What is Stocks
Stocks is an equity share of the company. If you buy a share of ITC or Tata Motors, then you are the owner of that share of that company.
In other words, A stock (is also called equity share or share) is a financial security that represents the ownership of a fraction(divided pieces or divided into multiple shares) of a corporation.
A stock exchange is a location where investors can buy or sell shares of publicly listed companies. It is like a marketplace for stocks. You can buy stocks from one exchange and sell them on another exchange. It is somewhat like a shopping mall. You can buy a shoe of a particular brand from multiple shopping malls. It doesn’t affect the quality of the shoe you buy. Likewise, shares bought in one exchange are the same as those bought on another exchange. In India, the two main exchanges are the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). In the US, the biggest exchange is the New York Stock Exchange (NYSE).
Stock vs Share
Generally, we call “ABC stock” instead of “ABC Public Ltd” once that company listed in stock exchange.
Stock is a collection of shares publicly traded via official exchange and also generic term. e.g. I have “ABC” and “DEF” stocks in my portfolio. Share represents ownership of a particular stock. e.g. I have 20 shares of ABC stock.
Why companies listed in stock exchange
Let us assume,
You own company “ABC Private Ltd” and also want to implement new technology and expand your business.
In such a case, You need more money for new implementation and expansion, So you will get a loan from the bank and pay the interest until you settle that loan amount even your business loss.
Another way, Change your company from ABC Private Ltd to ABC Public Ltd which means you list your company on a recognized stock exchange or the shares are traded publicly.
In such case, I am brought 10 shares from your company ABC Public Ltd and I am the owner of these 10 shares from your company.
Your company got profitable over the period or after you implemented new technology/expansion and you share some amount as dividend from your profit for my 10 shares and prices of the share will increase. As an investor, I will get double benefit 1) Dividend 2) Share price increase.
If your company into a loss, You no need to pay any amount to me and then the share price will decrease and the loss is mine because 10 shares are mine and I will accept the loss.
A newly created stock is sold to the public, it is done so via the primary market. In the primary market, the creator of the shares sells the shares and gets the money. It is called as Initial Public Offer (IPO) where creator sell the shares to the public and gets the money, he can use that money for his own purpose, company expansion, company loan payment, R&D, invest in other technology, etc.
Secondary markets are where investors buy and sell stocks and other securities from each other. This is often what we all call the stock market/exchange. In the secondary market, anyone can buy and sell any shares as long as there are willing buyers and sellers.
Initial Public Offer (IPO)
It is refer to offering the shares of a private company to the public in a new stock issue. A private company needs money to its business expansion and get a money from public through sell its some percentage of shares instead of get a loan from bank. In that case, private company register Public limited company with Registrars of Companies (ROC) (by Ministry of Corporate Affairs) and register documents for IPO listing and get approval with SEBI.
Annual General Meeting
An Annual General Meeting is held by companies after the financial year ends. AGMs are a means for the shareholders and the management of a company to interact and decide on important matters, such as yearly results, the appointment of board members, etc. The Companies Act, 2013 makes it compulsory to hold an annual general meeting and also lays down the procedure to be followed.
Public Limited Company
A public limited company is a company that is listed on a recognized stock exchange or the shares are traded publicly.
Dalal street is a street in Mumbai that houses the Bombay Stock Exchange (BSE). BSE is the largest stock exchange in India. ‘Dalal’ translates to ‘broker’. It is the centre of many important financial activities in India. The Wall Street in New York is the equivalent of Dalal Street.
Why a share price goes up
After listed that ABC company in stock exchange, that company share price is increases by the following reasons
- Company Profit
- Good Quarterly Result
- Positive News
- Good Ratings by Agencies
- Known stock market experts buying shares
- Huge Demand
Now you simply understand stocks and why companies prefer to list in stock exchange.