Why Stock Market

In this blog post we will try to understand why stock market exist and how it function.

Any company needs capital to start with. This capital can come from initial investors or banks. When company starts functioning, at some point of time company may have expansion plan and addition fund is required for the same. In some of the cases initial investors want to sell their stake in the company and want to make some profit. In both the cases, company may decide to list in the stock exchange and sell some part of stake of the company as equity to other investors to raise some funds. Stock exchange gives an opportunity to companies to list them in exchange through IPO (Initial Public Offering) and raise funds from other investors who are interested to invest in the company. IPO of the company is issued through primary market to its first time investors publicly. Once, IPO of the company gets listed in stock exchange, it can be traded between buyer and seller in secondary market through stock brokers. Mutual Fund houses also can invest in these stocks. In this way, company gets funds from investors ti use for its expansion and other needs. If company gets fund from Banks then they have to pay fixed interest to banks but if they raise fund through IPO, they do not have to pay interest. Investors also invest in these stocks keeping in mind that if Company will grow they can get dividend from the company and they can also get benefit of valuation of the company.

So, in this way, stock market play important role in economy of the country. Because, if more companies gets listed in stock exchange and raise funds and grow by utilizing them, economy of the country also will grow. And this type of growth will be inclusive growth, because investors who invested in these companies publicly will also get benefit out of it. 

Stock market is regulated and controlled by regulatory body. In India, stock exchange is regulated by SEBI (Securities Exchange Board of India).