Investing in shares guide, Basics of share market in India
This website, www.whyShares.Com is a guide to the Indian Share Market and how to make money in the share market in India. You can make enough money for retirement by investing in Indian stock market during your working years. Share investment in India in the right shares is a sure way to build up your wealth.
We have several pages that explain the basics of Indian Stock markets and how to start share market investment in India. We also explain how you can open a Demat account in India and how to use the Demat account to buy and sell shares online. The trick to successful investment in Indian stock market is to find the right shares.
Investing in shares good or bad?
Many people are afraid of investing in Shares because they think investing in Shares is like gambling. This is not true at all. Please note that we are talking about investing in stocks for long term. Trading in Shares and derivatives is a different thing altogether and we explain about this in our page about Derivative Trading in Futures and Options.
It is mostly in Share Trading that people lose fortunes. The stories about lost fortunes in stock trading are what people associate with gambling. Share trading, short selling on margin, etc. is for the professionals and is dangerous for beginners. Long-term investments in blue chip shares are what smart people do.
How to find good stocks to invest in India. The best way to find good shares to invest in India is to study the Companies that are in the list of 30 Companies in the BSE SENSEX (Bombay Stock Exchange Sensitive Index) or the 50 shares in the NSE or ‘National Stock Exchange of India’. You can be sure that only the best companies in India will be in the BSE SENSEX or NSE NIFTY Index because of how SENSEX and NSE stocks are selected. You should also invest in some good companies, not in the SENSEX or NSE Index, but with a healthy future to grow. How you can locate such good companies in India with growth prospects is explained in our find good companies in India to invest.
One golden rule of investing is to never put all your eggs in one basket. This means that your investments should be divided into different types of investments. For example, you should have part of your investments in Bank FD, Mutual funds of various types (Balanced, Debt, Equity, etc.), Gold, Property and Equity Shares which you select. When buying equity shares for investment, make sure that you divide those shares into different sectors like Auto, Banking, Pharma, FMCG (Fast Moving Consumer Goods), etc
Benefits of long-term investment in shares in India
The benefits of long-term investment in shares in India is that long-term investment in good Company shares will always grow in value. The growth in value of the shares of good Companies in India will be more than the value of Bank fixed deposits or investments in Properties or Gold. Your investments should target stocks with long term growth prospects to make money in the Indian share market. A kitty of good Indian Company shares will serve as an excellent source of income when you retire. We have several pages explaining the ins and outs of Indian Share Market and how to find the best Indian Companies to be invested in.
The important thing to understand about the share market in India is that the share value of good companies keep on rising as the years go by. There were instances when the Indian stock market crashed, but these crashes were only temporary, and the stock exchange index again went up and became more valuable than before the crash.
To illustrate this, we have below graphs of the actual values of the best-known stock market gauge in India, the BSE SENSEX. The BSE SENSEX index is a daily value obtained by adding the daily share price of 30 best companies in India who are judged to be well managed and stable (some companies shares are given more weightage).
We have a graph below of the BSE SENSEX showing the historical BSE SENSEX index values from 1991 till 2011. This chart shows when the big crashes of BSE SENEX happened and the reason for the crash.
Biggest stock market crashes in India
In the graph above ‘BSE Sensex 1991 to 2011 explaining its ups and downs’, you can see all the major crashes that happened in the BSE SENSEX over a period of 20 years from the year 1991 to 2011. The crashes never stopped the upward journey of the Indian Share Market. In hindsight, these are small dips in the constant rise of the Indian share market values over the years, but at the time the dip happened, it was a major crash of the Indian Stock market which hit the headlines in all news channels and newspapers in India.
The first of the biggest stock market crashes in India happened in 1992, when the Big Bull of those days, Mr Harshad Mehta, unleashed the greatest scam of all in the BSE SENSEX’s short history till then. In the year 1992, the SENSEX more than doubled from around 2,000 in January 1992 to a high of 4,462 and crashed to a low of 2,529 in August 1992. It was a traumatic experience at that time for those who had invested in the stock market, this author included. But as can be seen from the graph above and the table below, the SENSEX recovered this blow and continued to rise over the years.
The next big crisis of the SENSEX was in 2008 when the world markets crashed. In 2008 the high and low of the BSE SENSEX was 21,206 and 7,697. This was a very critical year for the economies all over the world, but as you can see the SENSEX recovered even from this global crisis, and is today in 2017 at its highest peak hovering over 32,000.
