IMPORTANT ECONOMIC TERMS share market and capital market



  • Annual Report

An annual report is a yearly report that every company prepares to impress the shareholders of their company. The annual report consists of lots of information about a company, from cash flow to management strategy.

Several people read the annual report to look at the company’s solvency and judge their financial position.

  • Arbitrage

Arbitrage means purchasing something like foreign money from one place and selling it to another place where the price of the foreign money is higher than buying place.

For example: if stock is trading out $20 from one Market and $21 on other markets, the trader must buy shares at $20 from one Market and sell them for $21 on the different Market, getting the difference amount between both the markets price.

  • Averaging Down

Averaging down means the investor buys more stock when the price of a particular stock goes down. This decreases the average purchase price of your specific stock.

Several investors use this strategy if they feel that consensus about a specific company is wrong, so they expect the stock price to jump back and earn profit.

  • Broker

A broker is a person who buys and sells investment on your behalf and, in exchange, takes a certain amount of money called commission or fee.

  • Dividend

A dividend means when the company earns profit, a particular portion of their earnings is distributed to shareholders or the people who own the company stock on a quarterly or annual basis. Not every company pays dividends, and if you’re after penny stocks, you’ll likely not get any dividends.

  • Sensex

Sensex is a figure that indicates all the relative share prices that are listed on the Bombay Stock Exchange.

  • Nifty

The Nifty 50 Index, called the National Stock Exchange of India, is the primary and brad based stock market index for the equity market of India.

The Nifty 50 consists of 50 Indian company stocks in 12 different sectors, and it is one out of two stock indices that are mainly used in the stock market.

  • Quote

The stock’s latest trading prices contain information that is given in a quote. Sometimes, the quote is delayed by 20 minutes unless you’re an actual stockbroker working in an existing trading platform.

  • Share Market

A share market is a market in which shares of a particular company are purchased and sold. The stock market is a definite example of a share market.

  • Bid Price

A bid price is nothing but the amount that you desire to pay for a particular share.

  • Trading Volume

Trading volume means the number of shares that are traded on a particular day.

  • Market Capitalisation

It simply means the value of a company according to the stock market. That is the current value of all the shares of a company put together.

  • Intra-Day Trading

Intraday trading means buying and selling your desired stocks on the same day so that before trading hours get over, all your trading positions will be closed within the same day.

  • Market Order

A market order is an order to buy and sell shares at the market price. Several investors don’t go with this Order because the trade price in the market order remains volatile.

  • Day Order

A day order is an order that remains good till the end of the trading day. If the Order does not perform by the time the market closes, the Order will be canceled.

  • Limit Order

A limit order is to buy shares below a fixed price and sell shares above a fixed price. It is advisable to use a limit order to trade shares.

  • Portfolio

The portfolio is a collection of all the investments that an investor has made right from purchasing a share for the first time.

  • Liquidity

Liquidity means how stocks can be sold off quickly. Shares that get sold consist of high trade volumes quickly and are called highly liquid.

  • IPO

IPO means a private company is turning into a public company by issuing its shares to the public for the first time. In the case of an IPO, the investor can buy the shares directly from the company.

  • Secondary Sharing

It is another offering used to sell more stocks and gain more money from the public.

  • Going Long

Betting on the price of a stock that will increase so that you can buy at a low price and sell at a high price.

Insider trading involves trading in a public company's stock or other securities by employees with non-public, material information about the company. Insider trading can be either illegal or legal depending on when the insider makes the trade and the laws of the country the person is in.

In the U.S., insider trading is illegal when the material information is still non-public, and those who commit it face harsh consequences.


Bear market

A bear market is one that is falling or trending lower. This can happen during times of recession or public crisis and can last anywhere from weeks to years. If you think the market is going to drop, you’d be considered a “bear.” This description can also be applied to individual stocks you believe will fall, in which case you’d be “bearish” on the stock.


A bond is similar to a loan with some key differences. In the case of a bond, the buyer is the lender, and the seller is the borrower. Generally speaking, the bond issuer or seller is a government body or a corporation. When they issue the bond, they promise to repay a principal amount, which is the amount of money they are borrowing, in the future on a maturity date. Additionally, they will pay interest periodically to the bond buyer based on a rate called the coupon rate.

Bull market

A bull market is one that is rising or trending higher. If you think the market is going to rise, you’d be considered a “bull.” If you believe an individual stock will go up, you’d be “bullish” on the stock.

Capital gain or loss

A capital gain is a profit or return on an investment. For example, if you bought a share of a stock for $500, and then sold it at $900, you would have made a capital gain of $400. A capital loss works in a similar way – if you bought a share of stock for $500 and sold at $200, your capital loss would be $300.


Some companies pay out a portion of their income to shareholders, which is called a dividend. Depending on the company, dividends may be a one-time payment, may be sent periodically (i.e., every month, quarter, half-year, or year), or may not be paid out at all.


