Best Notes of Stock Market in India

In this content, we are providing you the definition of Stock Market, Primary Market, Secondary Market, SEBI, and the notes on the Stock Exchange, Bombay Stock Exchange, National Stock Exchange, Sensex, and Buyback of Shares.

The stock market, also known as the equity market or share market, is a marketplace where publicly traded companies’ stocks are bought and sold. It is a place where buyers and sellers come together to exchange ownership in businesses through stocks. The stock market plays a vital role in the economy by providing a source of financing for companies and offering opportunities for investors to participate in the growth of these companies. Stock markets also provide a means for investors to buy and sell shares easily and efficiently, making it an important tool for wealth creation and diversification. The stock market is regulated by government agencies to ensure fairness, transparency, and investor protection. The two primary stock markets in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Stock Exchange

A stock exchange is a marketplace where publicly traded companies’ stocks, bonds, and other securities are bought and sold. It is a regulated platform where buyers and sellers come together to trade securities according to established rules and regulations. The main objective of a stock exchange is to provide a transparent and efficient marketplace for investors to buy and sell securities, helping to allocate capital efficiently and effectively throughout the economy. Stock exchanges also provide a platform for companies to raise capital by issuing stocks, allowing them to finance their growth and expansion.

There are five stock exchanges in the country, as follows:

• Bombay Stock Exchange (BSE)
• National Stock Exchange (NSE)
• United Stock Exchange (USE)
• Metropolitan Stock Exchange of India (MSE)
• India International Exchange (INX)

Importance of Stock Exchanges

Stock exchanges play a crucial role in the Indian economy. Here are some of the reasons why:

1. Source of Financing: The primary function of a stock exchange is to provide a platform for companies to raise capital by issuing stocks. This helps companies to fund their growth and expansion plans and create employment opportunities.
2. Investor Protection: Stock exchanges in India are regulated by the Securities and Exchange Board of India (SEBI), which ensures that investors are protected from fraudulent activities and market manipulations. This helps to maintain the confidence of investors in the stock market.
3. Economic Growth: The stock market is a barometer of the economy’s health, and a vibrant stock market is indicative of a strong economy. A healthy stock market attracts foreign investments, which can help to spur economic growth.
4. Wealth Creation: The stock market provides investors with an opportunity to earn returns on their investments, leading to wealth creation. It also allows investors to diversify their portfolios and manage their risk.
5. Corporate Governance: Listing on a stock exchange requires companies to comply with certain rules and regulations, which helps to improve corporate governance and transparency.

Primary Market

The primary market, also known as the new issue market, is a marketplace where newly issued securities such as stocks, bonds, and other financial instruments are sold for the first time to the public. The primary market allows companies, governments, and other organizations to raise capital by issuing securities directly to investors. In the primary market, companies issue securities to the public through initial public offerings (IPOs) or follow-on public offerings (FPOs). In an IPO, a company offers its shares to the public for the first time, allowing investors to buy a stake in the company. In an FPO, a company that is already publicly listed offers additional shares to the public.

Secondary Market

The secondary market, also known as the stock market, is a marketplace where securities that have already been issued in the primary market are bought and sold among investors. In the secondary market, investors trade securities such as stocks, bonds, and other financial instruments with each other, rather than buying them directly from the issuing company. The secondary market provides liquidity to investors, allowing them to buy and sell securities at any time, regardless of the issuing company’s operational performance. The secondary market also allows investors to buy and sell securities based on their expectations of the market and the economy.

Bombay Stock Exchange (BSE)

The Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia, established in 1875. It is located in Mumbai, India, and is one of the leading stock exchanges in the country. BSE offers a range of services including trading in equities, derivatives, currencies, and debt securities. It has a broad-based and diversified shareholder base, including many of India’s leading financial institutions, and operates on an advanced and sophisticated trading platform. The BSE Sensex is the benchmark index of the Indian stock market, comprising the top 30 companies listed on the exchange based on market capitalization.

