India now has more than 23 crore demat accounts. Many people hold more than one, so the number of real investors is smaller, but it still means tens of millions of ordinary Indians are taking part in the stock market. For many beginners it still feels like a secret club for experts. It is not. By the end of this page you will understand what it is, in plain English.
The stock market in one sentence
The stock market is an organised marketplace where people buy and sell small pieces of companies, called shares (or stocks).
Think of a big, well-run bazaar. Instead of vegetables or clothes, the things for sale are tiny ownership slices of companies such as banks, car makers and software firms. Buyers and sellers meet, agree on a price, and the deal is done in seconds.
Why do companies come to the stock market?
Companies need money to grow: to build factories, open new stores or develop new products. They can borrow from a bank, or they can sell small ownership slices to the public. When a company sells its shares to the public for the first time, it is called an IPO (Initial Public Offering). After that, its shares can be bought and sold on a stock exchange.
Why do people come to the stock market?
- To own part of a business. If the company grows and earns more, the value of your share can grow too.
- To earn dividends. Some companies share a part of their profit with shareholders.
- To grow savings over the long term. Over many years, good businesses have historically helped investors build wealth, although this is never guaranteed.
When you buy a share on the stock exchange, the company usually does not get your money. The person who sold you the share does. A company receives money only when it first sells shares, such as in an IPO. After that, investors trade the shares among themselves.
Who runs the stock market in India?
- Stock exchanges (NSE and BSE)
- The marketplaces where buying and selling happens. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two main ones.
- SEBI
- The Securities and Exchange Board of India is the government regulator. It makes the rules and protects investors.
- Brokers
- Companies that give you the app or website to place your buy and sell orders on the exchange.
- Depositories (NSDL and CDSL)
- They hold your shares safely in electronic form, in your demat account.
A little history that may surprise you
The BSE was founded in 1875, which makes it Asia's oldest stock exchange. Its early brokers reportedly gathered under a banyan tree in Mumbai to trade. Today the same market runs on computers and mobile apps, and an order can be matched in a fraction of a second.
Two ways to take part: investing and trading
- Investing means buying shares to hold for years, based on how the business is likely to grow.
- Trading means buying and selling over shorter periods, from minutes to weeks, to profit from price movement. It demands more time, skill and discipline.
Most beginners are better off learning the basics and thinking long term before attempting active trading.
Is the stock market safe?
The market is regulated, which protects you from many kinds of fraud. But regulation does not protect you from price changes. Share prices go up and down every day, and you can lose some or all of the money you put in.
Only invest money you will not need for several years, and never borrow money to invest.
What should you learn next?
- How the stock market works: buyers, sellers, NSE, BSE and share prices.
- What a share is and how investors earn from it.
- Demat and trading accounts: what you need before you can buy your first share.
- Sensex and Nifty: what the numbers on the news mean.
For a wider roadmap, read how to start learning the stock market in India.