Basics of the Share Market
The share market (also known as the stock market) is a marketplace where buyers and sellers of shares meet to trade ownership in publicly listed companies. The price of each share is determined by demand and supply dynamics. When more people want to buy a share (demand) than sell it (supply), the price goes up. Conversely, if more people want to sell a share than buy it, the price falls.
A share represents part-ownership in a company. For example, if a company has issued 1,000 shares and you own 10, you hold 1% ownership in that company. The share market facilitates the buying and selling of these ownership stakes and helps determine their fair price through investor participation.
Five Key Functions of the Share Market
- Price Discovery
The share market plays a vital role in discovering the fair price of shares. For instance, how do you know if Reliance Industries is worth ₹950 or Infosys is worth ₹2,200? These prices emerge based on market forces, investor expectations, and publicly available information and research. - Linking Price to Value
Every company has a fundamental value, usually derived from its expected future cash flows. The share market helps align stock prices with this intrinsic value over time. While prices may deviate in the short term, they tend to converge with value in the long run. - Wealth Creation
The share market is a proven avenue for long-term wealth creation. For example, an investment of ₹1 lakh in Havells in 1996 would be worth over ₹28 crore today. Investors with a long-term horizon can benefit from compounding and capital appreciation. - Providing Liquidity
One of the most essential functions of the share market is liquidity. Investors can easily buy or sell shares at any time. This ready market of buyers and sellers reduces risk, encourages participation, and ensures smooth price adjustments. - Capital Raising for Companies
Share markets provide a platform for companies to raise fresh funds from the public. Through Initial Public Offerings (IPOs), businesses can generate capital for expansion, innovation, and diversification. Once listed, shares can be freely traded by investors.
Who Regulates the Share Market?
Because the share market plays a crucial role in the economy, it is governed by a robust regulatory framework to protect investor interests and ensure fair functioning.
- Company Regulations
All companies listed on the stock exchange are governed by the Companies Act, 1956 (and its subsequent updates). This forms the foundational legal structure for corporate conduct and disclosure in the market. - Stock Exchange Oversight
The primary stock exchanges in India—NSE (National Stock Exchange) and BSE (Bombay Stock Exchange)—regulate the conduct of brokers and investors. They implement risk management tools, circuit breakers, and real-time trade monitoring to ensure orderly trading. - SEBI – The Market Regulator
The Securities and Exchange Board of India (SEBI) is the apex regulatory body for the Indian share market. SEBI regulates stock exchanges, brokers, sub-brokers, mutual funds, portfolio managers, custodians, and merchant bankers. It ensures transparency, investor protection, and fair play in the financial markets.
Conclusion
The share market is much more than just a trading venue—it is a vital part of the economy that enables price discovery, wealth creation, liquidity, and business financing. Regulated by robust institutions like SEBI and guided by fundamental principles of supply and demand, the share market is a powerful tool for investors and businesses alike.