National Stock Exchange (NSE)

The Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia, established in 1875. It is located in Mumbai, India, and is one of the leading stock exchanges in the country. BSE offers a range of services including trading in equities, derivatives, currencies, and debt securities. It has a broad-based and diversified shareholder base, including many of India’s leading financial institutions, and operates on an advanced and sophisticated trading platform. The BSE Sensex is the benchmark index of the Indian stock market, comprising the top 30 companies listed on the exchange based on market capitalization.

Metropolitan Stock Exchange of India (MSE)

The Metropolitan Stock Exchange of India (MSE) is a stock exchange located in Mumbai, India. It was established in 2008 and began operations in 2013. The MSE offers trading in equities, futures and options, and debt securities. It is a smaller exchange compared to the Bombay Stock Exchange and National Stock Exchange but has been focused on introducing new products and services in the market. The exchange has also been focused on attracting more small and medium enterprises (SMEs) to list on the exchange by providing them with easier access to capital.

United Stock Exchange of India (USE)

The United Stock Exchange of India (USE) is a currency futures trading platform located in Mumbai, India. It was established in 2010 and is the only stock exchange in India that exclusively trades currency derivatives. The USE is a joint venture between four public sector banks and the National Stock Exchange (NSE), and is regulated by the Securities and Exchange Board of India (SEBI). The exchange provides a transparent and efficient platform for individuals and institutional investors to trade currency derivatives, including futures and options contracts. It also offers a range of educational resources and market analysis tools to help investors make informed trading decisions.

India International Exchange (INX)

The India International Exchange (INX) is a financial exchange located in the International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT City) in Gujarat, India. It was inaugurated in January 2017 and is India’s first international exchange. The INX offers trading in a range of financial products, including equity derivatives, commodity derivatives, and currency derivatives. The exchange operates 22 hours a day, allowing for trading during Indian and international market hours. The INX has attracted a number of global investors and market participants and aims to position India as a global financial hub.

BSE SME and NSE Emerge

BSE SME and NSE Emerge are stock exchanges in India that cater to small and medium-sized enterprises (SMEs) looking to raise capital through public markets. BSE SME is a platform provided by the Bombay Stock Exchange (BSE) for SMEs to list their securities and raise capital. The platform was launched in March 2012 and is designed to provide SMEs with easier access to capital and to help them grow and expand their businesses. BSE SME has relaxed listing requirements compared to the main BSE platform, which makes it easier and more cost-effective for SMEs to go public.

NSE Emerge is a similar platform offered by the National Stock Exchange (NSE). It was launched in 2012 and is dedicated to SMEs that want to list their securities and access public capital. NSE Emerge has also relaxed listing requirements, making it easier for SMEs to go public and raise capital. Both BSE SME and NSE Emerge aim to provide a transparent and efficient platform for SMEs to access public capital and grow their businesses. They offer various resources and support to help SMEs navigate the listing process and comply with regulatory requirements.

Sensex at Stock Market

Sensex is a stock market index in India that tracks the performance of the top 30 companies listed on the Bombay Stock Exchange (BSE). It is considered as a benchmark index for the Indian stock market and is widely followed by investors, analysts, and traders. The companies included in the Sensex represent various sectors of the Indian economy, such as banking, IT, manufacturing, and energy. The index is calculated based on the free-float market capitalization method, which takes into account only the shares that are available for trading in the market. Sensex movements are often used as an indicator of the overall health of the Indian economy and investor sentiment.

SEBI

SEBI stands for Securities and Exchange Board of India. It is the regulatory body for the securities market in India, established in 1988. SEBI is responsible for regulating and overseeing the functioning of capital markets in India, including stock exchanges, brokers, mutual funds, portfolio managers, and other market intermediaries. Its main objectives are to protect the interests of investors, promote the development of the securities market, and regulate the securities market to ensure transparency and fair practices. SEBI has the power to issue guidelines, regulations, and circulars for market participants and can also take action against any violations of its rules and regulations.

