The Indian share market refers to the stock exchanges that provide a platform for trading shares of publicly listed companies. Let us understand the basics of the share market in India:
Stock Exchanges
The two key stock exchanges in India are BSE and NSE.
- BSE or Bombay Stock Exchange is the oldest stock exchange in Asia established in 1875. The BSE benchmark index Sensex comprises 30 major stocks.
- NSE or National Stock Exchange was set up in 1992 as the first electronic exchange in India. Nifty 50 is the benchmark index of NSE representing 50 major stocks.
- Other regional exchanges include Calcutta Stock Exchange and Delhi Stock Exchange which are much smaller than BSE and NSE.
Market Participants
The key participants in the Indian share market include:
- Listed Companies: Companies issue and trade shares on the exchanges to raise equity capital.
- Investors: Investors buy and sell shares with the aim of earning returns. Retail, institutional investors and foreign investors are active.
- Brokers: Facilitate buying and selling of shares for investors and get commissions.
- Regulators: SEBI regulates the securities market to protect investor interests.
- Depositories: CDSL and NSDL maintain electronic records of share ownership.
Trading and Settlement
Trades on Indian stock exchanges occur through an electronic limit order book ELOB system. Settlement follows T+2 rolling basis, whereby trades are settled within 2 working days after the transaction date. Demat shares are mandatory for trading on exchanges.
Market Timings
Indian stock markets open at 9:15 AM and close at 3:30 PM from Monday to Friday. Pre-open sessions for price discovery operate 15 minutes before market opening.
Indices
Besides Sensex and Nifty 50, some other key indices are:
Nifty Bank: Tracks banking stocks
Nifty IT: Tracks IT stocks
Nifty Midcap 50: Tracks mid-sized companies
These indices help gauge performance of the overall market and specific sectors.
How Does the Stock Market Work?
To know how share market works, let’s start with its basics. The stock market operates through organized exchanges where buyers and sellers come together to trade shares. Here’s a simplified overview of how it works:
Listing: Before a company’s stock can be traded on an exchange, it must go through a process known as an initial public offering (IPO). During an IPO, the company issues a predetermined number of shares to the public, and these shares are then traded on the exchange.
Buying and Selling: Investors place orders to buy or sell shares through brokerage accounts. When a buyer’s bid matches a seller’s asking price, a trade is executed, and ownership of the shares is transferred.
Stock Prices: A company stock prices are determined from its supply and demand. At the time when more people want to buy a stock than sell it, the price of stock tends to rise, and vice versa. Various factors, including company performance, economic conditions, and investor sentiment, etc influence stock prices.
Types of Stocks
In the stock market there are two main types of stocks: common stock and preferred stock.
Common Stock:. The Common shareholders have voting rights in the company and may receive dividends. However, they are lower in the priority hierarchy when it comes to receiving dividends or assets in case of liquidation.
Preferred Stock: Preferred shareholders have a higher claim on the company’s assets and earnings than common shareholders. They typically do not have voting rights but are entitled to receive dividends before common shareholders.
Investment Strategies
Investors use various strategies and investments such as futures options to hedge their trade. So when participating in the stock market, traders depend on their financial goals, risk tolerance, and time horizon. Here are some common strategies:
Buy and Hold: This strategy involves purchasing stocks with the intention of holding them for the long term, often years or even decades. The idea is to benefit from the long-term growth of the companies in which you invest.
Value Investing: There are value investors seeking stocks that they believe are undervalued by the market. They aim to buy these stocks at a discount and hold them until their true value is recognized.
Day Trading: Day traders in the stock market refers to buying and selling stocks within the same trading day, aiming to profit from short-term price fluctuations. This strategy requires active monitoring of the share market.
Diversification: Diversifying a portfolio involves spreading investments across various asset classes and industries to reduce risk. It’s a risk management strategy that aims to minimize the impact of poor performance in any single investment. You can download the best mobile trading app to browse the share market & invest on your favorable investments.
Conclusion
The Indian stock market is a vital component of the Indian economy and has a long and rich history. The market has performed well in recent years, but investors should always be aware of the risks and volatility associated with investing in the stock market. The SEBI plays a crucial role in regulating the market and ensuring fair and transparent trading practices.
