A stock represents ownership in a company. When purchasing a stock, the buyer becomes a partial owner—a shareholder—entitled to a proportional stake in company profits and assets. Units of stock are called “shares”—terminology used interchangeably in Indian markets.
Ownership Structure Explained
If a company divides itself into 1,000 total shares and ownership consists of 100 shares, the holder owns exactly 10% of that company. This ownership entitles shareholders to voting rights on major corporate decisions and board elections. Unlike debt, stocks never require repayment—they represent permanent ownership.
Stock ownership and share allocation visualization
Why Companies Issue Stocks
Private companies initially operate on founder savings and angel investor funds. As growth accelerates, capital requirements exceed what private sources provide. Issuing stocks through IPOs (Initial Public Offerings) solves this.
Capital Raising: Companies require funds for expansion, research & development, debt repayment, and operational scaling. Bank loans carry high interest rates (typically 12%+ annually) and limited amounts. Stock issuance bypasses interest costs entirely—investors share profits instead of receiving predetermined payments.
Public Credibility: Listing on NSE or BSE (Indian stock exchanges established 1992 and 1875 respectively) dramatically increases company prestige. Transparency requirements strengthen investor confidence. Foreign investors become accessible, expanding capital inflows.
Early Investor Exits: Founders and venture capitalists monetize their stakes without selling the entire company.
Company reasons for issuing stocks and raising capital
Stock Types: Common vs Preferred
Common Stock: Voting rights, dividend sharing, residual claim on assets during liquidation. Most widely traded type.
Preferred Stock: Fixed dividend payments, priority liquidation claims, but typically no voting rights.
How Stocks Work Mechanically
Stocks trade on stock exchanges connecting buyers and sellers electronically. NSE recorded 3.14 crore trades worth ₹1,03,98,371 crores on November 4, 2025. Prices fluctuate based on demand-supply dynamics and company fundamentals.
Shareholders receive quarterly dividends when companies distribute profits. Capital appreciation occurs when stock prices rise—creating gains upon selling.
Stock Valuation Components
Stock price reflects market perception of future profitability. If Reliance’s quarterly profits grow 20% annually, stock typically appreciates 15-20% correspondingly. Conversely, profit declines trigger price drops.
Balance sheet analysis reveals shareholder equity—company assets minus liabilities. Higher equity strengthens financial stability.
Investor Benefits
Ownership participation: Shareholders literally own fractional pieces of billion-rupee companies.
Profit sharing: Dividends provide quarterly income streams.
Voting influence: Major shareholders influence corporate strategy and leadership.
Liquidity: Selling 1,000 shares executes within 10 seconds through NSE/BSE.
Wealth creation: Historical returns show Nifty 50 delivered 13.6% CAGR over 5 years (February 2025); Reliance averaged 18% annually across 2 decades.
The Risk Reality
Stock prices fall during recessions—March 2020 saw Nifty crash 40%. Companies can go bankrupt, eliminating investor capital. Unlike fixed deposits with guaranteed returns, stocks carry downside risk.
Stock market courses in Delhi teach how to evaluate companies fundamentally, select stocks defensively, and build portfolios weathering market turbulence—separating informed investors from speculative gamblers.