Securities Laws (Amendment) Act 2014

The Securities Laws (Amendment) Act, 2014 is legislation passed by the Indian Parliament to amend several provisions of the securities laws in India. The Act seeks to strengthen the regulatory framework for the securities market in India and address various issues such as insider trading, fraudulent and unfair trade practices, and illegal fundraising.

Some of the key provisions of the Securities Laws (Amendment) Act, of 2014 include the following:

1. Strengthening SEBI’s regulatory powers: The Act provides SEBI with more powers to investigate and prosecute market participants who engage in fraudulent or unfair practices.
2. Introducing new offenses: The Act introduces new offenses, such as fraudulent and unfair trade practices, front running, and manipulation of benchmark rates, among others.
3. Tightening insider trading norms: The Act strengthens insider trading norms and provides SEBI with more powers to investigate and prosecute cases of insider trading.
4. Streamlining the process of settlement: The Act streamlines the process of settlement of securities-related disputes and provides for a mechanism to settle disputes through consent orders.

SEBI’s Role as Protector of Investors

SEBI (Securities and Exchange Board of India) plays a crucial role as a protector of investors in India. As the regulatory body for the securities market in India, SEBI has several measures in place to safeguard the interests of investors.

Some of the key roles and responsibilities of SEBI in protecting investors are as follows:

1. Ensuring transparency: SEBI regulates the securities market in such a way that there is transparency in the dealings of market intermediaries. It ensures that market participants disclose relevant information to investors so that they can make informed decisions.
2. Preventing fraud: SEBI takes measures to prevent fraud and manipulation in the securities market. It has the power to investigate and take action against any fraudulent practices by market intermediaries.
3. Enhancing investor education: SEBI undertakes various initiatives to educate investors about the risks and opportunities in the securities market. It also provides information to investors about their rights and responsibilities.

Capital Market Reforms

Capital market reforms refer to a set of policies and regulations aimed at improving the efficiency, transparency, and stability of financial markets where companies and governments raise funds from investors through the sale of securities such as stocks and bonds. Capital market reforms can take various forms, including legal and regulatory changes, financial innovation, and the introduction of new financial products and services. Some of the common capital market reforms include the implementation of stricter disclosure requirements to enhance transparency, the development of investor protection mechanisms to mitigate market risks, the promotion of competition and innovation in financial markets, and the adoption of measures to prevent market manipulation and insider trading. Capital market reforms are typically undertaken by governments, financial regulators, and other stakeholders in response to market failures, financial crises, or changes in market conditions.

Economic reforms

Economic reforms are policies and measures aimed at improving the efficiency and productivity of an economy, often through changes to government regulations, taxes, trade policies, and monetary policies. The goal is typically to address economic challenges and stimulate growth. The effectiveness of economic reforms can vary, and poorly designed or implemented reforms can have negative consequences.

The following measures of Economic Reforms are there:

Measures of economic reforms can vary depending on the specific goals and challenges facing an economy. Some common measures of economic reforms include:

1. Deregulation of markets and reduction of bureaucracy to promote business efficiency and competitiveness.
2. Trade liberalization to increase competition and reduce barriers to international trade.
3. Fiscal consolidation to reduce budget deficits and increase confidence in the economy.
4. Privatization of state-owned enterprises to improve efficiency and reduce the burden on government finances.
5. Monetary policy adjustments, such as interest rate changes or quantitative easing, to influence the supply of money and credit in the economy.
6. Tax reforms to encourage investment, innovation, and economic growth.
7. Social welfare reforms to reduce inequality and promote social inclusion.
8. Infrastructure investments to support economic growth and development.
9. Education and training programs to develop the skills of the workforce and improve productivity.
10. Financial sector reforms, such as banking regulations and capital market reforms, to improve efficiency and stability in financial markets.

Demutualization

Demutualization is the process by which a mutual organization, such as a mutual insurance company or a stock exchange, converts into a for-profit company owned by shareholders. The purpose of demutualization is often to improve efficiency, increase competition, and raise capital. In the case of an insurance company, demutualization typically involves converting the policyholders’ ownership interests into shares of stock, which are then publicly traded. This can provide the company with access to additional capital, which can be used to fund growth and expansion. It can also give policyholders the opportunity to receive a cash payment or shares in the newly public company.

