Hello readers, we are happy to announce that our team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A for Stock Market Newbies”, to spread the basic stock market knowledge to the beginners.
This is your go-to resource for demystifying the stock market from the scratch. Each day, we will present 10 carefully curated questions with answers that will cover essential concepts, strategies, and terminologies. Whether you have just entered into the market, or trying to starting your stock market journey, or looking to strengthen your foundation, our weekly post will guide you through the basics and beyond, making investing accessible and understandable for everyone. Happy reading.
Day 62: Basic Stock Market Concept
What is the Capital
Market?
The capital market is where long‐term financial instruments—primarily equities (stocks) and bonds—are
issued and traded. It links savers (investors) who want to put money to work
with companies and governments that need funds for expansion or projects. Stock
exchanges (like BSE, NSE) and bond markets are part of the capital market. It
helps in allocating capital efficiently in the economy.
What is Disposable
Income and why is it Important for Investors?
Disposable income is the net income a person has
after paying taxes and essential expenses (or more strictly: after taxes). It
is the money available to save or invest. When disposable incomes rise in an
economy, people can invest more, drive demand, and bolster markets.
What is a Black
Swan Event in Finance?
A Black Swan event is an
unpredictable, rare event with extreme impact (e.g. 2008 financial crisis,
COVID-19). Because it lies outside normal expectations, risk models often fail.
For investors, it’s a reminder we should build resilience and avoid
overconfidence in “normal” models.
What is Index
Rebalancing and how does it Affect Markets?
Index rebalancing is when an index (say, Nifty,
sector indices) updates which stocks it includes or their weights—often
quarterly or semi-annually. When a company’s market cap rises or falls
significantly, it may be added, dropped or reweighted. This process forces large
buying or selling by funds tied to the index, which can move stock prices
temporarily.
What is the Nifty
Metal Index?
The Nifty Metal (NIFTYMET) is
a sectorial index on NSE that reflects the performance of the
metals and mining sector in India.
It includes up to 15 listed companies engaged in
steel, non-ferrous metals and allied mining. Because its sector‐specific, it is more volatile and sensitive to commodity price cycles,
infrastructure demand, and global metal demand.
What is Wholesale
Inflation (or WPI)?
Wholesale inflation is measured via the Wholesale
Price Index (WPI)—tracking price changes of goods at the wholesale or
producer level (before retail). In India, WPI is a key inflation indicator.
Rising wholesale inflation often signals cost pressures that may later filter
to consumers.
What is a Rights
Issue?
A rights issue is when a company offers its
existing shareholders the option to buy additional shares (usually at a
discount) in proportion to their current holdings. It’s a method to raise capital.
If shareholders decline, their ownership gets diluted.
What is a Share
Buyback?
In a buyback, a company repurchases its own shares
from the market. This reduces the number of outstanding shares, potentially
increasing earnings per share for remaining holders. It’s seen as a signal that
the company thinks its shares are undervalued or has surplus cash.
What is the MPC
(Monetary Policy Committee)?
In India, the MPC is a six-member
panel that sets the policy interest rates (like the repo rate) to manage
inflation and growth. It meets periodically to decide whether to raise, lower,
or maintain rates. It’s a critical body in the monetary policy framework.
What is the Current
Account Deficit?
The current account tracks a country’s trade in
goods, services, income flows and transfers. A deficit means a
country imports more (goods + services + payments) than it exports. To finance
it, it must attract capital inflows (foreign investment or borrowing).
Persistent deficits may put downward pressure on the currency.
if you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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