Stock Market - School Essay

A stock market indicates how the economy of a country is faring at a particular time. With rapid technological and scientific progress, the world has shrunk into a global village. Because of this, the stock markets the world over are susceptible to any effect or incidences that take place in different parts of the world. It is the manifestation of economic health. It is an essential part of the financial system of a country, even when banks and financial institutions are in the dominating position of the country's economy and finances. It enables a country to go from one stage of development to another.

So far as India is concerned, the stock market functions at two levels — primary market and secondary market. The primary job of the stock market is to mobilise resources for the companies through various kinds of issues of shares and debentures. This is termed as the primary market. Equally important, the other part is the secondary market. It is concerned basically with the rising and falling of share prices due to a number of factors which influence the traders or common people to take decision as regards selling or buying shares of a particular company or some companies.

The stock market is very sensitive as even a remote incident in the international arena can have its repercussions on it; for example, the terrorist attack of 11 September, 2001 on the twin towers in America made the stock market to plunge all over the world in never before depths, so was the case when the fact of Harshad Mehta was brought to the fore. As far as India is concerned, the market is driven by the movements in international stock markets, especially in the US, Europe, Japan and other important countries which are capable of influencing the world economy.

The share market first marched on the path of progress, but soon recession took it in its grip and now the stock market seems to be in shatters the world over.  Now the companies can go to the market to raise capital without any government control and to price their shares according to their own assessment subject to the market forces. The government plays a passive role in it through indirect control so that no unfair game is played in the market. Therefore, the issues have to conform to the regulations of the regulatory authority, called the Securities and Exchange Board of India (SEBI).

At present all stock markets all over the world operate on-line. It has brought about transparency, greater efficiency and it has helped reduce costs in transferring titles. Any person can access the stock market sitting in the comfort of his house through the internet, and he can buy and sell stocks of his free will provided he has suitable accounts.

A stock market is subject to market forces. It has seen the boom and bust. The progress and escalation of prices it saw during the boom of the IT (information technology) was exclusive to it turning many millionaires into billionaires; on the other hand, many people lost everything they had on other occasions when the boom busted and the share holders found themselves on the verge of destruction.

The size of a stock market depends upon the size of the economy of a country. The capitalisation of the world stock markets was estimated at about 33 trillion dollars at the end of the year 2001. It was to the tune of over 100 billion dollars in India. There are about 5795 companies listed on the stock exchanges in India, next only to the US with 6599 companies. Many of the blue-chip Indian companies are traded on the New York and Tokyo Exchange and that speaks volume of the potential of the Indian companies. With every passing year, a larger number of Indian companies are being represented in the Fortune 500 companies. All these achievements are due to their recognition in the international stock markets.

It should be pertinent to know some of the terms that are used in the stock market. Bears are the traders who think that the prices would fall, while the bulls are the operators who think that the prices would rise. The warrant is a certificate by which a holder enjoys the right to buy equity share at a specified price within a given time. The trading of shares and bonds in the stock markets are termed as the secondary market. Dividend is a part of profit or other surpluses which is distributed proportionately among the share holders of a company periodically. And finally, index or equity index is the barometer of a stock market by which its movements at a given time are compared with the earlier period called the base year. The index is calculated by dividing the current aggregate value of index scrips by the aggregate value of the same during the base year.

From the foregoing discussion we can see that the stock markets play a very significant role in the progress of a nation and India cannot be any exception.