Derivatives

Derivatives are financial contracts that derive their value from an underlying asset, such as stocks, bonds, commodities, or currencies. They can be used to manage financial risk, speculate on market movements or hedge against price fluctuations. Common types of derivatives include futures contracts, options, swaps, and forwards. Trading in derivatives can be complex and risky and can involve high levels of leverage. While derivatives can be useful for managing risk, they can also amplify losses if used improperly.

Futures in Stock market

Futures in the stock market are contracts to buy or sell an underlying asset, such as a stock index or individual stock, at a specified price and time in the future. They can be used for hedging or speculation, and allow investors to gain exposure to the market without actually owning the underlying asset. Futures trading can be complex and involves risks, such as volatility and leverage.

Buyback of Shares

Share buyback, also known as share repurchase, is a process by which a company buys back its own shares from the market. This reduces the number of outstanding shares, which can increase the value of the remaining shares and improve earnings per share. Share buybacks can be carried out for various reasons, such as returning excess cash to shareholders, signaling confidence in the company’s future prospects, or countering dilution from employee stock options.

There can be several reasons why a company may choose to buy back its own shares from the market, including:

1. Returning excess cash to shareholders: If a company has accumulated cash reserves that it doesn’t need for operational or strategic purposes, it may choose to use some of that cash to buy back shares and return value to shareholders.
2. Improving earnings per share: By reducing the number of outstanding shares, a share buyback can increase earnings per share, which can make a company’s stock more attractive to investors.
3. Countering dilution from employee stock options: If a company issues stock options to employees as part of their compensation, it can result in a dilution of existing shareholders’ ownership. A share buyback can help offset this dilution.

Anchor Investor

An anchor investor is a large institutional investor who commits to buy a significant portion of a new securities offering, such as an initial public offering (IPO) or a bond issuance. Anchor investors are typically well-known and respected in the financial community and can provide credibility and stability to the offering. By committing to purchase a significant amount of the new securities, anchor investors can help ensure the success of the offering and attract other investors. In return, anchor investors may receive favorable pricing or other incentives.

Global Depository Receipts (GDR)

Global Depository Receipts (GDRs) are financial instruments that allow foreign companies to raise capital in international markets by issuing shares to investors outside of their home country. GDRs are denominated in a currency other than the issuer’s home currency and are typically listed on a major international stock exchange. GDRs represent ownership in the underlying shares of the issuing company and are often used by companies seeking to expand their investor base globally. Investors in GDRs can trade them like any other equity security and can also convert them back into the underlying shares if desired.

American Depository Receipts (ADRs)

American Depository Receipts (ADRs) are financial instruments that allow foreign companies to raise capital in the United States by listing their shares on a U.S. exchange. ADRs represent ownership in the underlying shares of the foreign company, and they are denominated in U.S. dollars. ADRs are often used by companies seeking to expand their investor base globally, and they can provide U.S. investors with access to foreign markets and companies. ADRs are traded like any other equity security on a U.S. exchange, and investors can buy and sell them through their U.S. brokerage account. ADRs are subject to U.S. securities regulations and disclosure requirements.

Foreign Portfolio Investor (FPI)

Foreign Portfolio Investor (FPI) is a term used to describe foreign individuals, companies, or institutions that invest in the financial markets of a country other than their own. FPIs typically invest in stocks, bonds, and other securities through mutual funds, exchange-traded funds (ETFs), and other investment vehicles. FPIs are important sources of capital for many emerging markets and can bring additional liquidity and diversification to the local markets. FPIs are subject to various regulatory requirements, such as registration and disclosure rules, and may be subject to investment limits and restrictions in certain sectors or industries.

