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.
Indian Stock Market has two
stock exchanges where most of the trading takes place, they are:
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
Why Do the Companies List on Stock Exchanges?
The following are the main
reasons for listing of companies on the stock exchanges:
liquidity to the securities
It helps in expansion
and economic development
It helps to protect
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 new traders in the market can check “Best Intraday Trading Tips for Beginners to Gain Profit”
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
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.
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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