How many stocks are there in the stock market? Well, this is a long question to answer, if we have to get into detail. Primarily, though there are two types of stock markets; primary market and secondary market this is true for the Indian stock market as well. The bottom line is that a primary market is a place where the shares are issued for the first time, and the secondary market as investors buy and sell securities that they already own.
But we know it goes deeper than that. There are various types of stock in the stock market, even sensex, which is the benchmark index of India’s BSE composed of the 30 largest or most actively traded stocks. And all of these stocks are different. But how they are different is a big question. So let us get into the different types of stocks in the Indian stock market today.
Stocks are classified in various manners based on their classification. Let us take a look at the different stocks in the market.
Based on stock class
It is one of the primary factors that is used to classify stock and is based on the voting rights of the shareholders. There are stocks that do not give the shareholders the power to vote at a meeting with the decision regarding the management of the company. There are some other stocks that allow shareholders to participate in the decision-making of the company, which means they can cast votes.
Based on market capitalization:
Large-cap stocks – These are the stocks of blue-chip companies that are well-established Enterprises with large reserves of cash at their disposal. It is interesting that the largest size of the large-cap companies does not mean that they grow more rapidly, it means the small stock companies that tend to outperform them over a longer time frame. But large-cap stocks do come with the benefit of allowing the investor to reap higher benefits in comparison to the small and midcap companies, ensuring the capital is preserved over a long time.
Mid Cap stocks – These are the stocks of medium-sized companies. These companies have a market capitalization of rupees 250 crores to about rupees 4000 crores. They have a well-recognized name in the market and bring the benefit of potential growth with stability. Mid Cap companies have a good track record of growth and are very similar to Blue-chip stocks except for the size.
Small-cap funds – As the name suggests, they are the small capital stock of small companies with a market value of rupees 250 crores and below. They have the potential to grow at a good pace in the future. Investors that are willing to commit to a long-term and are not very particular about the current dividend have a great stand in the ground during price volatility. They can make significant gains in the future. You can buy these stocks with their availability at cheap prices during the initial stage of the company. But there is no surety that the company will perform well in the market as it is relatively new. These small-cap companies are new, and they are highly volatile, their growth impacts the value and revenue of the company to a huge extent.
Based on ownership:
Preferred and common stock – Preferred stocks offer an investor with a fixed amount of dividend every year. The price of preferred stocks is not as volatile as common stocks. A common stock gets the benefit of priority when the company has surplus money to distribute. At the time of company liquidation, it is the company’s creditors who are bondholders, debenture holders, and more. They get priority over the preferred shareholders. Common stockholders have voting rights, and the privilege preferred shareholders do not enjoy.
Hybrid Stocks – They are companies that have preferred shares with the option of converting them to common shares. They are known as hybrid stocks of convertible preferred shares, and they need or even may not have the right to vote.
Stocks with embedded derivative options – These stocks come with embedded derivative options it means they can be callable putable and are not commonly available. A callable stock has the option to be bought back by the company for a certain price at a certain point in time.
Based on dividend payment
Growth stocks – They do not pay a high dividend as a company prefers to reinvest to enable faster growth. That is why it has the name growth stocks. The value of the shares of the company rises when the fast growth rate allows investors to profit through higher returns. It is more suited for those who invest to seek long-term growth potential and not an immediate second source of income. They carry higher risks than their counterparts.
Income stock – They have a higher dividend in relation to the price of the share. A higher dividend translates to higher income which means the name income stock. Income stocks are indicating a stable company that can afford consistent dividends, but they are also the companies that do not have very high growth. It means that the stock price of such companies may not live a lot. They also include preferred stock.
Based on fundamentals:
Overvalued shares – They are shares with prices that exceed the intrinsic value and are considered undervalued.
Undervalued shares – These are shares that are popular among value investors as they believe that the price of the share would rise in the future.
Based on risk:
Ibeta Stocks – Measure of risk is derived by calculating the price volatility of the stock. iBeta can be positive or negative, which denotes whether it’s moving in sync with the market against it. The higher the ibeta higher is the risk of the stock. If the ibeta value is more than 1 it means that the stock is more volatile than the market.
Blue-chip stocks – They are the stocks of those companies that have lower liabilities. They pay a regular dividend. These are very large and well-recognized companies that have a long history of sound financial performance and are more suitable for investors who seek safe avenues of investment.
Based on price trends
Defensive stocks – They are stocks that are somewhat unfazed by the economic conditions of the nation and are preferred when the market conditions are poor.
Cyclical stocks – They are stocks of companies that are greatly affected by their economic conditions, they see high price fluctuations with market changes and are cyclical. These stocks grow rapidly during the Boom cycle, but the growth slows down in the economy.
An investor needs to choose the right stock that fits the financial objective. Stocks add different benefits to an investor which means it is left up to the investor to invest in the right type of stock that would suit his or her needs.