How Does the
Stock Market Work? Who Decides Stock Prices? The Logic Behind Valuation
Explained Simply
 |
| “Stock prices change based on real-time demand and supply in the market.” |
Table of Contents
- How
the Stock Market Works
- Who
Decides Stock Prices?
- How
Valuation of a Stock Is Calculated
- Real
Trader Experience (Learning Moment)
- FAQs
- Final Conclusion + CTA
The Stock
Market Works Like a Big Auction — Buyers & Sellers Decide Everything
If
you’ve ever wondered, “Share ka price kaun तय करता है?”, the answer is simple:
The market itself decides the price — not the company, not SEBI, not the
government.
Let’s
break this down in the easiest possible way.
How Does the
Stock Market Work?
Stock
market works like a 24/7 valuation machine.
✔ Companies issue shares
To
raise money.
Example: Reliance, TCS, Infosys.
✔ Stock exchanges provide a platform
Exchanges
ensure:
- Liquidity
- Transparency
- Fair
buying & selling
✔ Traders & Investors place orders
Two
types:
- Buy
orders (demand)
- Sell
orders (supply)
Where
these orders meet → market price is formed.
Internal
Links (placeholders):
→ Beginner Guide: How to Start
Investing
→ Price Action Basics for Beginners
→ Why Stop-Loss Is Important (Smart
Money Guide)
Who Decides
the Price of Stocks?
✔ Supply & Demand Decide the Price
If
अधिक लोग buy कर रहे हैं → price ↑
If अधिक लोग sell कर रहे हैं → price ↓
This
is called Price Discovery.
Example:
If
a company launches a new AI product → investors excited →
buying increases → price rises.
If
company announces weak results → selling increases →
price falls.
✔ No One Person Controls the Price
Not
even the company itself.
Price is controlled by:
- Retail
investors
- FIIs
(Foreign Investors)
- DIIs
(Domestic Institutions)
- Traders
- Algorithms
सबकी buying-selling मिलकर price बनाती है।
✔ News, emotions & psychology also
drive price
A
huge part of the market runs on:
- Fear
(panic selling)
- Greed
(rally chasing)
- Expectations
(future outlook)
This
is why price action works so well—because charts show human behaviour.
What Is the
Logic Behind Stock Valuation?
Valuation
means:
“Is the stock worth this price?”
Here’s
how professionals calculate it:
✔ 1. Earnings (Profitability)
Higher
profits → higher valuation.
Metrics
used:
- EPS
(Earnings per Share)
- ROE
/ ROCE
- Net
Profit Growth
✔ 2. PE Ratio (Price-to-Earnings)
Most
used metric.
Simple
logic:
If PE is high → stock is expensive.
If PE is low → stock is cheap.
But
cheap doesn't always mean good.
✔ 3. Future Growth Expectations
Investors
pay for future performance, not past.
Example:
AI companies get high valuation because their future potential is huge.
✔ 4. Assets & Cash Flow
Companies
with:
- High
cash reserves
- Strong
free cash flow
- Low
debt
get
better valuation.
✔ 5. Sector Strength
IT,
Banking, Auto, Pharma — sectors move based on:
- Nifty
trends
- Policies
- Global
markets
✔ 6. Market Sentiment
Sometimes
valuation rises without logic during hype.
(Example: during bull market rallies)
इसलिए कहा जाता है —
“Price is reality. Valuation is opinion.”
My Personal
Experience as a Learner
जब मैंने पहली बार valuation समझने की कोशिश की, मेरा पूरा focus PE ratio पर था.
I bought a “low PE cheap stock” thinking it will jump soon.
But it fell 20%.
Why?
Because
cheap price ≠ good business.
Company ka growth zero tha, debt बहुत था, और demand गिर रही थी.
Lesson
learned:
📌 "Valuation is not about price…
it’s about quality + growth + future potential."
FAQs
1. Stock price daily क्यों बदलता है?
Because
buying-selling changes every second.
2. Company price खुद decide कर सकती है क्या?
No—only
demand & supply decide the market price.
3. Valuation high होना अच्छा है क्या?
Only
if the company is growing fast.
4. Nifty/Sensex stock prices को कैसे impact करते हैं?
They
show market mood; strong index = strong valuations.
5. क्या beginners को valuation सीखना चाहिए?
Yes—helps
avoid hype stocks and risky bets.
Final
Conclusion + CTA
Stock
market works like a giant auction—every second buyers and sellers decide
the price.
Valuation depends on earnings, growth, sentiment, assets, sector outlook
and expectations.
👉 Hindi CTA (हिंदी फॉन्ट):
“सीखो… समझो… और फिर invest
करो। बिना knowledge
के market में कूदना सबसे बड़ा risk है!”
Want
a beginner course summary or step-by-step investment plan? Just ask!
https://www.thetechnicaltraders1.online/2025/12/bank-nifty-capitulation-psychology.html
https://www.thetechnicaltraders1.online/2025/12/top-5-momentum-sectors-for-december.html
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