“Earnings Before Interest & Taxes” (EBIT) and “Earnings Before Interest, Taxes, Depreciation & Amortization” (EBITDA) are two commonly-used metrics that represent a company’s profits excluding certain costs. The metrics are believed to represent the company’s core earnings.

Exchange-traded funds (ETFs)

As an investor, you can buy and sell shares of ETFs just as you do with stocks. But buying a share of an ETF gives you some ownership to a fund of different assets, while buying a share of stocks gives you some ownership to individual companies.

Hedge fund

A hedge fund, like a mutual fund, is an investment vehicle that uses pooled funds to generate returns. The difference between mutual funds and hedge funds is that hedge fund portfolio managers are part of a firm (limited partnership or LLC) and raise money from investors, which they then manage and invest across different assets. Unlike mutual funds, not everyone can invest in hedge funds; to be considered, you generally need to earn a minimum annual paycheck of $200,000+.


An index measures the performance of a group of assets, such as stocks, bonds, and more. Some of the most well-known indexes include the BSE -50,Nasdaq-100, Nasdaq composite, S&P 500, and Dow Jones Industrial Average.

Index fund

An index fund is a mutual fund that is made up of assets in a way that mirrors a certain index. For example, if you are invested in a Nasdaq-100 index fund, and the Nasdaq-100 goes up, so will the value of your index fund. Since these types of funds are passively managed, the fees will be lower than investing in a typical mutual fund.

Individual retirement account (IRA)

An IRA is a type of retirement account that comes in various formats and offers a tax advantage for retirement savings. You can open an IRA as soon as you turn 18, but you may not have access to every type of IRA immediately.

Market capitalization

A company’s market cap is the cumulative value of all of its outstanding shares. The market cap can be calculated by multiplying the company’s current share price by the number of shares outstanding.

Margin -When you open a brokerage account to invest, you will have to choose whether you want a cash or margin account. Margin is basically using borrowed money to invest. The credit will come from the broker, and your entire account is considered collateral. The hope is that you will be able to make a higher return with the borrowed money than the interest rate charged by the broker for the margin loan, so the investor will earn a personal profit.

Mutual fund -A mutual fund is a pooled portfolio managed by a professional portfolio manager. This manager uses the pooled fund to buy a diversified portfolio of securities. The pooled funds come from individual investors who purchase shares of the mutual fund. Mutual funds are actively managed, leading to higher fees than if you were to invest on your own.

Price-to-earnings (P/E) ratio - A P/E ratio is a valuation metric that determines the value of a company relative to its earnings, often expressed on a per share basis. For example, if a company’s stock is trading at $100 per share, and is expected to earn $4 per share, its P/E ratio would be 25.

Share - Shares, also known as stocks or shares of stock, are a portion of ownership of a company’s equity. The value of a share is based on how the company divided its equity into units. Shares entitle the share owner to a portion of the company’s profits (or gain in stock price). This also applies to a drop in the stock price, as the value of the share will go down with it.

Short selling - When you short a stock, you borrow shares of stock and sell them at their current price with the promise to return the shares to the lender in the future. The hope is that the stock price will drop, at which point you can buy the shares of stock to return to your lender, making a profit on the difference between where you sold and bought the shares. Instead, if the stock price goes up, you will lose money when returning the shares to the lender.

Volatility - Volatility is the degree to which a traded asset varies or fluctuates in price over time.

Annualised inflation: This is the percentage change in prices for a period compared to the same period of the previous year. It is calculated by comparing the respective index numbers, whether the Consumer Price Index or the Wholesale Price Index, for the two periods. India's inflation target, along that of other countries, is spelt out in these terms.


Base effect: Since the inflation rate is arrived at by computing the percentage change, it is influenced by the denominator – or the base. If the index rose very sharply from April 2021 to May 2021, it may lead to inflation easing in May 2022 even if prices are higher than in April 2022. This is a favourable base effect.


Core inflation: This measures inflation after excluding items whose prices are volatile – food and fuel, for instance. This measure of inflation is more stable than the headline number and is seen as an indicator of underlying demand.


Depression: A fall in GDP for multiple years is termed a depression. A recession is commonly defined as at least two consecutive quarters of a year-on-year contraction in GDP – such as the one India experienced in the second and third quarters of 2020 following the imposition of a nationwide lockdown.


Generalised inflation: This is when the increase in prices of a category of items – say fuel – leads to prices of other items also rising. For instance, higher fuel prices increase the cost of transporting food. This higher transportation cost can be recouped by increasing the price of food items, resulting in generalisation of inflation.


Hyperinflation: This refers to a period of extremely high and increasing inflation. The most striking example is 1920s Germany, with inflation rising to almost 30,000 percent in late 1923 as prices doubled almost every four days. More recently, Zimbabwe has reported eye-watering levels of inflation, with the figure for May coming in at 131.7 percent.


(shr)Inkflation: A little bit of cheating, perhaps, just like this term. Shrinkflation refers to the phenomenon of companies maintaining the price of their goods but reducing the quantity offered. So a packet of crisps continues to cost Rs 20, but now weighs 52 grams instead of 60 grams. Companies do this to avoid raising prices, which may weaken demand further and lead to loss of market share. This usually occurs when rising input costs put pressure on companies' margins.


