Stock Exchange – Know everything about the Stock Exchanges in India
Know everything about Stock Exchange in India. Understand how they function, which are the largest exchange, benefits of having them, their characteristics & more.
In this article, we will learn about the major Stock Exchanges in India, and how they work. It would be best if you also understand the benefits of listing in the Stock Exchange. So, we will explain that too.
Stock trading is easy and complex at the same time. If you see it from your perspective, it is not different from any form of trading – you buy something at Rs.10 and sell it at Rs.12.
So, you make a Rs.2 profit. Subsequently, if you are bound to sell it at Rs.8, you incur a Rs.2 loss. The stock market follows the same phenomenon too.
That said, the ways to wrap up the entire stock trading activities are complicated. That is why there are so many institutions involved while you trade stocks.
Meanwhile, the markets where you must enrol to perform stock trading are the Stock Exchanges.
Know about Stock Exchange in India
Before we dive in more, you should know what a Stock Exchange is. You see, it is an electronic market where you can buy or sell financial assets.
We will learn the process later, but you should first know that it is a virtual market. Needless to say, that there are tons of protocols that every corresponding institution related to the stock market performs.
The head institution is the Securities and Exchange Board of India (SEBI). There are two primary objectives of the SEBI – to create a safe trading environment and to improve the status of the stock market.
As we all know, the premiere stock exchanges in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
A stock trade in India has a lot of rules and guidelines coordinated by the Securities and Exchange Board of India or SEBI.
SEBI aims to secure the enthusiasm of financial specialists and expects to promote the stock market exchange of India.
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There are two significant Stock Exchanges in India
National Stock Exchange: Incorporated in 1992, the NSE is the best place to trade stocks in the country.
The exchange carries a lot of weight in the international market as it deals with a massive volume of transactions every day.
Bombay Stock Exchange: The Dalal street at Mumbai is famous for the Bombay Stock Exchange (BSE). Established in the year 1875, it is the oldest Stock Exchange in India.
There are assumptions that over 6000 companies are enrolled in the BSE, which makes it one of the top 10 Stock Exchanges in the world.
Apart from the NSE and BSE, there are some other Stock Exchanges that you can invest your money if you want to.
The Metropolitan Stock Exchange of India Ltd, India International Exchange or India INX, NSE IFSC Ltd. are a few examples. Of course, our recommendation is with either BSE or NSE.
Not only the companies can offer its shares to the general public, but the government also earns a large chunk of money as well.
The revenue generated in the Stock Exchanges contributes to a large proportion in the country’s GDP.
Of course, the two main parties who get the maximum benefits are the companies and the people who buy and sell those.
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Why should a Company enlist in Indian Stock Exchange?
Suppose you are a Mobile App Development company that built an Android app to promote its services.
Now, of course, it is not mandatory to enlist your app in the Google Playstore; however, if you do, the visibility of your app increases 100 times.
Now, let us apply the same concept here. As a public limited company, when you are offering your shares, you want that the traders notice them.
So, if it is not listed on the major Stock Exchanges, people won’t find the confidence to invest in them.
However, this is just the primary reason. You should also check out the other significant reasons why you should enlist your company names to the Stock Exchanges.
Expect a High Value
When you list your shares in the Indian Stock Exchanges, it gets the visibility it needs. So, the overall value of that stock will likely increase.
By doing this, you can increase the total number of shareholders as well. In short, you can expect the stock to have higher credibility in quick time.
Emergency Capital Gain: Any listed company can quickly facilitate capital by injecting cheap company shares.
The traders can avail them as they are less expensive, and as they already own the shares, they know the status very well.
This is both way benefit whether you are a company trying to stay afloat or a shareholder who can get shares at less price.
Faster Credit Approval
When your company is in the Stock Exchanges, you can get credit quickly. In case when your company indeed needs some cash, you can get credit while you can put the stocks as collateral.
However, your credit request is more likely to get rejected if the company is not in the Stock Exchanges.
From a shareholder’s view, you can get Liquidity benefit far better if the company is in the Stock Exchange.
So, if and when there is a positive movement in overall value, chances are there, it will make a notable difference in the earnings. Of course, it helps to reduce the amount of risk involved as well.
