An Introduction to the Indian Stock Market

"How many millionaires do you know who have become wealthy by investing in savings accounts?" says Robert G. Allen. Though investing your hard earned money in a savings account is safe but the returns you earn are very minimal. On the other hand, one area of investment that gives immense opportunity and multiple returns to the investors, is stock markets.

India is the most rapidly growing economy in the world; this makes Indian stock markets promising and an opportunity hub not only for domestic investors but also for foreign investors. In this article, we shall have an overview of the Indian stock exchange and how investors can make money by investing in the market.

Stock Market Trading Platform

Indian Stock Market has two stock exchanges where most of the trading takes place, they are:

• Bombay Stock Exchange (BSE)• National Stock Exchange (NSE)

Both the trading platforms function on the same timings and trading days and follow same settlement process. All the big companies are listed on both of these exchanges. There are approximately 5000 companies listed on the Bombay Stock Exchange and around 2000 companies listed on National Stock Exchange. Even though the number of companies listed on NSE is lower than BSE, but the volume of trade in shares and the value of turnover on NSE is significantly higher than the BSE.

Before understanding the trading mechanism, it is important to know why companies list on the stock exchanges.

Why Do the Companies List on Stock Exchanges?

The following are the main reasons for listing of companies on the stock exchanges:

• It lends liquidity to the securities
• It helps in expansion and economic development
• It helps to protect the investors

Now let us learn about trading mechanism on both the exchanges.

How Trading Takes Place On The Exchanges?

Trading on both the exchanges takes place through computers. The electronic limit order book does the order matching of the orders placed by the investors. The investors lay down the limit order and electronic system automatically matches the orders with the limit laid down in the system.

With the electronic mechanism, the buyers and sellers can engage in the transaction even without knowing each other. The trading mechanism is extremely transparent and fair as they are governed by SEBI guidelines. The trading hours of stock exchanges are between 9.15 a.m. to 3.30 p.m from Monday to Friday. The pre-opening time is from 9 a.m. to 9.15 a.m. Any order placed after the market hours would not be executed.

The equity market transactions are settled on a T+2 basis which means that if a transaction to purchase any stock takes place on Monday, it would be reflected in the shareholder'sdemat account on Wednesday. The delivery of shares is in dematerialized form. Each stock exchange has its own clearing house that takes care of all the settlement risk.

Regulation of the Market

The stock exchanges are governed and regulated by Securities & Exchange Board of India (SEBI). The governing body of SEBI was formed in the year 1992 to frame rules and regulations for the exchanges. If any exchange or party to the contract breach any rules, SEBI has the authority to impose a penalty and take strict action against the participant.

Where to Buy Shares: NSE or BSE?

The investor can take his own decision to decide from which exchange to purchase or sell a stock. The price of the stocks on NSE and BSE are different from each other. If HUL is trading at 1050 on NSE and 1048 on BSE, the investor is better-off in purchasing the stock from BSE. Similarly, if the investor wants to sell his shares, NSE would be a better choice as the price of a share is slightly higher on this exchange.

Conclusion

Indian economy is growing at a rapid pace. The GDP of India is among the highest globally. When the nation is growing at a good rate, the companies in India are bound to perform well. The performance of the economy and companies are reflected in the stock exchanges of the country. Apart from this, Indian stock markets are always on the radar of Foreign Institution Investors (FII).

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