The lesson learnt from looking at the above BSE SENSEX graph is that there are periodic crashes in the stock market, which at the time of the crash is catastrophic, and makes headlines not only in India but all over the world. This makes many people think that investing in stock or share market is very risky and better avoided. After the stock markets crash or bubble burst, it starts rising again and within a year or so, will surpass the highest value before the bubble burst. This gradual rise in share prices does not make headline news like when there is a fall. There is always this tendency in news reporting to shout about negative news, but be silent when the times are good.
You can expect the SENSEX to continue to rise over the years. Those who lose money in the share market are those on the lookout for a quick buck, but the slow and steady investors in the share or stock market always make money.
With a stable Government in India, the SENSEX reached record high in 2020. The BSE broke the thirty thousand barrier on Wednesday, 4th March, 2015 by reaching 30,024. In January 2020, the highest value of BSE Sensex to date was set at 42,274 and the NSE Nifty all time high of over 12,500 was also reached in tandem in January 2020. Going forward these record values of NSE and BSE will surely be broken.
The BSE SENSEX chart below is showing the BSE SENSEX index values from 2010 till 2015 May. You can see how SENSEX index jumped in value from 2014 onwards when Modi was sworn in as the Prime Minister of India on 26 May 2014.
Below is a graph of the BSE values for 40 years from 3 April 1979 to 2 April 2019 courtesy of Bloomberg. This graph has the reasons for the ups and downs in the market. You will notice that the market falls as a knee jerk reaction to bad news, but the Indian Markets always continue their upward journey ignoring these short term knee jerk downfalls.
BSE SENSEX value history, values from 1991 to 2020
The table below shows the Opening and closing value of the BSE SENSEX for each year starting from 1991 till today in 2015. The high and low values of each year are also given. There is a steady rise in the average value of the top shares in India represented by the BSE SENSEX.
These SENSEX values bear witness to the fact that investments in quality shares or in the index values of Indian Stock Market is a great way of investing your savings. The BSE index, and the NSE index, will both rise in tandem as the years progress and the increase in value for the past 40 plus years is always more than the Bank FD rates in India.
| Year | Open | High | Low | Close |
|---|---|---|---|---|
| 1991 | 1,027 | 1,955 | 1,027 | 1,908 |
| 1992 | 1,909 | 4,546 | 1,909 | 2,615 |
| 1993 | 2,617 | 3,459 | 2,617 | 3,346 |
| 1994 | 3,436 | 4,643 | 3,410 | 3,926 |
| 1995 | 3,910 | 3,943 | 3,114 | 3,110 |
| 1996 | 3,114 | 4,131 | 2,713 | 3,085 |
| 1997 | 3,096 | 4,605 | 3,096 | 3,658 |
| 1998 | 3,658 | 4,322 | 2,741 | 3,055 |
| 1999 | 3,064 | 5,150 | 3,042 | 5,005 |
| 2000 | 5,209 | 6,150 | 3,491 | 3,972 |
| 2001 | 3,990 | 4,462 | 2,594 | 3,262 |
| 2002 | 3,262 | 3,758 | 2,828 | 3,377 |
| 2003 | 3,383 | 5,920 | 2,904 | 5,838 |
| 2004 | 5,872 | 6,617 | 4,227 | 6,602 |
| 2005 | 6,626 | 9,442 | 6,069 | 9,397 |
| 2006 | 9,422 | 14,035 | 8,799 | 13,786 |
| 2007 | 13,827 | 20,498 | 12,316 | 20,286 |
| 2008 | 20,325 | 21,206 | 7,697 | 9,647 |
| 2009 | 9,720 | 17,530 | 8,047 | 17,464 |
| 2010 | 17,473 | 21,108 | 15,651 | 20,509 |
| 2011 | 20,621 | 20,664 | 15,135 | 15,454 |
| 2012 | 15,534 | 19,612 | 15,358 | 19,426 |
| 2013 | 19,513 | 21,483 | 17,448 | 21,170 |
| 2014 | 21,222 | 28,829 | 19,963 | 27,358 |
| 2015 | 27,486 | 30,025 | 24,834 | 26,118 |
| 2016 | 26,102 | 29,077 | 22,495 | 26,626 |
| 2017 | 26,711 | 34,138 | 26,447 | 34,057 |
| 2018 | 34,060 | 38,990 | 32,484 | 36,068 |
| 2019 | 36,162 | 41,810 | 35,287 | 41,254 |
| 2020 | 41,349 | 42,274 | 40,477 | ??,??? |