Stock Market in India

Introduction to Stock Market in India

India may look like a small dot on the globe but if someone does a detailed stock market analysis, then they may find the same opportunities that they can expect from any other promising market. The path to a promising future of stock market growth in India is being opened by India’s rising markets. The percentage of Indians who have investments in the domestic stock market is currently quite low, but with the anticipated GDP development and stable financial market, more money will join the frame.

Stock Exchange Market in India

In the Indian Stock Market, the majority of the trading takes place on its two stock exchanges market in India which are:

1. The Bombay Stock Exchange (BSE)  and,
2. The National Stock Exchange (NSE)

1. The Bombay Stock Exchange (BSE)

Bombay Stock Exchange (BSE) is the 11^th largest stock exchange market in the world by market capitalization as on 31 December 2012. It is located on Dalal Street, Mumbai, Maharashtra, India. It was established in 1875. It is India’s oldest Stock Exchange, and also one of Asia’s oldest stock exchanges.

BSE traces its history to 1855 when four Gujarati and one Parsi stockbroker would gather under banyan trees in front of Mumbai’s Town Hall. As the number of stock market brokers kept increasing the location of these meetings was changed many times. In 1874, the group moved to Dalal Street and in 1875 it became an official organization known as ‘The Native Share & Stock Brokers Association.

BSE provides a market for trading in,

• Equity
• Debt instruments
• Derivatives
• Mutual funds

It also has a platform for stock market trading in equities of small-and-medium enterprises (SME)

• More than 5000 companies are listed on BSE making it the world’s No. 1 exchange in terms of listed members. (Source: http://www.bseindia.com).
• The companies listed on BSE Ltd command a total market capitalization of USD 1.32 Trillion as of January 2013.
• It is also one of the world’s leading exchanges (3rd largest in December 2012) for Index options trading (Source: World Federation of Exchanges).
• BSE’s popular equity index – the S&P BSE SENSEX – is India’s most widely tracked stock market benchmark index.
• It is traded internationally on the EUREX as well as leading exchanges of the BRCS nations (Brazil, Russia, China, and South Africa).

Functional Timing of the BSE

The hours of operation are, in terms of the local timing which is GMT+5.30. It is functional on all days of the week except Saturdays, Sundays, and holidays declared by the Exchange in advance.

2. The National Stock Exchange (NSE)

The National Stock Exchange of India Ltd. (NSE) was established in the mid-1990s as a demutualized electronic exchange. It is located in the financial capital of India, Mumbai. NSE has a market capitalization of more than US$989 billion and 1,635 companies listed as on July 2013. NSE’s flagship index, the S&P CNX Nifty, is used extensively by investors in India and around the world to take exposure to the Indian equities market.

It was started by a group of leading Indian financial institutions at the request of the Government of India in order to bring transparency to the Indian market, and it has a diversified shareholding comprising domestic and global investors. The exchange was incorporated in 1992 as a tax-paying company and was recognized as a stock exchange in 1993.

As per Wikipedia NSE offers trading in the following segments:

Equities

• Indices
• Mutual Funds
• ExchangeTraded Funds
• Initial Public Offerings
• Security Lending and Borrowing Scheme

Derivatives

• Equity Derivatives (including Global Indices like S&P 500, Dow Jones and FTSE )
• Currency Derivatives
• Interest Rate Futures

Debt

• Corporate Bonds

Trading Session of Stock Market in India

Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The stock market timings of the equities segment are as follows:

1. Pre-open Session

Order entry & modification Open: 09:00 hrs
Order entry & modification Close: 09:08 hrs
*with random closure at the last minute. Pre-open order matching starts immediately after the close of pre-open order entry.

2. Regular Trading Session

Normal/Retail Debt/Limited Physical Market Open: 09:15 hrs
Normal/Retail Debt/Limited Physical Market Close: 17:00 hrs
Block deal session is held between 09:15 hrs and 09:50 hrs.

3. The Closing Session

The closing session is held between 17.05 hrs and 17.15 hrs. The Exchange may however close the market on days other than the above scheduled holidays or may open the market on days originally declared as holidays.

Nearly all the firms of India are listed on both exchanges, but NSE enjoys a dominant share in spot trading.

Trading Mechanism of Stock Market in India

In both exchanges, stock market trading takes place through an open electronic limit order book, in which order matching is done by the trading computer. As this process is entirely computerized, market orders placed by investors are automatically matched with the best limit orders. Sellers and buyers are not involved in direct interaction with each other as they remain anonymous. With this order-driven automated system transparency is maintained with the display of all buy and sell orders in the trading system. These orders can be placed through brokers.

Settlement Cycle and Trading Hours

The settlement time followed for Equity spot markets is T+2 rolling settlement. For example, if any trade takes place on Monday, gets settled by Wednesday. All trading on stock exchanges takes place between 9:55 am and 3:30 pm, Indian Standard Time (+ 5.5 hours GMT), Monday through Friday.

The delivery of shares is done in dematerialized form, and each exchange has its own clearing house, which assumes all settlement risk, by serving as a central counterparty.

Market Indexes

The most noticeable Indian market indexes are Sensex and Nifty, Sensex is the oldest market index for equities and it includes shares of 30 firms listed on the BSE which represent about 45% of the index’s free-float market capitalization. Sensex was created in 1986 and provides time series data from April 1979, onward.

S&P CNX Nifty; includes 50 shares listed on the NSE, which represent about 62% of its free-float market capitalization. S&P CNX Nifty was created in 1996 and provides time series data from July 1990, onward.

Market Regulation

The Securities & Exchange Board of India (SEBI) is the regulator of the Securities market in India. The responsibility for the development and regulation of the stock market lies with it. It was established in the year 1988 and was given statutory powers in 1992.

How can One Invest in India?

In India, outside investments were started in the 1990s. Basically, these foreign investments are classified into two categories as Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI).

The investments in which an investor is involved in the management and operations of the company are called FDI.  And the investments in terms of shares are treated as FPI.

If one wants to make an investment in India, then one should be registered either as a foreign institutional investor (FII) or as one of the sub-accounts of one of the registered FIIs.

Foreign Institutional investors mainly consist of:

• Mutual Funds
• Endowments,
• Banks
• Asset Management etc.

Investment Opportunities for Retail Foreign Investors

Foreign entities and individuals can invest in Indian stocks through institutional investors. Investments could be made through some of the offshore instruments like,

• Depositary Receipts like American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs),
• Exchange Traded Funds (ETFs)

As of now, you must have understood that the BSE and the NSE are the major stock exchanges in India. Also, there are some regional stock exchanges in India.

Following is the list of regional stock exchanges

Conclusion

India’s emerging markets are opening the door towards a bright future of stock market growth in India. Currently, the percentages of investments of Indians in the domestic stock market are very less, but with the expected growth in GDP and steady financial market, more money will come into the picture.

Recommended Articles

This is a guide to Stock Market in India. Here we discuss the introduction, the stock exchange market, and how to invest in the Indian stock market. You may also look at the following articles to learn more –

1. Stock Market Trading
2. Marketing Concepts
3. Stock Market Chart Patterns 
4. Stock Market Game