Basics of Equity Market PDF: A Comprehensive Guide

Understanding the basics of the equity market can be a daunting task, especially for beginners. To start with, an equity market is simply a platform where companies raise capital by issuing shares to the public.

The equity market is a vital part of a country's economy, providing a way for businesses to grow and expand. It's a market where investors can buy and sell shares of publicly traded companies.

Investors can participate in the equity market through various means, including buying individual stocks or investing in mutual funds or exchange-traded funds (ETFs). These investment options offer a range of benefits, including diversification and professional management.

Take a look at this: Shares and Equity

The equity market is a meeting point for buyers and sellers of stocks. It's where companies raise capital by selling ownership stakes to investors.

There are two main types of shares: common stock and preferred stock. Common stock gives investors an ownership stake in a company and typically comes with voting rights.

A fresh viewpoint: Stock Market Falling

Stock exchanges like the NYSE and Nasdaq are centralized marketplaces where shares are publicly traded. They're like the main hubs where buying and selling happens.

Companies list their stocks to get access to capital without taking on debt. This is a form of equity financing where they give up ownership in exchange for capital.

The largest equity markets in the world are the NYSE, Nasdaq, Euronext in Europe, the Tokyo Stock Exchange, and the Shanghai Stock Exchange. These markets have huge market capitalizations, with the NYSE being around $28.5 trillion.

Investors bid for stocks by offering a certain price, and sellers ask for a specific price. When these two prices match, a sale occurs.

Stocks can be bought and sold easily and quickly, and the activity surrounding a particular stock impacts its value. This is because many investors are bidding on the same stock.

Liquidity gives investors the ability to buy and sell shares quickly and efficiently. High liquidity in equity markets means that there are many buyers and sellers actively participating.

The performances of individual stocks vary widely over time, but taken as a whole, the stock market has historically rewarded investors with average annual returns of around 10%.

For more insights, see: Stock Market Terminology

Equity markets are meeting points for issuers and buyers of stocks in a market economy. This is where companies raise capital to start up or expand their enterprises.

Stocks can be issued in public markets or private markets, and the venue for trading changes depending on the type of issue.

Most equity markets are stock exchanges that can be found worldwide, such as the New York Stock Exchange (NYSE) and the Tokyo Stock Exchange.

The PDF, Andrew's stock market basics guide, breaks down the logic of different valuation ratios to teach you to buy low and sell high. It's not a comprehensive guide to everything you'll ever need to know about investing, but it's a great starting point.

You'll learn about compound interest, the importance of investing in the market, and some of the basic fundamentals that will help you start to identify undervalued companies that you can invest in.

A unique perspective: Growth Equity Investing

Here are some key types of equity markets:

Investing in the stock market may not guarantee 10% returns, but it's still a better option than keeping your money in a savings account. Even a small return of 4.99% is better than earning 0.01% with a traditional savings account.

Investment options in the equity market are vast and varied. You can choose from common and preferred stocks, exchange-traded funds, and more.

With these options, investors can tailor their portfolios according to their risk profiles and investment goals. This allows for strategic selection of stocks based on market trends, company performance, and sector dynamics.

Investors can gain exposure to different companies and industries through these options. Transactions are done through brokers of the exchange, and investors need a broking account and a demat account to invest in ETFs.

Here are the key features of Exchange Traded Funds (ETFs):

You can start investing with just $0 in fees thanks to many brokers offering commission-free trades.

The stock market has grown over the past 20 years despite some traumatic events, so it's not as risky as you might think.

You can buy just one share of a company or even a fractional share of a more expensive company like Microsoft.

It's not necessary to have a lot of money to start investing, and buying a small share of a company can be a great way to get started.

Buying a share of a company you already know and use, like Chipotle or Apple, can make it feel more personal and interesting.

Having some skin in the game can make you more interested in what you read and learn about the company.

You can start by buying a share of a company you already know, and then you can learn more about the stock market and investing.

It's okay to start small and take it one step at a time, and buying your first stock can be a great way to get started.

Expand your knowledge: Stock Market Crash

Investment Options offer a range of financial products, including common and preferred stocks, exchange-traded funds, and more.