Foreign Institutional Investors (FIIs)

Foreign Institutional Investor (FII) is a term used to describe foreign entities, such as pension funds, hedge funds, or asset management companies, that invest in the financial markets of a country other than their own. FIIs typically invest in stocks, bonds, and other securities through a local broker or custodian. FIIs are important sources of capital for many emerging markets and can bring additional liquidity and diversification to the local markets. FIIs are subject to various regulatory requirements, such as registration and disclosure rules, and may be subject to investment limits and restrictions in certain sectors or industries. In some countries, the term FII has been replaced by the term Foreign Portfolio Investor (FPI).

Reasons for FIIs having India as a favorite destination:

• Growing economy
• Corporate profits are high
• Government policies are encouraging
• Well-developed stock market
• Sound regulation by SEBI

QFIs(Qualified Foreign Investor)

QFI stands for Qualified Foreign Investor, which is a term used in India to describe a foreign individual or entity that meets certain eligibility criteria to invest in the Indian stock market. QFIs can invest in shares, mutual funds, and other securities listed on Indian stock exchanges through a designated depository participant. The eligibility criteria for QFIs include minimum net worth requirements, compliance with anti-money laundering regulations, and adherence to know-your-customer norms. QFIs are subject to certain investment limits and restrictions in certain sectors or industries. The QFI program was introduced by the Securities and Exchange Board of India (SEBI) to attract more foreign investment into the Indian stock market.

Sub Account

In India, a sub-account is a type of foreign institutional investor (FII) account that is opened by a registered FII on behalf of its clients. Sub-accounts allow FIIs to manage investments on behalf of multiple clients under a single FII registration. Each sub-account is assigned a unique identification number and is subject to its own investment limits and restrictions. The sub-account structure allows FIIs to more easily manage the investment needs of their clients and provides greater flexibility in asset allocation. Sub-accounts are subject to regulatory requirements and disclosure rules in India.

Participatory Notes (PN)

Participatory Notes (PNs) are financial instruments used in India that allow foreign investors to invest in Indian securities without having to register with the Securities and Exchange Board of India (SEBI). PNs are issued by registered foreign institutional investors (FIIs) to their clients and are settled in foreign currencies. PNs are typically used by foreign investors who want to invest in the Indian stock market but are not able to register with SEBI due to regulatory or other reasons. PNs are subject to certain investment limits and restrictions and are required to be fully collateralized. PNs have been controversial in India due to concerns about their transparency and potential use for money laundering and tax evasion. The use of PNs in India has been gradually phased out in recent years in favor of more regulated investment channels.

Clearing House in Stock Market

A clearinghouse is an intermediary organization that facilitates trading and settlement of financial transactions between buyers and sellers. Clearinghouses serve as a central counterparty that stands between the buyer and seller, ensuring the integrity and efficiency of the transaction process. In financial markets, clearinghouses are responsible for verifying the identity and creditworthiness of counterparties, monitoring risk exposure, and providing collateral management services. Clearinghouses help reduce counterparty risk and increase market liquidity by providing a centralized platform for the clearing and settlement of trades. Clearinghouses are commonly used in the trading of securities, futures, options, and other financial instruments.

Commodity Exchanges

Commodity exchanges are organized marketplaces where commodities such as agricultural products, metals, and energy products are traded by buyers and sellers. These exchanges provide a platform for price discovery, hedging, and risk management for the participants. Commodity exchanges facilitate the trading of standardized contracts, which specify the quantity, quality, and delivery terms of the underlying commodity. Participants can trade these contracts through an electronic platform or a trading floor, and the exchange acts as a central counterparty to guarantee the performance of the contracts. Some of the well-known commodity exchanges include the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and the London Metal Exchange (LME).

Forward Markets Commission (FMC)

The Forward Markets Commission (FMC) was a regulatory body in India that oversaw the functioning of commodity futures markets in the country. The FMC was established in 1953 and was responsible for regulating and promoting the development of commodity futures trading in India. The commission worked towards ensuring fair and transparent trading practices, protecting the interests of investors, and maintaining market integrity. The FMC was responsible for registering and regulating the functioning of commodity exchanges, monitoring price movements, and overseeing the settlement process of commodity futures contracts. In 2015, the FMC was merged with the Securities and Exchange Board of India (SEBI), the main regulatory body for securities markets in India, to create a unified regulatory framework for all financial markets in the country.

