STOCK MARKET

Stock market is one of the most important sources for companies to raise money.
This allows business to publicly trade or raise additional capital for expansion by
selling shares of ownership of the company in a public market. The liquidity that
an exchange provides affords investors the ability to quickly and easily sell
securities. An economy where the stock market is on the raise is considered to be
an upcoming economy. Rising share prices for instance tend to be associated with
increased business investment and vice versa. The shares of profit making
companies are quoted at higher prices and are actively traded so such companies
can easily raise fresh capital from stock market. The general public hesitates to
invest in securities of loss making companies. So stock exchange facilitates
allocation of investor’s fund to profitable channels.
The stock market refers to the collection of markets and exchanges where regular
activities of buying, selling, and issuance of shares of publicly-held companies take
place. Such financial activities are conducted through institutionalized formal
exchange marketplaces which operate under a defined set of regulations. There can
be multiple stock trading venues in a country or a region which allow transactions
in stocks and other forms of securities.

A stock market is a similar designated market for trading various kinds of

securities in a controlled, secure and managed the environment. Since the stock
market brings together hundreds of thousands of market participants who wish to
buy and sell shares, it ensures fair pricing practices and transparency in
transactions. While earlier stock markets used to issue and deal in paper-based
physical share certificates, the modern day computer-aided stock markets operate
electronically

Stock markets provide a secure and regulated environment where market

participants can transact in shares and other eligible financial instruments with
confidence with zero- to low-operational risk. Operating under the defined rules as
stated by the regulator, the stock markets act as primary market and secondary
market

The stock exchange shoulders the responsibility of ensuring price transparency,

liquidity, price discovery and fair dealings in such trading activities. As almost all
major stock markets across the global now operate electronically, the exchange
maintains trading systems that efficiently manage the buy and sell orders from
various market participants. They perform the price matching function to facilitate
trade execution at a price fair to both buyers and sellers. A listed company may
also offer new, additional shares through other offerings at a later stage, like
through rights issue or through follow-on offers. They may
even buyback or delist their shares. The stock exchange facilitates such
transactions.

The Indian stock market is one of the oldest and the largest stock Markets in the
world. The rapid industrialization in the country since independence has given
vitality to the stock market. Stock market helps to channelize household savings to
the corporate sector which in turn facilitates the development of industrial and
service sectors. Investment is to meet their future needs and also to protect them
from the impact of inflation. Investment in shares will fetch better returns
compared to any other forms of investment. Whenever the inflation rate is high, the
stock market has given higher rates of return to the investors. Share trading helps
the corporate to raise additional funds for expansion by creating demand for the
securities. The liquidity that an exchange provides gives the investors the ability to
quick and easy selling of securities. This is an attractive feature of the stock market
investment.

