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Things To Know About India's Stock Market

The majority of trading in India is done on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). BSE was founded in 1875 and NSE was established in 1992; however, both these stock exchanges follow the same trading hours, mechanisms, and settlement processes.

Trading Mechanism

Trading in both these stock exchanges is conducted through an online electronic limit order book. This means that buy and sell orders are matched through trading computers. The Indian stock market is order-driven where buyers and sellers remain anonymous, providing greater transparency to all investors. Orders are placed through brokers, most of which now provide online share trading services to retail investors.

Trading Hours and Settlement

The stock market adopts the T+2 settlement cycle. This means that if the trades are executed on Day 1, the buyers will receive their shares and sellers the sales proceeds after two working days from Day 1. The stock exchanges are operational between 9.55 AM and 15.30 PM from Monday to Friday. All deliveries must be made in an electronic form through demat account. Each exchange has a clearing house to settle all trades and mitigate settlement risks.

Market Indices

The two most prominent Indian stock market indices include the BSE Sensex and Nifty. The Sensex is the oldest index comprising shares of 30 companies and represents roughly 45% of the free-float market capitalization. The Nifty includes 50 companies and accounts for approximately 62% of its free-float market cap.

Market Regulator

The responsibility of developing the stock market, regulating the exchanges, and forming rules is assumed by the Stock Exchange Board of India (SEBI). It was established in 1992 as an independent authority body. SEBI constantly lays down rules and regulations for best market practices. The regulator is also given the right to penalize market participants in case of any breach or fraudulent activities.

Types of Markets

The Indian stock market includes primary and secondary markets. Companies offer an initial public offering (IPO) on the primary market, which is then listed on the stock exchange. Investors can then buy and sell these shares through the secondary market.

Financial Products Traded on the Stock Market

  • Shares:

    Investors can invest in company shares, gain ownership and enjoy some portion of the profits. These shares form an important component of the stock market basics and are the largest product traded on the stock exchanges.
  • Mutual Funds:

    These financial products allow investors to indirectly invest in bonds and shares. Fund houses pool investments from several investors and invest these in different instruments. These decisions are made by trained and experienced professionals.
  • Derivatives:

    Prices on the stock exchanges constantly fluctuate, making it difficult to arrive at a fixed price. This is where derivatives are beneficial and allow investors to trade on a future date at prices fixed today.
  • Bonds:

    Companies require money to take up large projects. They raise this through the issue of bonds, and bondholders are repaid through profits made on the project. Bonds are a kind of financial instrument where several investors lend money to companies.

Investing is complex and investors should rely on professional analysis to avoid being surprised. Sticking to the stock market basics, doing the research and due diligence, and regularly monitoring the portfolio will help investors make profits through their share market investments.