The Indian Stock Market: What Do You Know? — Part I
Those who do not know about the Indian stock market might have missed many opportunities to earn profits from such a lucrative market. We do not try to create FOMO here, yet it is a fact that you, whether a novice or experienced stock investor, should know.
The exchanges in the Indian Stock Market take less than 3% of the world market capitalization, as of 2020. However, the chances you will get from this market are the real rewards for your risks. Let’s take a deep dive into the Indian stock market and how you can gain exposure!
The BSE and NSE: Two Big Stock Exchanges
BSE stands for the Bombay Stock Exchange. NSE stands for the National Stock Market. These two are the main stock exchanges in the Indian stock market.
Almost all the large firms in India are listed on these exchanges. There are more than 5,500 listed firms on the BSE while the rival NSE has attracted nearly 2,000 listed firms as of 2021.
They have a long history as BSE is a nearly-150-year-old platform and NSE was established in 1994. Both exchanges share the trading mechanism, trading hours, and settlement process in common.
Yet, the differentiating factor is the order flow which can make differences or advantages of cost, market efficiency, and innovation. Hence, the BSE and NSE compete against each other on this element. The involvement of arbitrageurs makes the tight range between prices on the two stock exchanges.
Trading Mechanism: How Does It Work?
An open electronic limit order book controls order matches through the trading computer. Both BSE and NSE do not need market makers to place orders, which can minimize human errors during the process. Also, automatic matching with the best limit orders can smooth the experience and enhance efficiency.
Thanks to the automated operation, the information of buyers and sellers remains private as they show anonymously on the exchanges.
As mentioned, there are no market makers hence the Indian stock market is an order-driven one. Transparency in the display of all buy and sell orders in the trading system is an obvious outcome. Yet, the downside is that you do not get the guarantee of the execution of the orders due to the absence of the market makers in such markets.
The requirement here is to have brokers place all the orders in the trading system. Many brokers offer online trading facilities to retail customers. If you are an institutional investor, you can use the direct market access (DMA) option to directly place orders into the stock market trading system.
Settlement and Trading Hours: The Bare Essentials
The markets of equity spots follow a T+2 rolling settlement which implies that any trade on Monday gets settled by Wednesday. Trades on stock exchanges happen from 9:55 to 15:30 Indian Standard Time (+5.5. Hours GMT). It takes place from Monday to Friday.
Shares must be delivered in dematerialized form and have a different clearing house. All settlement risk by serving is assumed as a central counterparty.
About the Market Indexes
Sensex and Nifty are two prominent Indian market indexes due to their popularity. Sensex has the longest history of equities when it was created in 1986 and now attracts the shares of 30 firms listed on the BSE. Meanwhile, Standard and Poor’s CNX Nifty was set up in 1996 and has shares of 50 firms listed on the NSE.
About the Market Regulation
The Securities and Exchange Board of India (SEBI) takes control of the development, regulation, and supervision of the stock market. This organization was established in 1992 as an independent authority.
The best job that it has done so far is to lay down market rules in line with the best practices of markets. Besides, it can impose penalties on market participants in case a breach happens.
To Be Continued
This overview of the Indian stock market above hopefully clarifies the bare essentials of the main exchanges, big indexes, market regulations, and trading hours. We will continue with more details about restrictions and investment ceilings, the suitable types of traders in this market, and investments for foreign entities.
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