Volatile and pulsating are two words often associated with the Indian Stock Market. First interesting point is that the stock market in India is commonly and popularly called the Share Market. The second interesting point to note is that the BSE began as an open outcry floor trading exchange. This means that all the stock brokers would gather in the trading hall of the BSE and would shout out their trades. This became an electronic trading system in 1995 only. The most marvelous thing is that it took BSE only 50 days to make this transition.
The two prominent stock exchanges of India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). A major percentage of the significant companies of India are listed on both these exchanges.
Bombay Stock Exchange (BSE)
The year 1875 saw the birth of the BSE. It is the first stock exchange of India and Asia. At last count BSE had about 6000 listed companies and is one of the largest exchanges in the world. It is based in Mumbai, India.
Sensex is the index of the BSE. It measures and indicates the overall performance of the BSE. The sensex is composed of 31 (became 31 from 30 very recently) of BSE’s largest stocks covering 12 sectors. It is the oldest stock index in India. It is also the benchmark index and provides an accurate gauge of the Indian economy.
The overall growth and development of particular industries are analysed by observing, tracking and interpreting the sensex. Economic boom and slump can also be seen by interpreting the movement of the sensex.
Interestingly, the sensex recorded a phenomenal rise from a close of around 3300 in 2002 to about 28200 in 2007. This was in line with India’s average annual GDP growth rate of 8% between the same period. This also signalled the rise of the Indian middle class. The middle class is an important driver of consumption demand. India was slowly but surely moving from being a saving led economy to becoming a consumption driven one.
National Stock Exchange (NSE)
NSE is India’s leading Stock Exchange. It was established in 1992 and began trading in 1994. It is based in Mumbai, India. It is a pioneer of the Indian Financial Market with modern, sophisticated electronic market technology. The transacted volume on the NSE ranks third in the world.
NSE was setup at the behest of the Government of India. It was primarily setup to bring transparency in the markets. Membership was no more restricted to a limited number of brokers. Any qualified and experienced person who met some minimum financial requirements and criteria was allowed to trade. Clients from anywhere could now see the price information. Paper based settlement was replaced by electronic settlement. This meant timely and default free transactions. This ensured a better risk management system, thereby protecting investors.
S&P, CNX Nifty is the stock index of the NSE. It is composed of and includes 50 of NSE’s largest and most liquid stocks.
National Securities Depository Limited (NSDL)
NSE created the NSDL. NSDL allows investors to hold and transfer their shares and bonds in a materialized (demat) and electronic form. Also, investors can hold or trade in even one single share or bond. It eliminated the need for paper certificates. Thereby, all the risk and hassles like forged or fake certificates and fraudulent transactions were removed. NSDL provided security, transparency, efficiency, and lower transaction costs. This increased the attractiveness of the Indian Stock Market to domestic and foreign investors.
Trading/ working Hours
The trading hours of the Stock Exchange are between 9 am to 3:30 Pm IST, Monday to Friday.
At both the exchanges, the trading process is order driven. This means that market orders placed by investors are electronically and automatically matched with the best limit orders.
A Market Order is the order by an investor to buy or sell an investment at the best available current price. It does not contain restrictions on the price at which the order can be executed. It means that the transaction can take place at the prevailing market price. Sometimes, a time frame within which the order should be executed is specified.
A Limit Order can be a ‘buy limit order’ or a ‘sell limit order’. A buy limit order stipulates that the buyer is not willing to pay more than, say, Rs. 185 per share to buy an investment. A sell limit order stipulates that the seller wants at least Rs. 185 or better per share for a sale to take place. Since a limit order carries limitations, it may not be executed if the price set cannot be matched. Investors can also limit the length of time an order can be outstanding or pending before it should be cancelled.
Any passive (unexecuted) order stands cancelled by the end of the session.
Besides the Sensex and Nifty, both these exchanges have other sub-categories of index based on market cap/industry.
Electronic trading results in buyers and sellers remaining anonymous. All buy and sell orders are displayed in the trading system ensuring transparency. All orders need to be placed through brokers who may also provide direct online trading facility to their retail customers.
Securities and Exchange Board of India (SEBI)
SEBI is the designated regulatory body for the finance and investment markets in India. In other words, it is the market regulator or the Indian Stock Market. It maintains stability and efficiency by enforcing effective regulation in the Stock Market. This helps to attract foreign investors and protects both Indian and foreign investors. SEBI lays down market rules. It has the power to enforce stringent and strict penalties in cases of breach and violation.
The Indian Stock Market is a vast topic. I know that with this introduction to it you are hooked and want to know more. Keep following my blog to know more. In the next post I will be talking about the various segments of the stock market.