Nominal growth: GDP growth recorded without adjusting for inflation. As such, periods of high inflation will see high nominal growth. India's real GDP growth was 8.7 percent in FY22. But the high rate of inflation meant nominal growth was 19.5 percent.


Output gap: The difference between how much an economy is currently producing and what it can potentially produce. If the output gap is negative, there is said to be spare capacity in the economy and a rise in demand will not necessarily lead to higher inflation. There is no precise measurement of output gap and it is usually derived from surveys.

Stagflation: A combination of stagnation and inflation, it refers to a period of low growth and high inflation. A classic example of stagflation is the 1970s. The World Bank has drawn comparisons between the current situation and the 1970s, citing the prolonged period of highly accommodative monetary policy in major advanced economies followed by persistent supply-side disturbances pushing inflation higher.

Fiscal Deficit  - Fiscal means pertaining to the government’s revenues. Fiscal Deficit, in simple terms, means the deficit or shortfall that the government is facing in the non-borrowed receipts (income) with respect to its expenditure. If the expenditure is more than the receipts (non-borrowed), then the difference between the total expenditure and total non-borrowed receipts of the government is its Fiscal Deficit. It is usually denoted as a percentage of the country’s GDP.

Fiscal Policy  - When a country announces a budget, it has ramifications on the economy. For example, if the government changes the income tax rate, then it impacts the disposable income in people’s hands and influences their buying power. This, subsequently, affects businesses and the tax income of the government. Hence, the government uses its spending and tax policies in a manner that allows it to suitably influence the economic landscape of the country. This is the government’s Fiscal Policy. A budget is usually an indicator of the same.

Capital Budget - The Capital Budget consists of capital receipts and capital expenditure.

Capital Receipts include disinvestment, loans taken from the public, loans received from foreign Governments and bodies, borrowings from the RBI, recoveries of loans from State/UT Governments and other parties, etc.

Capital Expenditure includes the costs incurred by the government in developing health facilities, machinery, roads, acquisition of land, buildings, etc., loans granted by the Central Government to State and Union Territory Governments, Government companies, Corporations, and other parties.

Revenue Budget  - The Revenue Budget consists of revenue receipts and revenue expenditure.

Revenue Receipts include tax-related revenues, dividends/interest on the investments made by the government, receipts for services provided by the government, etc.

Revenue Expenditure includes the costs associated with the normal running of the government departments, interest paid by the government on debt, subsidies, etc. Any expenditure that does not result in the creation of an asset for the government is a revenue expenditure.

Finance Bill  - In India, a Bill is produced to pass legislation as a law by the houses of the Parliament. A Finance Bill, as the name suggests, is a Bill regarding the country’s finances and could include taxes, revenues, government borrowings, etc.

When the Union Budget is announced, several changes are proposed to the government’s revenue and expenditure, tax rules/rates, etc. Hence, immediately after the presentation of the Union Budget, all financial changes recommended are produced to both the houses of the Parliament in the form of a Finance Bill.

Vote on Account  - Once the Union Budget is announced, the government needs to start the Parliamentary approval process. This is a time-consuming process and while the Budget is presented two months before the end of the financial year, sometimes, the approvals are not in place by March 31st. However, the government needs funds to run its daily operations. Hence, a special provision is made called ‘Vote on Account’, where the government obtains permission from the Parliament for a sum sufficient to carry on daily functions until the required legislations are passed.

Excess Grants  - Every year, a certain amount of money is allocated to the government for expenditure. If the allocated money turns out insufficient, then the government can seek additional funds. Article 115 of the Constitution of India provides an Excess Grant option to the government for managing such times. The request for additional funds needs to go through the whole process as in the case of the Annual Budget, i.e. through the presentation of Demands for Grants and passing of Appropriation Bills.

Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.

However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. Venture capital is typically allocated to small

In a developing countries, the total capital & technological  requirements cannot be met with internal sources alone, so foreign investments become important in supplying capital. The two most regular foreign investments are FDI and FPI.

Foreign Direct Investments (FDI)
A foreign company based in another country invests in India by setting up a wholly-owned subsidiary or getting into a joint venture with some company normally with long term plan and gives ownership right in the country of investment.

companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.

There are two routes in FDI:

  • Automatic route
    This route allows FDI without prior approval by India’s Government or Reserve bank (RBI).
  • Government route
    Prior approval by the government is needed across this route. The application needs to be made through the Foreign Investment Facilitation Portal, facilitating the single-window consent of the FDI application under the approval route.

Foreign Portfolio Investments (FPI)
It is akin to FDI. It is also a direct investment but investments in only financial assets such as bonds, stocks, etc., on a company located in another country.

Foreign Institutional Investors (FII)
It is an investor group that brings FPI’s; such institutional investors include hedge funds, mutual funds and pension funds. They participate in the secondary market of the economy. They engage in the secondary market of the economy. To participate in the markets, the FII needs to get registered with SEBI.

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