With these options, investors can tailor their portfolios to their risk profiles and investment goals. They can gain exposure to different companies and industries.

Investors can strategically select stocks based on market trends, company performance, and sector dynamics to align their investment with their financial objectives.

Exchange-traded funds (ETFs) are a type of mutual fund that combines features of an open-ended fund and a stock.

Here are some key features of ETFs:

An IPO is a company's first public offer of shares, where the shares become widely held and the shareholding pattern changes.

The company issues new shares to public investors, increasing its issued share capital.

Existing shareholders, like promoters or financial institutions, offer a part of their holding to the public, but the company's share capital remains the same.

The proceeds from the IPO go to the existing shareholders selling their shares, not to the company.

Consider reading: Private Equity Returns vs Public Markets

A mutual fund is a vehicle to mobilize money from investors to invest in different markets and securities, in line with the investment objectives agreed upon between the mutual fund and the investors.

Mutual funds offer professional fund management services, making it possible for small investors to participate in the market.

Investing in a mutual fund allows you to diversify your portfolio by pooling your money with other investors.

You can choose from various types of mutual funds, each with its own investment strategy and risk level.

Here are some common types of equity mutual funds:

Each type of mutual fund has its own advantages and disadvantages, and it's essential to understand these before making an investment decision.

Savings schemes can be a great way to grow your money while also getting some tax benefits. There are several types of savings schemes available, but let's focus on Equity Linked Savings Schemes (ELSS).

ELSS are equity funds that provide tax benefits in the form of deductions under section 80 (c) for the amount invested. The limit for claiming deduction is Rs. One lakh. Investments are subject to a three-year lock-in on the investments made to get the tax benefit.

To qualify as an ELSS, a fund has to hold at least 80% of the investment portfolio in equity securities. This means that at least 80% of the fund's assets are invested in stocks.

You might like: Retail Money Market Mutual Funds

International funds invest in securities listed on markets outside India, which can include equity shares and debt-listed abroad.

The type of securities that international funds can invest in is specified by the regulator SEBI.

International funds can also invest in units of mutual funds and ETFs issued abroad, as well as ADRs and GDRs of Indian companies listed abroad.

This allows international funds to diversify their portfolios and potentially reduce risk.

A fresh viewpoint: Why Invest in Equity Market

Stock exchanges play a crucial role in facilitating the buying and selling of securities. The first electronic stock market was the Nasdaq, founded in 1971.

The world's first stock exchange was the Amsterdam Stock Exchange, established in 1602. It was initially created to aid the trading of shares and bonds issued by the Dutch East India Company.

The oldest stock exchange in Asia is the Tokyo Stock Exchange (TSE), founded in 1878. It emerged as Japan began to modernize and embrace Western-style capitalism rapidly.

Here's a list of some of the world's oldest stock exchanges:

Stock exchanges have come a long way since their inception. Today, they are a crucial part of the global financial system, providing a platform for companies to raise capital and for investors to buy and sell securities.

The London Stock Exchange (LSE) is a financial powerhouse that has been in operation for over 200 years, founded in 1801. It's located in London, United Kingdom.

The LSE has a rich history that dates back to the Royal Exchange, established in 1571. Stockbrokers were initially banned from the Royal Exchange due to their raucous behavior, leading them to conduct business in the coffee houses of Change Alley, which eventually became the LSE.

The LSE played a crucial role in financing the Industrial Revolution and other imperial ventures, listing companies involved in railways, mining, and colonial trade. This was especially significant during the 18th and 19th centuries.

The exchange's global influence peaked in the late 19th century when London was the world's preeminent financial center. This position was later challenged by two World Wars and the Great Depression.

In 1986, the LSE underwent significant changes with the "Big Bang" deregulation and privatization under Margaret Thatcher's government. This led to the introduction of electronic systems and opened up seats on the exchange to foreign firms.

Today, the LSE remains one of the world's largest and most international stock exchanges, home to thousands of companies from over 60 countries. Its total market capitalization is in the trillions of pounds.

Here are some of the major firms traded on the LSE:

The Nasdaq is a significant player in the world of stock exchanges. It was founded in 1971 as the world's first electronic stock market, a major departure from traditional exchanges like the NYSE.

