Stock Market of India: A Complete Guide
In this article, we are going to learn about the stock market of India in details. I am writing this article mainly for people who have no idea about the stock market, so I will be explaining things from a very basic level.
If you have a good understanding of the share market or a pro in the field, this article may not be of any value for you.
Alright, now that’s out of the way, let’s dive into our topic now. The stock market of India is a marketplace where shares or stocks are bought and sold. Here there are three parties involved. The seller, the buyer and there is an exchange in between.
The concept of the share market started back in 12-13 century in France and with time it evolved. In the early 1600s, the Dutch East India Company for the first time offered its stocks to the general public.
Now almost all developed and developing countries have their own share markets. The most important one being in the United States, United Kingdom, Japan, India, China, Canada, Germany, France, South Korea and the Netherlands.
The stock market of India is the place where companies raise funds from the public and invest that amount in their business to grow it. People who buy a stock of any company become shareholders of that particular company.
The stock market has a very important role in every country’s economy. That’s why the central bank keeps a close eye on the share market trends. The Reserve Bank of India is India’s central bank.
One of the biggest reasons why the share market is so popular among the investors is its ease of liquidity. You can buy or sell shares within minutes, but in the case of assets like land and property is very tedious.
Now let’s get familiar with some common terms of the stock market.
- Stock exchange: It’s a place where stock brokers and traders can buy and sell stocks, bonds and other securities.
- Direct investment: When an individual owns the stock himself or herself.
- Indirect investment: When you invest through mutual funds or funds traded through the exchange.
- Initial Public Offering (IPO): It’s the first time when a company offers its shares to the public.
- Dividend: It’s the share of profit that is paid to the investor.
- Day trading: When you buy and sell shares within the same day, it’s called day trading.
- Bear market: If the stock market is in a downward trend, it’s called a bear market.
- Bull market: If stock prices are increasing and the market is in an upward trend, it’s called a bull market. This is the exact opposite to bear market. You must have seen the image of a bear or bull often associated with the share market news or article. Well, now you know the reason.
- Blue-chip stock: These are the stocks of big and well-established companies. These are more reliable in the volatile share market.
- Bid: It’s the price a trader is ready to pay for one particular stock.
- Broker: A person who buys and sells share in the exchange. They generally get a commission fee.
- Margin: With a margin account you can burrow from a trader and buy stocks.
- Portfolio: It’s the collection of stocks or other investments by an individual.
- Rally: It’s the rapid increase in the stock price of a particular stock or the share market in general.
- Annual report: It’s a report prepared by a company which has information about cash flows and management strategies so that the shareholders are well informed about the company that they have invested in.
The main concept around which the share market revolves is the index. So you must know what is index?
I will explain in very simple terms.
Let’s take the example of a grocery shop. When you go to a grocery shop and buy rice, you ask for a particular amount, like 1 kg or 2 kg, right? So kilogram is the unit by which you measure the weight of rice (or any other product’s weight).
Similarly, the index is the unit by which measure the share market, as simple as that. Now let me tell you how this index is set. There are a lot of companies which have listed their stocks in the share market, so it’s impossible to measure each and every stock and set the index based of off that.
The solution to that is to create a group of top companies from several industries and set a benchmark so that we can keep a track of the market’s performance. This benchmark is called the index.
Now that you have a basic understanding of the share market in general, let me give you an overview of the stock market of India.
There are two pillars on which the Indian stock market is established; the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The NSE was established in 1992 and the BSE was founded in 1875. Both of these exchanges are in Mumbai.
BSE is the larger one, but the number of transactions on NSE is more than BSE. There are two indices associated with the Indian stock market; BSE SENSEX and NSE NIFTY.
SENSEX is derived from the top 30 companies listed in BSE and NIFTY is derived from top 50 companies those are listed in NSE, so often referred to as NIFTY Fifty. These indices are affected by many factors; inflation, interest rates and global economy being the major ones.
The stock market of India operates from Monday to Friday and remains closed on the weekends. The opening time is 9 AM and it closes at 3:30 PM.
But there is something called pre-open trade session. This is from 9 AM to 9:15 AM. During this period only the top 50 stocks are traded, both in NSE and BSE. This pre-open session is in place to make the share market a little stable.
Let me explain…
The stock market of India is very sentiment-driven, so the share price increases/decreases based on investor sentiments. And investor sentiment depends mostly on company merger, acquisitions, big economic announcements, union budget, international trade deals/sanctions, debt restructuring being the major ones.
So if there is any such incident overnight, the pre-open session can help in deciding the right price of the shares and reduce high fluctuations in the market.
The stock exchanges of India
Bombay Stock Exchange is the oldest stock exchange, not only in India but in Asia also. It secures the 10th rank in the world. It’s also the first stock exchange that got recognition from the government of India. Mr Vikramjit Sen is the chairman of BSE and Mr Asishkumar Chauhan is the MD & CEO.
There are more than 5,000 companies are listed on BSE. Though it was established in 1875, its index SENSEX was developed in 1986. In 1995 the BSE adopted the electronic trading system developed by CMC.
India INX is the first international exchange of India. It was established by BSE on 30th December 2016 in Ahmedabad, Gujarat. The BSE SENSEX, at the moment, is 31,630.00. However, this number changes depending on how shares of the companies perform.
The vision of BSE is “Emerge as the premier Indian stock exchange with best-in-class global practice in technology, products innovation and customer service” and it has successfully achieved that. Because the BSE SENSEX is traded internationally on EUREX and major exchanges of the BRCS nations (Brazil, Russia, China and South Africa).
BSE has received some of the prestigious awards. Some of the recent ones are :
- ‘IT Genius Awards 2017’ in the category ‘Data Centre Excellence’ for the setup of the India INX Data Centre by CORE (Centre of Recognition & Excellence)
- Digital Innovation Award 2017 for the Social Media Analytics Project by Netmagic
- Business World Digital Leadership and CIO Award
- The IDC Digital Transformation Awards 2017
- The Best Exchange of the year award for equity and currency derivatives in Tefla’s Commodity Economic Outlook Award 2017
National Stock Exchange is India’s first exchange to implement the electronic screen-based trading system. Mr Girish Chandra Chaturvedi is the chairman of NSE. Mr Vikra Limaye is the MD and CEO of the exchange. There are around 2,000 companies listed on NSE.
Its index NIFTY 50 was launched in 1996. It’s the world’s 11th largest stock exchange. The NIFTY 50 at the moment is 9,261.85. The vision of NSE is “To continue to be a leader, establish global presence, facilitate the financial well-being of people“.
Some of the recent awards/recognitions of the NSE are:
- NSE-NSCCL gets ISO 27001:2013 Certification in 2017
- National Stock Exchange wins the FICCI CSR Award for Exemplary Innovation, 2017
- CII- Exim Bank Prize for Business Excellence in 2016
- Global Architecture Excellence Awards 2016 – New Service Offering Initiative.
The products on NSE are divided into 3 asset classes for trading: The capital market for the listing and trading of equities, fixed income securities and the derivatives market.
Alright guys, that is all about the basics of the stock market of India. I tried to give you a thorough understanding of the market, it’s indices and how it operates. In the upcoming articles, I will go over other aspects of the share market. So keep looking at this space for more.
I hope you find this article informative and if so please share it among your friends/family and educate them about the stock market of India.
Thank you for reading my article. I appreciate your time.