Ramya Nijaningappa

The question of whether the stock market is "rigged" is a hot topic, and the answer isn't straightforward. Let’s break it down in a simple and fun way!

Imagine the Stock Market as a Big Game

Think of the stock market like a giant multiplayer game. You’ve got all kinds of players:

• Big Players: These are like the pros – the hedge funds, institutional investors, and big banks with super-fast computers and tons of money.
• Small Players: These are the regular folks – you, me, and other individual investors trying to make a smart move.
• Referees: These are the regulators like SEBI (in India) who try to keep things fair.

Is the Game Fair?

• The Big Players’ Advantage: Imagine the big players have faster reflexes, better strategies, and more inside knowledge. They can make trades in a fraction of a second, sometimes giving them a big edge. It’s like they’re playing with a cheat code that lets them see a few seconds into the future!

• The Small Players’ Challenge: Small players don’t have access to these advantages. Sometimes, it feels like they’re playing the game with one hand tied behind their back. But they can still win; it’s just harder and takes a bit more strategy and patience.

Is It Rigged?

• Not Really Rigged, But…: The game isn’t exactly "rigged" in the sense that someone is sitting behind a curtain, pulling strings to ensure only certain people win. However, the playing field isn’t level. The big players have more resources, better tools, and sometimes even information that regular players don’t have.

• Rules and Referees: The referees (regulators) try to keep things fair by setting rules and catching cheaters. But just like in any game, some players try to bend or break the rules without getting caught. This can make things feel unfair sometimes.

So, Should You Play?

• Absolutely!: Even though the big players have advantages, small players can still make money and succeed. It’s all about playing smart, doing your homework, and not trying to compete directly with the big players in their game.

• Remember: It’s like playing a video game on hard mode – it’s more challenging, but that makes the victory even sweeter when you win!

In short, the stock market isn’t “rigged” like a carnival game, but it’s definitely tilted in favor of those with more resources. With the right approach, though, anyone can still come out ahead!

In India, stock market indices like the S&P BSE Sensex and the NSE Nifty 50 are calculated using specific methodologies. Here’s a breakdown of the processes:

1. Index Selection:

• Sensex: Comprises 30 of the largest and most actively traded stocks on the Bombay Stock Exchange (BSE).
• Nifty 50: Comprises 50 of the largest and most liquid stocks on the National Stock Exchange (NSE).

2. Weighting Method:

Both indices use the Free-Float Market Capitalization method, where the weight of each stock in the index is based on its free-float market capitalization rather than its total market capitalization.

• Free-Float Market Capitalization: It refers to the market capitalization of a company’s shares that are readily available for trading (excluding shares held by promoters, government, etc.).

• Formula:

  Free-Float Market Capitalization=Market Price of Stock×Number of Free-Float Shares\text{Free-Float Market Capitalization} = \text{Market Price of Stock} \times \text{Number of Free-Float Shares}Free-Float Market Capitalization=Market Price of Stock×Number of Free-Float Shares

3. Index Calculation:

• Base Year and Base Value: Both indices have a base year and a base index value, which provides a reference point. For example, the Sensex has a base year of 1978-79 and a base value of 100.

• Index Value Calculation: The value of the index is calculated using the following formula:

  Index Value=∑(Free-Float Market Capitalization of All Companies in Index)Index Divisor\text{Index Value} = \frac{\sum (\text{Free-Float Market Capitalization of All Companies in Index})}{\text{Index Divisor}}Index Value=Index Divisor∑(Free-Float Market Capitalization of All Companies in Index)
  • Index Divisor: A predetermined figure that helps maintain the continuity of the index over time, even after corporate actions like stock splits or mergers.

4. Corporate Actions:

• Adjustments are made to the index to account for corporate actions like dividends, rights issues, stock splits, and mergers to ensure that these actions do not distort the index's value.

Example (Simplified):

If the free-float market capitalization of the companies in the index increases due to a rise in stock prices, the index value will increase accordingly.

Summary:

• Sensex and Nifty 50 are both calculated using the free-float market capitalization method.
• The indices reflect the weighted performance of the selected stocks, adjusted for corporate actions, to provide an overall indicator of the market's health.

This methodology ensures that the index reflects the current market trends accurately.

Hello! I am looking to learn the fundamentals of the stock market analysis and eventually move towards the technicalities of it. Want some suggestions as where to start from, any online courses or certifications which can help me in this endeavor? Thanks.

Hiii Nishant, Congratulations that you are interested in learning fundamental analysis of stock market and planning to move towards technicals. I would suggest you to choose a professional trainee who will give you practical knowledge about the market rather than theory which makes you a professional and successful trader. Coming to the part of certification after completion of your training you can take over NISM Exams conducted under SEBI regulation, 2007. Thank You