In financial markets, stock is the capital raised by a corporation through the issuance and distribution of shares. A person or organization which holds shares of stocks is called a shareholder. The aggregate value of a corporation's issued shares is its market capitalization. When one buys a share of a company he becomes a shareholder in that company. Shares are also known as Equities. Equities have the potential to increase in value over time. It also provides the portfolio with the growth necessary to reach the long-term investment goals. Research studies have proved that the equities have out performed than most other forms of investments in the long term. Equities are considered the most challenging and the rewarding, when compared to other investment options.
Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment. However, this does not mean all equity investments would guarantee similar high returns. Equities are high-risk investments. One needs to study them carefully before investing. Since 1990 till date, Indian stock market has returned about 17% to investors on an average in terms of increase in share prices or capital appreciation annually. Besides that on average stocks have paid 1.5 % dividend annually. Dividend is a percentage of the face value of a share that a company returns to its shareholders from its annual profits. Compared to most other forms of investments, investing in equity shares offers the highest rate of return, if invested over a longer duration.
The first company to issue shares of stock was the Dutch East India Company, in 1602. The innovation of joint ownership made a great deal of Europe's economic growth possible following the Middle Ages. The technique of pooling capital to finance the building of ships, for example, made the Netherlands a maritime superpower. Before adoption of the joint-stock corporation, an expensive venture such as the building of a merchant ship could only be undertaken by governments or by very wealthy individuals or families.
Equity markets, the world over, grew at a great speed in the decade of the nineties. After the bear markets of the late eighties, the world markets saw one of the largest ever bull markets of more than ten years. The opening up of Indian economy in the 1990's led to a series of financial sector reforms, prominent being the capital market reforms. These reforms have led to the development of the Indian equity markets to t standards of the major global equity markets. All this started with the abolition of Controller of Capital Issues and subsequent free pricing of shares.
The introduction of dematerialization of shares, leading to faster and cheaper transactions and introduction of derivative products and compulsory rolling settlement has followed subsequently. Despite a series of stock market scams and crises beginning from 1992 Harshad Mehta's scam to the Ketan Parekh's 2001 scam, the Indian equity markets have transformed themselves from a broker dominated market to a mass market. The introduction of online trading has given a much-needed impetus to the Indian equity markets. However, over the years, reforms in the equity markets have brought the country on par with many developed markets on several counts. Today, India boasts of a variety of products, including stock futures, an instrument launched only by select markets.
The introduction of rolling settlement is the latest step in the direction of overhauling the stock market. The equity market of the country will most likely be comparable with the world's most advanced secondary markets with regard to international best practices. The market moved to compulsory rolling settlement and now all settlements are executed on T+2 basis and market is gearing up for moving to T+1 settlement in 2004 while the Straight Through Processing (STP) is in place from December...