Investors' can select the suitable avenue according to their desired level of risk,
return and liquidity. Investment in securities of capital market can be made through
primary or secondary market. In the primary market corporate entities offer new
securities directly to the investors and mobilize the funds needed for their
development. The secondary market provides continuous liquidity to the securities
by trading them in the stock exchanges.
The investors' can buy or sell the existing securities at the prevailing market price
in the stock exchange through stockbrokers. Investment is the deployment of fund
with the aim of achieving additional income or growth in capital value. Investment
was an investing activity that attracts all people irrespective of their occupation,
education and social status. An understating of the core concepts and a thorough
analysis of the options can help investors to create a portfolio that maximizes
returns while minimizing risk exposure. The focus of the financial advisors and
government was to see that every individual needs to invest and earn returns on
their idle resources and generate a specified sum of money for a specific goal in
life and make a provision for an uncertain future.
The financial investment is the obligation of money that is expected to
yield some gain over a period of time. If a person has more funds then they can
deposit the surplus money in the bank to earn a fixed rate of interest or buy gold or
purchase shares or invest in any other form of financial instruments. In other
words, investment is allocating of monetary resources to assets that are expected to
yield some gain or positive return over a period of time. The assets may range from
safe investment to risky investment. The nature of investment in the financial sense
differs from its use in the economic sense. Investment means net addition to the
economy’s capital stock which consists of goods and services that were used in the
production of other goods and services.
Traditionally investment is distinguished from speculation in three
ways. Speculation brings in its wake risk, capital gain and period of time. The
word risk refers to the possibility of incurring a loss in a financial transaction.
Investing in shares, purchases of securities were preceded by proper investigation,
analysis and review them will receive a stable return over a period of time, such an
act is called investment.
In India, the investors have the dual advantages of free enterprises and government
control. Freedom and growth were ensured from the competitive forces of private
enterprise. On the other hand, being a fixed economy, government control exerts
discipline and curtails some elements of freedom. A public sector that is left free to
operate, to hopes to achieve the benefits derived from both socialistic and
capitalistic forms of government. In India, the political climate was conducive to
investment as government control lends stability to the capital markets. The
successes of every investment decisions have become increasingly important in
recent times. Making sound investment decisions require both knowledge and skill.
Skill was needed to evaluate the risk and return associated with an investment
decision. Knowledge was required to analyze the complex investment alternatives
available in the economic environment. The main aim of investors was to get
capital appreciation and regular returns. The capital appreciation occurs when an
investment is sold out at a higher price as compared to the original purchase price
of an investment.

Functions of stock Market

 Economic Barometer
A stock exchange is a reliable barometer to measure the economic condition of a
country. Every major change in the country and the economy is reflected in the
prices of shares. The rise/fall in the share prices indicates the boom/ recession
cycle of the economy. Stock exchange is known as a pulse of economy or
economic mirror which reflects the economic conditions of a country.
 Liquidity
The stock market is to provide ready market for sale and purchase of securities.
The presence of stock market gives assurance to investors that their investment can
be converted into cash whenever they want. The investors can invest in long term
investment projects without any uncertainty, as because of stock market they can
convert into short term, medium term as well as long term investment.
 Better Allocation of Capital
The shares of profit making companies are quoted at higher prices and are actively
traded so such companies can easily raise fresh capital from stock market. The
general public hesitates to invest in securities of loss making companies. So stock
exchange facilitates allocation of investor’s fund to profitable channels.

 Effective Mobilization of savings

Stock exchanges provide organized market for individual as well as institutional
investors. They regulate the trading transactions with proper rules and regulations
in order to ensure investor's protection. This helps to consolidate the confidence of
investors and small savers. Thus, stock exchanges attract small savings especially
of large number of investors in the capital market.
 Promoting Capital formation
The funds mobilized through capital market are provided to the industries engaged
in the production of various goods and services useful for the society. This leads to
capital formation and development of national assets. The savings mobilized are
channelized into appropriate avenues of investment.
 Investment priorities
Stock exchanges facilitate the investors to decide his investment priorities by
providing him the basket of different kinds of securities of different industries and
companies. He can sell stock of one company and buy a stock of another company
through stock exchange whenever he wants. He can manage his investment
portfolio to maximize his wealth.

 Fair Dealing in Securities Transactions

Depending on the standard rules of demand and supply the stock exchange needs
to ensure that all interested market participants have instant access to data for all
buy and sell orders thereby helping in the fair and transparent pricing of securities.
Additionally, it should also perform efficient matching of appropriate buy and sell
orders.

 Efficient Price Discovery

Stock markets need to support an efficient mechanism for price discovery, which
refers to the act of deciding the proper price of a security and is usually performed
by assessing market supply and demand and other factors associated with the
transactions

 Investor Protection:
Along with wealthy and institutional investors, a very large number of small
investors are also served by the stock market for their small amount of
investments. These investors may have limited financial knowledge, and may not
be fully aware of the pitfalls of investing in stocks and other listed instruments.
The stock exchange must implement necessary measures to offer the necessary
protection to such investors to shield them from financial loss and ensure customer
trust.