Introduction:
Any economy, particularly India’s quickly expanding financial sector, depends heavily on the stock market. Investors can purchase and sell shares of publicly traded firms on this platform. The generation of personal wealth, business funding, and economic growth are all impacted by the stock market. With more retail investors participating and improvements in digital trading platforms, the Indian stock market is predicted to keep growing in 2025.
What is the stock market?
A centralized marketplace where shares of publicly traded corporations are purchased and sold is known as the stock market. There are two primary sections to it:
- The primary market : is where businesses issue new shares as part of initial public offerings (IPOs) to raise money.
- The secondary market : is where investors exchange previously issued stock.The Securities and Exchange Board of India( SEBI) oversees the country’s stock request, which is substantially run by two significant exchanges
- The Bombay Stock Exchange( BSE) : is the oldest stock exchange in Asia, having been innovated in 1875.
- The NSE, or National Stock Exchange: It was first opened in 1992 and is presently the biggest exchange in India in terms of both trading volume and liquidity.
Both exchanges give effective and transparent trade, guaranteeing indifferent stock price discovery.
How Is the Stock Market Operational?
Demand and supply are the foundations of the stock market, which links buyers and sellers via an advanced trading system. The procedure consists of:
Opening a Trading and Demat Account: In order to conduct transactions, investors require both a trading account and a Demat account, which allows them to hold shares electronically.
Putting Buy/Sell Orders: Stockbrokers take orders from investors and forward them to the stock exchange.
Order Matching: The exchange uses an electronic order book system to pair buyers and sellers.
deal Execution: Following the discovery of a match, the deal is carried out and shares are transferred.
Settlement: In India, trades are settled using a Tplus1 system, which stands for Trade Day + 1 working day.
In order to contribute to liquidity and price movement, market participants include mutual funds, retail investors, institutional investors, overseas investors, and market makers.
Who Makes Stock Price Decisions?
Demand and supply dynamics are the main market drivers that affect stock prices. Important elements affecting stock prices are as follows:
1. Performance of the Company
- Profitability and earnings reports
- Plans for revenue growth and expansion
- Payouts of dividends
- Financial stability and debt levels
2. The macroeconomic elements
- Interest rates and inflation
- Economic policies and GDP growth
- Global trade dynamics and foreign exchange rates
3. Attitude of the Market
- Investors’ assessment of a business’s prospects
- Government policy and political stability
- Global financial market movements and sectoral trends
4. Business Measures
- Buybacks, incentive issues, and stock splits
- Partnerships, acquisitions, and mergers
To execute deals at market-driven pricing, stock exchanges employ sophisticated algorithmic trading and computerized matching systems.
What Reasons Underlie Stock Valuation?
The process of figuring out a company’s stock’s intrinsic value using financial information and potential future growth is known as stock valuation. To determine if a stock is overpriced or undervalued, several techniques are employed.
1. Analysis of the Fundamentals
The following criteria are used by fundamental analysis to assess a company’s financial standing, industry position, and economic climate:
a) Revenue and Financial Performance Ratios
- Stock price and earnings per share (EPS) are compared using the price-to-earnings (P/E) ratio.
- Market value in relation to book value is measured by the price-to-book (P/B) ratio.
Return on Equity (ROE): A measure of a company’s effectiveness in allocating shareholder cash.
b) Business Model and Revenue Growth
- Businesses with innovative business models and steady revenue growth are valued more highly.
c) Financial Well-Being and Debt
- Strong cash flows and less debt make a company a safer investment.
2. Technical Evaluation
In order to forecast future movements, technical analysis looks at past stock price patterns and trade volumes. Important tools consist of:
- Long-term trends are identified by moving averages (50-day, 200-day).
- Stock momentum and possible reversals are measured by the Relative Strength Index (RSI).
- Traders can identify buying and selling opportunities with the use of candlestick patterns.
3. The Method of Discounted Cash Flow (DCF)
A stock’s value is estimated using the DCF approach by discounting future cash flow projections to present value. The following formula is applied.The DCF method estimates a stock’s value based on future cash flow projections, discounted to present value. The formula used is:
\(PV = \frac{CF_1}{(1 + r)^1} + \frac{CF_2}{(1 + r)^2} + \frac{CF_3}{(1 + r)^3} + …\)
Where:
- PV = Present Value
- CF = Future Cash Flows
- r = Discount Rate
2. Analysis of Technical Data
To forecast future movements, technical analysis looks at past trading volumes and stock price trends. Some essential tools are:
- Finding long-term trends is possible with moving averages (50-day, 200-day).
- The Relative Strength Index (RSI) gauges the momentum of stocks and possible reversals.
- Candlestick patterns are useful for traders in identifying opportunities for purchases and sales.
3. The DCF Method, or Discounted Cash Flow
The DCF approach uses projected future cash flow and discounts it to present value to determine a stock’s worth. This is the formula that is used:
Location:
- Present Value (PV)
- Prospective Cash Flows (CF)
- R is the discount rate.
4. The Approach of Market Comparables
This method contrasts a company’s valuation with that of other businesses in the same sector. It consists of:
Capital-intensive businesses: are valued using enterprise value (EV) divided by EBITDA.
contrasting the P/E ratios : of businesses within the same industry.
How 2025 Indian Investors Will Handle Stock Valuation
Increased retail participation in the Indian stock market in 2025 is being fueled by:
- Growth of Direct Investing: More people are making investments via Groww, Upstox, and Zerodha.
- Growth of Mutual Funds: Systematic Investment Plans (SIPs) are still a common way to build wealth over the long run.
- Influence of Global Markets : India’s stock movements are now more correlated with global indices like the S&P 500 and Dow Jones
- Focus on ESG (Environmental, Social, and Governance) Investing : Investors are considering sustainability factors in stock valuation.
Conclusion :
The stock market serves as the backbone of India’s financial ecosystem, enabling capital formation and wealth generation. Stock prices fluctuate based on demand-supply dynamics, company fundamentals, and investor sentiment. Understanding valuation techniques such as fundamental analysis, technical analysis, and DCF modeling is crucial for making informed investment decisions.
In 2025, with rapid advancements in technology and financial literacy, Indian investors have better access to data-driven insights, making stock market participation more accessible and transparent than ever before.
