Business Original explainer
A plain-English guide to shares, the NSE and BSE, Sensex and Nifty, and how a trade actually works.
Every morning, television channels and newspaper headlines report whether the Sensex went up or down, and whether the Nifty rose or fell. For many people, those numbers feel distant, like weather in another city. In truth, the stock market is simply a place where ordinary people can buy a small part of a business, and sell that part later to someone else. This guide explains that place in plain language, without jargon, so that a first-time reader in India can understand what is happening behind the headlines.
A share is a small unit of ownership in a company. When a business needs money to build a factory, open new shops, or pay off old loans, it can sell shares to the public instead of borrowing everything from a bank. Each share gives its holder a tiny claim on the company's assets and future profits. If the company does well over time, its shares often become more valuable. If it does badly, the value can fall, and in the worst case the shares can lose most of their worth.
Buying a share does not mean lending money to the company, and it does not guarantee a fixed return like a bank deposit. The company is not obliged to buy the share back from you. Instead, you sell it to another investor who is willing to buy it at the price you both accept. That is why share prices change every second during trading hours: they reflect what buyers are willing to pay and what sellers are willing to accept at that moment.
In India, shares are mostly bought and sold on two stock exchanges. The Bombay Stock Exchange, known as the BSE, was founded in 1875 and is Asia's oldest stock exchange. The National Stock Exchange, known as the NSE, was established in 1992 and introduced fully electronic trading to India. Both exchanges are based in Mumbai and are regulated by the Securities and Exchange Board of India, usually called SEBI, which sets the rules for exchanges, brokers, listed companies, and mutual funds.
Each exchange has a well-known index, which is a single number that summarises how a group of large companies is doing. The Sensex tracks 30 large companies listed on the BSE. The Nifty 50 tracks 50 large companies listed on the NSE. When the news says the Sensex rose, it does not mean every share rose. It means that, taken together, those 30 companies became more valuable that day. The indices are useful as a quick temperature check, but they do not tell you how any single company performed.
To buy shares in India, you normally need a demat account and a trading account, opened through a broker registered with SEBI. A demat account holds your shares in electronic form. The shares themselves are kept by one of India's two depositories, NSDL or CDSL. Your broker places the order, the exchange matches it with a seller, and the trade is settled under the T+1 system, which means the shares and money usually change hands on the next working day.
Trading on the NSE and BSE normally runs from 9:15 in the morning to 3:30 in the afternoon, Monday to Friday, except on market holidays. Prices are set by supply and demand. If more people want to buy a share than sell it, buyers have to offer a higher price. If more people want to sell, the price usually falls. Company results, interest rates, government policy, global events, and even rumours can shift that balance in minutes.
Companies first sell shares to the public through an initial public offering, called an IPO. After that listing, most trading happens in the secondary market, where investors buy and sell shares among themselves. The company does not receive money from those later trades. It received its money at the IPO stage, when the new shares were first sold.
There are two main ways a shareholder can gain. The first is a rise in the share price. If you buy a share for 500 rupees and later sell it for 650 rupees, the difference, after charges and tax, is your gain. The second is a dividend, which is a part of the company's profit paid out to shareholders from time to time. Not every company pays a dividend, and a company can reduce or stop it if profits fall.
Losses work in the same way, in reverse. A share bought for 500 rupees may fall to 350 rupees if the company's profits disappoint, if its industry faces trouble, or if the whole market drops. Short-term trading adds another risk. Buying and selling quickly, especially with borrowed money or in futures and options, can produce large losses in a very short time. SEBI's own study, published in September 2024, found that 93 percent of individual traders in equity futures and options lost money over the three years to March 2024.
A beginner does not need to pick individual shares on the first day. Many first-time investors start by learning the basics, setting aside only money they can afford to leave invested for several years, and avoiding tips from strangers on social media. Diversified options, such as index funds that simply follow the Nifty 50 or the Sensex, spread money across many companies instead of betting on one. Before opening any account, check that the broker is registered with SEBI.
The stock market rewards patience, research, and discipline far more often than speed or guesswork. Understand what you own, know why you own it, and remember that prices can fall as well as rise. Investing in shares involves risk, and past performance does not guarantee future returns.
This explainer was written by The Daily Short's desk from the sources listed above. It is general information, not professional advice. Spot an error? Tell us via the Contact page and we will correct it. Follow our official Instagram @the.daily.short.