Depository

A depository is a financial institution that holds and safeguards securities such as stocks, bonds, and mutual funds in electronic form on behalf of investors. The depository system allows for the transfer of securities without the need for physical delivery of certificates. The two main depositories in India are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). Depositories provide a range of services such as dematerialization of physical securities, transfer of securities, settlement of trades, and maintenance of electronic records of securities ownership. The use of depositories has helped to reduce the cost and time involved in transferring securities and has contributed to the growth of the securities market.

National Securities Depository Limited (NSDL)

National Securities Depository Limited (NSDL) is one of the two depositories in India that holds and safeguards securities in electronic form. It was established in 1996 and is headquartered in Mumbai. NSDL provides depository services for a wide range of securities such as equity shares, bonds, government securities, and mutual fund units. It also provides value-added services such as e-voting, electronic access to account statements, and online transaction facilities. NSDL has been instrumental in promoting the use of dematerialized securities in India, which has helped to improve the efficiency and transparency of the securities market.

Macroeconomy in Stock Market

The macroeconomy and the stock market are closely interconnected. Changes in macroeconomic variables such as GDP growth, inflation, and interest rates can have a significant impact on stock prices and market trends. For example, if the economy is growing at a healthy rate, corporate profits are likely to increase, which can drive up stock prices. Similarly, if inflation is high, interest rates may also rise, which can reduce consumer spending and slow down economic growth, which can cause stock prices to fall. Investors and analysts closely monitor macroeconomic indicators to make informed investment decisions in the stock market.

Indian Stock Market Performance

There are several reasons why Indian stocks have performed well both globally and domestically:

1. Strong economic growth: India has been one of the fastest-growing major economies in the world, with GDP growth averaging around 7% over the past decade. This has helped to boost corporate earnings and investor sentiment.
2. Reforms and policies: The Indian government has implemented several economic reforms and policies aimed at promoting investment, improving infrastructure, and simplifying regulations. These measures have helped to create a more business-friendly environment and attract both domestic and foreign investment.
3. Demographic advantage: India has a large and growing population, with a young and increasingly skilled workforce. This demographic advantage has helped to drive consumption and demand, particularly in areas such as technology and healthcare.
4. Technology sector: India has a thriving technology sector, with a large number of companies in areas such as software development, e-commerce, and fintech. These companies have been at the forefront of innovation and have attracted significant investment and interest from global investors.
5. Stable political environment: India has a stable political environment, with a democratic system and a relatively predictable policy framework. This has helped to build investor confidence and attract long-term investment in the country.

International Financial Services Centre (IFSC)

International Financial Services Centre (IFSC) is a special economic zone (SEZ) established by the Indian government to promote and facilitate international financial services in India. It is located in the Gujarat International Finance Tec-City (GIFT City) near Ahmedabad. The IFSC provides a range of financial services such as banking, insurance, capital markets, asset management, and fund administration. It is designed to attract global financial institutions and enable them to conduct business in a tax-efficient and regulated environment. The IFSC has its own regulatory framework and operates under the supervision of the International Financial Services Centres Authority (IFSCA).

International Financial Services Centre (IFSC) provides a range of financial services including:

1. Banking services: Banks in the IFSC provide services such as deposits, loans, credit facilities, trade finance, and foreign exchange transactions.
2. Capital markets: The IFSC provides a platform for trading in a range of securities such as equities, bonds, derivatives, and exchange-traded funds (ETFs).
3. Asset management: The IFSC offers a range of asset management services such as portfolio management, investment advisory, and mutual fund management.
4. Insurance services: Insurance companies in the IFSC provide a range of insurance products such as life insurance, health insurance, and general insurance.
5. Fund administration: The IFSC provides a platform for fund administration services such as accounting, reporting, compliance, and valuation.

FAQs on Stock Market in India