The Stock Markets
How stock markets work in India — what moves stock prices, how shares are traded, holding periods, calculating returns, and types of market participants.
What Is a Stock?
When you buy a stock (also called a share or equity), you are buying a small piece of ownership in a company. If a company has issued 1 crore shares and you own 100 of them, you own 0.001% of that company.
As a shareholder, you are entitled to several rights:
- Dividends — a share of the company's profits, if the board declares one.
- Voting rights — the ability to vote on major company decisions at general meetings.
- Capital appreciation — if the company grows and performs well, the market price of your shares can rise, creating wealth over time.
What Moves a Stock Price?
Stock prices are driven by supply and demand. When more people want to buy a stock than sell it, the price goes up — and vice versa. But what drives that buying and selling?
Company-Specific Factors
- Earnings results — quarterly revenue, profit, and margin numbers.
- Management quality — leadership track record and corporate governance.
- Product launches — new products, services, or market expansion.
- Order wins and contracts — large deals or strategic partnerships.
- Debt levels — rising or falling leverage relative to equity.
Market-Wide Factors
- Interest rates — RBI repo rate changes affect borrowing costs across the economy.
- Inflation data — CPI and WPI prints influence sentiment and policy expectations.
- GDP growth — overall economic momentum lifts or drags markets.
- Global cues — US Fed decisions, crude oil prices, and foreign capital flows.
- Government policy — budget announcements, tax changes, and regulatory reforms.
Sentiment & Psychology
- Herd behaviour — retail traders often follow the crowd, amplifying moves.
- Fear and greed — extreme emotions drive overbought and oversold conditions.
- News and rumours — unverified stories can spark sharp intraday swings.
Holding Periods
Different traders and investors hold stocks for different durations. Your holding period defines your style and strategy.
| Style | Holding Period | Approach |
|---|---|---|
| Scalper | Seconds to minutes | Exploits tiny price moves with high frequency and volume. |
| Day trader | Minutes to hours (intraday) | Opens and closes all positions within the same trading day. |
| Swing trader | Days to a few weeks | Captures short-term price swings using technical analysis. |
| Positional trader | Weeks to months | Rides medium-term trends backed by both technical and fundamental cues. |
| Investor | Months to years | Buys quality businesses and holds for long-term wealth compounding. |
How to Calculate Returns
Absolute Return
Absolute return tells you the total percentage gain or loss on an investment, regardless of how long you held it.
Example: You buy a stock at ₹200 and sell at ₹260.
Absolute Return = ((260 − 200) / 200) × 100 = 30%
CAGR (Compound Annual Growth Rate)
CAGR smooths your returns into an annualised figure, making it easy to compare investments held for different durations.
Example: You invest ₹1,00,000 and it grows to ₹1,50,000 in 3 years.
CAGR = ((1,50,000 / 1,00,000) ^ (1/3) − 1) × 100 = ≈ 14.47% per year.
Key Takeaways
- A stock represents fractional ownership in a company, entitling you to dividends, voting rights, and capital appreciation.
- Stock prices move based on company fundamentals, macroeconomic factors, and market sentiment.
- Shares are traded on NSE and BSE during defined sessions, with T+1 settlement in India.
- Order types — market, limit, stop-loss, AMO — give you different levels of control over execution.
- Your holding period defines your trading style: from scalping (seconds) to investing (years).
- Use absolute return for short-term trades and CAGR for evaluating long-term investment performance.
This content is for educational purposes only. swingcapital is not a SEBI-registered advisor. Consult a qualified financial advisor before making investment decisions.