When you deal with a company in the Stock Exchanges, you will get the entire stats of its performance. The news and events are all in front of you to decide whether or not you want to invest.
So, you will get the desired stocks at the fair price, and every information is there before you place an order.
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How does a Stock Exchange work?
There are several steps that go through every day while you do stock trading at the Stock Exchanges.
The SEBI ensures a smooth flow of work that completes the entire operation. By now, we have discussed why you should enlist the company name to the Exchanges.
Now, let us change the focus to the traders. So, here are the steps how the Indian Stock Exchanges work from a trader’s viewpoint:
As per the SEBI guidelines, you can’t trade with in the Stock Exchange by yourself. So, you need a broker who has the license to avail the service for you. Now, the broker can be an individual or an agency.
Thus, the first step is to find a reliable broker or stockbroking company. We recommend a company who has a decent experience and charges fair brokerage fees.
We also suggest you do some comparative study of a few companies before committing to anyone.
Access to 3 different accounts
To begin your venture in the Stock Exchange, you must own a few accounts. Let us start with the one that most of us have already – a Savings account, which almost everybody opens from a bank.
However, nowadays, the stockbroking companies also offer Savings accounts. Next, you need a Trading account. This is where you ultimately process the order transaction.
Meaning the Trading account allows you to either buy or sell financial assets, while they link the Savings account for the payment.
Finally, Demat account is the last account you need, in order to keep a record of all your company securities.
At the end of the day, the Demat account gives you the final data of your day’s activities.
Account related charges and online platforms
Most stockbroking companies do charge a fee to open up an account that comprises of the Demat and Trading accounts.
Additionally, there are AMC fees for the Demat account and sometimes, for the Trading account as well.
The company also conducts a KYC verification, which you must complete to trade in the Stock Exchanges. Soon, the broker should provide the Trading Platforms to you.
It is the medium where you can access your accounts – Desktop application, web browsers, or sometimes in a Mobile app. You also need the credentials to log into the Trading and Demat accounts.
Getting started with the accounts
Once you get the access of your Trading and Demat accounts, you should link up your Savings account to purchase company securities. Then, it is time you should hold your patience a bit.
We recommend starting observing the stock’s movement in the Market Watch feature that most companies provide with the Trading platform.
Also, check out the Stock Exchanges where the stock you are interested is listed. See the price difference from NSE to BSE.
You can trade in either one of the exchanges, or at least, that is what we suggest.
Now when the theory part is done, i.e. observing the stocks’ movement, you should start investing. For that, choose the desired stock and try placing an order.
You must mention the number of shares you wish to purchase. Once you place a buying request, the Stock Exchanges scan the entire network and find the ideal seller for you.
Please note that sometimes you may not get the same number of shares you applied for. So, in a few minutes, the system will show how many allotted shares you can buy.
Then, you must complete the transaction with the attached Savings account.
Clearing and charges
Once the transaction is done, you can say that day as the Trade Day, or simply T-Day. Since that time onwards, the settlement and clearance process of the stocks begin for a buyer.
One of the essential factors that you should keep in mind is that you must pay the brokerage fees.
Along with that, you also need to pay a few more fees like Stamp Duty, Transaction fee, GST, etc., till the time you wish to hold the stock.
Now, the stocks that you purchase will reflect in you Demat account after 2 business days from T-Day.
Meanwhile, the Stock Exchange allows same-day buying and selling of shares, which we call as the Intraday trading.
Either way, you can see the changes after every 2 days in your Demat account.
Sell order Placement
Now, when you are trying to sell the stocks you hold, the process is pretty much the same. From your Trading account, place an order request with the number of shares you wish to sell.
Then the Stock Exchange will find the right suiter for you and if you are happy with the deal, accept the order request.
Subsequently, the Stock Exchange starts the settlement process. Since T-Day, it takes 2 business days when the transaction amount hits your Savings account.
Of course, there are brokerage fees that the broker will charge for the amount. So, that concludes the steps of how the Indian Stock Exchanges work to complete any trade you perform.
All the stock market intermediaries play their part, which you don’t need to bother as you won’t need to deal with them.
