Equity shares, commonly referred to as ‘shares’ represents the form of fractional or part ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have various rights like voting and right to earn dividend. Shares are mostly openly trade-able in the stock exchange market.
Initial Public Offer (IPO) is a source of collecting money from the public for the first time in the market to fund for any business. In return, the company gives the share to the investors in the company. It’s the shares issued for the first time.
The trading of IPO is called the Primary Market and the subsequent trading of shares is called Secondary Market.
Securities Transaction Tax (STT) is the tax being levied on all transactions in share trading. STT came into effect from October 1, 2004 and Govt. of India fixes the rate.
Dematerialization – Currently most of the share trading happens only in electronic forms, which is called Dematerialization. It is the process by which physical share certificates held by an investor are converted into an equivalent number of securities in electronic form and credited into the investor’s demat account.
Demat account – It is the account that holds all your shares in electronic or dematerialized form. A demat account can holds various financial instruments like shares, bonds, government securities, mutual funds and exchange traded funds (ETFs). A demat account is must to trade in the stock market.
Central depository – They hold all the demat accounts. They are like the banks which holds the saving accounts. There are two depositories in India – the Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL).
Settlement Cycle and Trading Hours
Equity spot markets follow a T+2 rolling settlement. Any trade taking place on Day 1, gets settled by Day 3. All trading on stock exchanges takes place between between 9 am and 3.30 pm, from Monday to Friday.
Market Regulator – Securities & Exchange Board of India (SEBI)
The overall responsibility of development, regulation and supervision of the stock market rests with the Securities & Exchange Board of India (SEBI). It was established in the year 1988 and given statutory powers on 30 January 1992 through the SEBI Act, 1992. Since then, SEBI has consistently tried to lay down market rules in line with the best market practices. It enjoys vast powers of imposing penalties on market participants, in case of a breach.
All collective investment scheme brought under SEBI except NIDHI, chit fund and cooperatives.
SEBI has to be responsive to the needs of three groups, which constitute the market:
- the issuers of securities
- the investors
- the market intermediaries.
SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive.
Chairman – Ajay Tyagi
India Stock Exchanges
Some of the important stock exchanges in India are
Bombay Commodity Exchange
Bombay Stock Exchange (BSE)
Calcutta Stock Exchange (CSE)
Inter-Connected Stock Exchange of India (ISE)
Multi Commodity Exchange of India (MCX) – Balasubramaniam V (MD & CEO)
National Commodity & Derivatives Exchange (NCDEX)
National Stock Exchange of India (NCE)
OTC Exchange of India (Exchange for Technology and Growth Stocks)
Pune Stock Exchange (PSE)
Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Both exchanges follow the same trading mechanism, trading hours, settlement process, etc.
Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a dominant share in spot trading, with about 70% of the market share, as of 2009, and almost a complete monopoly in derivatives trading, with about a 98% share in this market, also as of 2009. Both exchanges compete for the order flow that leads to reduced costs, market efficiency and innovation.
National Stock Exchange (NSE)
- The National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located in Mumbai.
- NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered easy trading facility to the investors spread across the length and breadth of the country.
- National Stock Exchange has a total market capitalization of more than US$1.41 trillion, making it the world’s 12th-largest stock exchange as of March 2016.
- NSE’s flagship index, the NIFTY 50, the 50 stock index is used extensively by investors in India and around the world as a barometer of the Indian capital markets.
- NSE offers trading, clearing and settlement services in equity, equity derivatives, debt and currency derivatives segments.
- It is the first exchange in India to introduce electronic trading facility thus connecting together the investor base of the entire country.
- The exchange was incorporated in 1992 as a tax-paying company and was recognized as a stock exchange in 1993 under the Securities Contracts (Regulation) Act, 1956.
- Vikram Limaye – Managing Director & Chief Executive Officer (MD & CEO) of NSE.
Bombay Stock Exchange (BSE)
- The Bombay Stock Exchange (BSE) is located at Dalal Street in Mumbai.
- Established in 1875, the BSE is Asia’s first stock exchange.
- It claims to be the world’s fastest stock exchange, with a median trade speed of 6 microseconds.
- The BSE is the world’s 11th largest stock exchange with an overall market capitalization of more than $ 2 Trillion as of July, 2017.
- The BSE is also a Partner Exchange of the United Nations Sustainable Stock Exchange initiative, joining in September 2012.
- February 3, 2017 BSE becomes India’s first listed stock exchange.
- Ashishkumar Chauhan – Managing Director & Chief Executive Officer (MD & CEO) of BSE.
India International Exchange (INX)
- The India International Exchange is India’s first international stock exchange, opened in 2017.
- It is located at the International Financial Services Centre (IFSC), GIFT City, near Gandhinagar in Gujarat.
- It is a wholly owned subsidiary of the Bombay Stock Exchange (BSE).
- It was claimed to be the world’s most advanced technological platform with a turn-around time of 4 micro seconds which operates 22 hours a day & six days a week
- Following the International trading timings, this unique stock exchange will start when trading at Japanese stock exchange starts, and will end when US stock exchange stops.
Market Indexes – The two prominent Indian market indexes are Sensex and Nifty.
Sensex is the oldest market index for equities; it includes shares of 30 firms listed on the BSE, which represent about 45% of the index’s free-float market capitalization. It was created in 1986 and provides time series data from April 1979, onward.
Nifty or S&P CNX Nifty includes 50 shares listed on the NSE, which represent about 62% of its free-float market capitalization. It was created in 1996 and provides time series data from July 1990, onward
Recently, both Sensex and Nifty are trading at it’s highest level of around 33,500 plus and 10,000 plus, respectively.
The stocks trading at the BSE and NSE account for only around 4% of the Indian economy, which derives most of its income related activity from the so-called un-organized sector and households.
