What is equity?
Equity is an ordinary share issued by a company. The first public offer of securities
by a company after its inception is known as an Initial Public Offering (IPO).
A share is one unit of ownership. For example if a company has issued 10,00,000
shares and a person owns 1000 of them, that means he owns 0.1% of the company.
Reasons for Going Public
- To raise funds for financing capital expenditure needs like expansion, diversification
- To finance increased working capital requirement
- As an exit route for existing investors
- For debt financing
- For debt financing
Rights of equity shareholder
- Right to share the profits of the company
- Right to control
- Right in liquidation
What is a Stock Exchange?
Secondary markets are also referred to as Stock Exchange. They are a part of capital
markets. To state simply it is a place where the securities issued by the Government,
public bodies and Joint Stock Companies are traded. In the case of India, the stock
markets are regulated by the Securities & Exchange Board of India (SEBI).
What are the functions of the stock exchanges?
Liquidity and Marketability of securities
The basic function of the stock market is the creation of a continuous market for
securities, enabling them to be liquidated, where investors can convert their securities
into cash at any time at the prevailing market price.
Fair price determination
This market is a nearly perfect competitive market as there are large number of
buyers and sellers. Due to nearly perfect information, active bidding take place
from both the sides. This ensures the fair price to be determined by demand and
Source for long term funds
Corporates, Government and public bodies raise funds from the equity market. These
securities are negotiable and transferable. They are traded and change hands from
one investor to the other without affecting the long-term availability of funds
to the issuing companies.
Helps in capital formation
It helps in mobilising the surplus funds from individuals and institutions and channelises
them to Corporates and Government bodies for more profitable ventures.
Reflects the general state of economy
The performance of the stock markets reflects the boom and depression in the economy.
It indicates the general state of the economy to all those concerned, who can take
suitable steps in time. The Government takes suitable monetary and fiscal steps
depending upon the state of the economy
What is a Stock Market Index?
It is an answer to the question “how is the market doing?” It is representative
of the entire stock market. Movements of the index represent the average returns
obtained by investors in the stock market.
What do the fluctuations of Index say?
Stock indices reflect expectation about future performance of the companies listed
in the stock market or performance of the industrial sector. They reflect the publicly
available information on the economy, industrial sectors and companies as a whole.
This is available as Fundamental and technical data. Investor sentiment also plays
an important role in the stock market movement. When the index goes up, the market
thinks that the future returns will be higher than they are at present and vice
What’s the concept behind the Index?
Stock prices are sensitive to the following news
- Company specific news
- Country specific news (which includes budget, elections, government policies,
wars and so on)
The four main legislation governing the securities market are
- The SEBI Act, 1992, which establishes SEBI to protect investors and develop
and regulate securities market.
- The companies Act, 1956, which sets out code of conduct for the corporate
sector in relation to issue, allotment and transfer of securities, and disclosures
to be made in public issues.
- The securities contracts (regulation) Act, 1956, which provides for regulation
of transaction in securities through control over stock exchanges.
- The depositories Act, 1996 which provides for electronic maintenance And
transfer of ownership of demat securities.
Segment of the exchange dealing in buying and selling of shares. Prices are settled in cash on the spot at current market prices.