Indian Stock Market: An Introduction to the Indian Stock Market

Indian Stock Market: An Introduction to the Indian Stock Market

 Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected - George Soros


The stock market is said to be the ocean of money, one either sinks or swims here. Stock Market is not a regular market where buyers and sellers meet each other, negotiate upon a product, and buy/sell upon a decided price. 

It is defined as an institutionalized exchange forum or over-the-counter (OTC) marketplace, with a definite set of rules and regulations. 

The Stock Market is a part of the free-market economy where buying, selling, exchange, and issuance of shares of publicly held companies takes place. Stock markets are also defined as platforms where buyers and sellers instead of actual goods, trade, or exchange securities of public corporations. 

In the stock market, people invest for the long or short term, according to their interest, and gain profit out of the same. 

In long term, investors look for profits through the dividends, whereas in short term, the stockholder looks for capital gains through price fluctuation in the equity shares of a particular stock they already hold. 

 Introduction to the Indian Stock Market:

India currently recorded its capital market to be around $3.4055 trillion with Sensex rolling more than 23% this year. 

This record resulted in India overtaking France whose capital market, then, stood at $3.4023 and hence resulted in the Indian Stock Market being the sixth-largest stock market in the world. 

 There are several Stock exchanges in India like Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Calcutta Stock Exchange, Bangalore Stock Exchange, Madras Stock Exchange, etc. Though out of so many stock exchanging forums there are only two main exchanges that are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

The Famous Bombay Stock Exchange, established in 1857, located on Dalal Street, Mumbai, is not only the oldest in Asia but also the tenth-oldest stock exchange in the world. 

The BSE has about more than 5000 companies listed for trading. Currently, it is the 9th largest stock exchange with an overall market capitalization of more than ₹276.713 lakh crores. 

The National Stock Exchange, established in 1992, located in Mumbai, Maharashtra, was the world’s largest derivatives exchange according to the reports of 2021. 

The NSE has more than 1900 companies listed for trading. Currently, it is the 10th largest stock exchange with a market capitalization of more than US$3.4 trillion. 

National Stock Exchange
Source- Indian Express

The Indian Market opens from 9:55 A.M. to 3:30 P.M. which means that any type of trading in the Indian stock market takes place between 9:55 A.M. to 3:30 P.M., according to the Indian Standard Time. 

Trading in India has a T+2 rolling settlement i.e., any trade that takes place between Monday to Wednesday will be treated after 2 days if there are no holidays in between, and any which takes place on Thursday or Friday will be treated on Monday. 

 Who all can Invest?

  • Domestic Retail Participants - Domestic Retail Participants are the ones who can transact in the markets 
  • NRI’s and Overseas Citizen of India (OCI) - NRI’s and Overseas Citizen of India are the ones who hold Indian citizens but don’t reside in India.
  • Domestic Institutions- Domestic Institutions are large corporate Institutions based in India. 
  • Domestic Asset Management Companies (AMC) – investors in this category are usually mutual funds companies like SMI Mutual Fund, HDFC AMC, DSP Black Rock, and some more similar companies. 
  • Foreign Institutional Investors - Foreign Institutional Investors (FII) are non-Indian corporates. Example- Hedge funds, foreign asset management companies, and other investors. 

Regulator of Indian Stock Market 

Security Exchange Board of India (SEBI), established in 1988 as a statutory body, is the regulator of Indian Stock Markets. 

The basic function of SEBI under the preamble of the Security Exchange Board of India is " protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto".

 SEBI's main duties are as follows:

  • To make sure that the Indian stock exchanges i.e., the BSE and NSE, brokers and sub-brokers conduct their business fairly.
  • To look after the workings of the corporate house and keep a check on large investors, to make the sure market is not manipulated into making unfair benefits for these corporate houses and the investors. 
  • To protect the interest of the small retail investors. 

Types of Financial Intermediaries in the Stock Market:

  • Stockbrokers- Stockbrokers are the direct link between the investor and the market. They facilitate trade by placing the investors' desired order in the market. 
  • Depository – Every investor who has a Demat account receives records and share certificates. The Depository holds these certificates. 
  • Clearing Corporations- These are corporations that ensure that the trade order of the investor is successfully executed and the investor’s Demat account is also debited or credited with the shares.  
  • Share Transfer Agents- these are the agents who maintain the records of the shareholder's shares issued by the company. 
  • Underwriters-They act like a guarantee for the investor. In case the underwriter is unsuccessful in selling the investor's share or securities, then they are obligated to subscribe to all the unsold shares of the investor. They usually represent a company. 
  • Merchant Bankers- Their main job is to determine the capital structure of the company. Their job also includes drafting a prospectus and application forms that need to be submitted to the SEBI for approval to get listed 
  • Registrars- The duty of a registrar is of primary level. They look after activities like collecting investor applications, keeping a record of these applications, looking into the money received from the investor, making sure the money is paid to the seller of the share, helping the companies to determine the allotment of shares by consulting stock exchanges, etc. 

How can we start trading? 

  1. Find a stockbroker first 
  2. Then open Demat and trading account 
  3. Login to the Demat and trading account and add money 
  4. View stock details invest in your desired shares. 

Some frequently used terms in Stock Market 

  • Demat Account- It is an account that is used to hold the shares of the investor in electronic format. 
  • Trading Account- It is an investment account that holds cash, securities, and other holdings just like any brokerage account. 
  • Bear Market- The period where the price of the shares falls consistently in the market is referred to as the Bear Market. 
  • Bull Market- It is the opposite of a Bull Market. It refers to the period when the shares price rises consistently. 
  • Face Value- Face Value of a share is the amount at which the company issues the share. 
  • Dividend- It is the amount the company pays the investor, every year, in return for investing. 

Written By- Megha Jain