The Nasdaq quickly gained prominence as a hub for tech companies, listing giants like Microsoft, Apple, and Amazon. This was largely due to the technology sector's boom in the 1980s and 1990s.

In the late 1990s, the Nasdaq Composite index soared to new heights, only to crash in 2000, marking a significant setback for the tech industry and the broader economy.

Despite this, the Nasdaq rebounded and continued to evolve, expanding globally and diversifying its offerings beyond stock trading. Today, it's a leading provider of trading, clearing, exchange technology, and public company services.

The Tokyo Stock Exchange (TSE) is a significant player in the global financial landscape. Founded in 1878, it has a rich history that mirrors Japan's transformation from a feudal society to a modern industrial and financial giant.

The TSE emerged as Japan began to modernize and embrace Western-style capitalism rapidly. Its early years were marked by fits and starts, reflecting the growing pains of Japan's nascent industrial economy.

The TSE was forced to close in 1945 amid the chaos of Japan's defeat in World War II. However, it reopened in 1949, symbolizing Japan's economic rebirth and the beginning of its postwar miracle.

The TSE peaked in December 1989, when the Nikkei 225 index hit its all-time high. This marked the apex of Japan's asset price bubble, which then burst, ushering in Japan's "Lost Decade" of economic stagnation.

The TSE has a benchmark index called the Nikkei 225, which represents major companies such as Toyota, Sony, and Honda.

The Shanghai Stock Exchange (SSE) is the largest in China and a key player in the country's financial system.

It has a long and tumultuous history, dating back to 1891 when it was founded during the late Qing Dynasty. The exchange operated until 1941, when it was forced to close due to the Japanese occupation during World War II.

After a brief reopening, the SSE was shut down again in 1949 following the Communist revolution. It wasn't until 1990, under Deng Xiaoping's economic reforms, that the modern Shanghai Stock Exchange was reestablished.

Since its relaunch, the SSE has experienced several boom-and-bust cycles, including a major crash in 2015 that sent shock waves through global markets. A 2020s real estate crash has also affected China's markets.

Today, the Shanghai Stock Exchange stands as the world's third-largest stock exchange by market capitalization, trailing only the NYSE and Nasdaq. It lists many of China's largest state-owned and private companies, including the Industrial and Commercial Bank of China and the China Petroleum & Chemical Corporation (Sinopec).

Euronext is a pan-European stock exchange that was formed in 2000 through the merger of several exchanges. It's based in Amsterdam, Netherlands, but operates in multiple countries including Belgium, France, Ireland, Portugal, and the UK.

Euronext quickly expanded its reach, adding the Portuguese stock exchange Bolsa de Valores de Lisboa e Porto in 2002 and merging with the New York Stock Exchange in 2007 to form NYSE Euronext. This partnership lasted until 2014, when Intercontinental Exchange (ICE) acquired NYSE Euronext and spun off Euronext as an independent entity.

Euronext operates as a single exchange with multiple national regulatory frameworks, reflecting the complex nature of European financial integration. This model allows it to maintain its local presence and expertise while offering a unified trading platform across its markets.

Here are some key facts about Euronext:

Hong Kong is home to the Hong Kong Stock Exchange, which has a rich history dating back to 1891. The exchange has undergone significant changes over the years, with a major restructuring in 2000 that merged it with the Hong Kong Futures Exchange and the Hong Kong Securities Clearing Company.

The exchange has played a crucial role in linking mainland China's economy with international capital markets. This was particularly evident in 1993 with the introduction of H-shares, which allowed mainland Chinese companies to list in Hong Kong.

Today, the Hong Kong Stock Exchange is the third-largest in Asia by market capitalization, with a market cap of $38.69 billion as of July 2024. This is a testament to its growing importance in the global financial arena.

Among the over 2,600 companies traded on the exchange are the Bank of China (Hong Kong) and China Unicom. These companies are just a few examples of the many that have listed on the exchange over the years.

The exchange has also made significant strides in innovation, with the launch of the Shanghai-Hong Kong Stock Connect in 2014 and the Shenzhen-Hong Kong Stock Connect in 2016. These programs have opened up China's capital markets to international investors and vice versa.