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WHAT IS STOCK MARKET

Learning Objective

This chapter will help you understand the basic concepts of a stock market, stock brokers, different market participants and the regulatory body that regulates the stock market.

Stock Market

Stock market is a place where people buy/sell shares of publicly listed companies. It offers a platform to facilitate seamless exchange of shares. In simple terms, if A wants to sell shares of Reliance Industries, the stock market will help him to meet the seller who is willing to buy Reliance Industries. However, it is important to note that a person can trade in the stock market only through a registered intermediary known as a stock broker. The buying and selling of shares take place through electronic medium. We will discuss more about the stock brokers at a later point.

Major Stock Exchanges in India

There are two main stock exchanges in India where majority of the trades take place - Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Apart from these two exchanges, there are some other regional stock exchanges like Bangalore Stock Exchange, Madras Stock Exchange etc but these exchanges do not play a meaningful role anymore.

National Stock Exchange (NSE)

NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed companies. It was established in the year 1992 and is located in Mumbai. NSE has a flagship index named as NIFTY50. The index comprises of the top 50 companies based on its trading volume and market capitalisation.  This index is widely used by investors in India as well as globally as the barometer of the Indian capital markets.

Bombay Stock Exchange (BSE)

BSE is Asia’s first as well as the oldest stock exchange in India. It was established in 1875 and is located in Mumbai. It has a total of ~5,295 companies listed out of which ~3,972 are available for trading as on August 21, 2017. BSE Sensex is the flagship index of BSE. It measures the performance of the 30 largest, most liquid and financially stable companies across key sectors.

Different Market Participants

There are a lot of individuals and corporate houses who trade in a stock market. Anyone who buys/sells shares in a stock market is termed as a market participant. Some of the categories of market participants are as follows:

  • Domestic Retail Participants-These are individuals who transact in the markets.

  • NRI’s and Overseas Citizen of India (OCI)-These are people of Indian origin who reside outside India.

  • Domestic Institutions-These are large corporate entities based in India (for example: LIC of India).

  • Domestic Asset Management Companies (AMC)-The market participants in this category would be mutual fund companies like HDFC AMC, SBI Mutual Fund, DSP Black Rock and many more similar entities.

  • Foreign Institutional Investors-FIIs are Non-Indian corporate entities such as foreign asset management companies, hedge funds and other investors.

Regulator of the Indian Stock Market

Securities Exchange Board of India

Securities Exchange Board of India (SEBI) is the regulatory body of the Indian Stock Markets. The main objective of SEBI is to safeguard the interest of retail investors, promote the development of stock exchanges, and regulate the activities of financial intermediaries and investors in the market. SEBI ensures the following:

  • The stock exchanges (BSE and NSE), brokers and sub-brokers conduct their business fairly.

  • Corporate houses should not use markets as a mean to unfairly benefit themselves

  • Small retail investors’ interest is protected.

  • Large investors with huge cash should not manipulate markets.

 








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