Types of Stocks

The stock market in India represents the country's largest and most complex financial marketplace. It offers an integrated trading platform to individuals and institutions for transacting in diversified financial instruments like stocks, derivatives, mutual funds, and structured products. Investors can find different types of stock in the market, each having a different investment strategy. Understanding these various types of stocks can help investors to diversify their portfolios. In this blog, we will explore the different types of shares and stocks in the market.

How are Different Stocks Categorized

The types of shares or stocks are primarily classified according to some key criteria. Let’s take a look at each of the different types of stock listed below. 

Based on Market Capitalization  

• Large-cap Stocks: These are the top 100 companies by market capitalization and are generally more stable and less risky due to their large size and high market value.
• Mid-cap Stocks: Companies classified between 101 and 250 by market cap are known to have higher growth potential but will be more volatile and very sensitive to economic changes.
• Small-cap Stocks: Companies ranked outside the top 250 by market capitalization fall into this category. They tend to have much higher volatility, with more sensitivity to economic changes owing to their small sizes and lower liquidity.

Based on Ownership

• Common Stock: They provide dividends and voting rights. Most prevalent in the Indian markets.
• Preferred Stock: They carry fixed dividends and have priority over common stock in case of liquidation. Preferred stocks typically are the most stable in terms of returns compared with common stocks.
• Hybrid Stocks: Hybrid stocks incorporate elements of common and preferred stock issues. Right to convert equity into debt, or vice versa, at a later date is a quite common example of convertible bonds.
• Convertible Preference Shares: Issued as preference shares initially, these could be converted into common stock at some point. Companies differ on the right to vote.
• Embedded Derivative Options in Stocks: Some stocks have intrinsic options in the form of call-able or put-able stocks. Call-able options enable the company to repurchase shares, and put-able options allow investors to sell shares to the corporation.

Based on Fundamentals: 

• Overvalued Stocks: Those equities with a market price that is higher than their intrinsic value given the outlook about their earnings. So these equities are priced higher than their financial performance merits.
• Undervalued Stocks: These equities include those that are less priced than their intrinsic value. The implication here is that the market price of such equities is low compared to what their financial basics indicate.

Based on Price Volatility:  

• Beta Stocks: Their volatility is measured through beta coefficients. A higher beta implies higher levels of risk with higher price fluctuations.
• Blue-chip Stocks: Blue-chip stocks are usually considered considerably safer companies than others. These are stable stocks with low volatility and include companies like Reliance and Infosys.

Based on Profit Sharing:  

• Income Stocks: These stocks pay periodic dividends that complement the income of the shareholders. They belong to financially sound organizations and are less risky.
• Growth Stocks: These stocks do not pay dividends but plow back the profits into the business for growth. Growth stocks have a prospect of increased prices, but they are also more expensive because they are highly sensitive to market prices.

Based on Economic Trends: 

• Cyclical Stocks: These stocks do not trace the economic cycle. They normally go up when the economy is performing well and lower when the economy has gone down. They are more effective at their best performance when the economy is at its peak performance. 
• Defensive Stocks: Defensive stocks do not respond much to the economic cycle, primarily because they include food, pharmaceuticals, and other businesses with production lines that will always be in business, like insurance. These are better investments during unstable economic periods.

Additional Criteria:

• Convertible Bonds: Allow conversion between debt and equity, offering investment flexibility.
• Stocks with Embedded Derivative Options: Include options like call-able or put-able features, providing additional trading possibilities.

Types of Stock Classes

Companies sometimes issue multiple classes of stock to make the shareholders' voting rights unequal. Class A shares could have more voting power per share than class B. Class B shares may get one vote per share, whereas Class A shares receive two.

All classes of stocks have their ticker symbols. For example, 21st Century Fox lists its class A shares under the symbol FOXA. Similarly, its class B shares get listed under FOX.

Conclusion
You can understand the different investment opportunities available to you by exploring the various types of shares based on ownership, market capitalization, risk, geography, dividend payout, and price movements. Remember that investing in the stock market entails inherent risks, and it is critical to undertake complete research, analyze market conditions, and seek professional guidance before making any investment decisions. You can use a reliable stock trading app that facilitates investing in different market segments along with the required trading tools and indicators. Tailor your investment strategy to align with your financial goals, risk tolerance, and investment horizon.