.
6 Other free tools and resources
We also have a variety of guidebooks, calculators and other tools on Elearnmarkets that you can access by simply registering for a free account. These are some of the most-used resources on our website, and we feel that you must take advantage of them.
Explore other tools & resourses
After you understand the basics, here are the different learning paths you can take as per your future goals and the subjects you can learn:
For Long-term Investors
For Active Traders
For Options Traders
Finally, Getting Started is Easy!
Create your free account on Elearnmarkets.com.
Explore our course catalog.
Choose your learning path.
Start with basics.
Progress systematically.
Common questions every beginner has about the Indian stock market - answered in simple terms.