In short, stock trading is an extremely complicated process which has been simplified by the Stock Exchanges.
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What are the Investments methods available in India?
Since you have a theoretical knowledge of how the Indian Stock Market works, it is time you should also know about the two crucial investment methods available in India:
Primary Market: As the name suggests, it is where any general stock trading is done. So, in this market, the companies avail their shares to the general public where anyone can buy them.
Most public limited companies typically enlist their names in the Stock Exchange, and the trader buys and sell stocks.
Secondary Market: The concept of a secondary market is a bit complicated that the primary market. You can say it is a trading platform exclusively for the investors.
The idea is to by-pass the involvement of the core company who issued the stocks and invest directly with the help of a stockbroking company.
The Auction market or Dealer market are the two prime examples of the secondary market.
Benefits of Stock Exchanges
Here are some of the core benefits of Stock Exchanges.
It is crucial to be able to raise capital and that is done via the initial public offerings (IPO).
Organizations are successfully able to raise capital to be able to sponsor operations and various expansion projects. This provides companies with prospective to amplify development.
The entire IPOs can be listed in Stock Exchanges only.
Apart from the management competence, the stock exchange also improves economic importance. With the help of capital allotment, they can improve economic efficiency.
The exchange bodies also provide an opportunity for any individual to invest cash. This could also act as one form of saving if done right.
This would mean the capital will remain safe and we can use it to improve the economic profit and the whole cycle focuses on a much capable economy.
This also provides liquidity as it becomes easier to sell the assets. By promising liquidity and real-time pricing information on the business share, the exchanges also encourage a professional market.
It helps investors to actively make a decision regarding the company value after the evaluation of supply and demand.
How does Stock Exchange help businesses?
The stock exchanges are usually associated with the creation of wealth and capitalism. However, it cannot be denied that it is more than just a place for brokers to buy and sell shares of a company.
They help the businesses in gaining access to the capital and bring them the opportunity to improve their visibility and brand image.
If the business is capable of handling the trading, they can harness the power of stock changes and use it to improve their respective companies.
It cannot be denied that a small amount will be invested for financial and regulatory costs associated with exchanges but the benefits are more than the investment expected.
Features of Stock Exchanges
Here are some of the important characteristics of Stock Exchange –
Only stocks recorded with a legitimate stock trade are viewed as higher in esteem. Organizations can capitalize on their market notoriety in the stock trade market by expanding their number of investors.
Giving shares in the market for investors and increasing the number of shareholders is a powerful method of expanding investor base, bases, which builds their credibility.
A company can issue more shares in the market via exchange.
Getting Capital Investment
One of the best methods of finding cheap capital for an organization is by giving organizations stocks in the stock trade market for investors to secure.
Recorded organizations can produce nearly more capital through offer issuance attributable to their notoriety in a stock trade market and use it to stay well known and reputable in the world of shareholders and keep its tasks running.
Practically all lenders acknowledge listed securities as guarantee and give out credit facilities against them.
A listed organization is bound to profit from a quicker endorsement as per their demand. They are more solid in the stock trade market.
Posting assists investors with the upside of liquidity better than different partners and offers them prepared attractiveness and profits.
It permits investors to assess the estimation of investment possessed by them. Moreover, it licenses share exchanges with an organization and encourages them to try out the related dangers.
It likewise causes investors to improve their income from even the smallest increment, in generally speaking hierarchical worth.
The provided cost estimate likewise speaks about the genuine estimation. There is a way in which the costs of listed securities are set, and it is according to the powers of interest and flexibility.
Investors are guaranteed to get them at a proper reasonable cost.
Methods of investment
Investors can work on the stock exchange of India especially in these two markets.
The primary market creates securities and acts as a medium in which the firms propose new stock options and bonds.
The public will have access to the same. The companies can also sign up and enlist their shares for the first time.
Now, the secondary market is what we popularly know as the stock market. It is a normal trading platform for investors and they trade securities without the involvement of Companies issuing them.
This is the idea in the initial stage, however, they can always take some assistance from the brokers. This market can further be divided into auctions and dealer markets.
Major Stock Exchanges in India
In order to do better in the stock market, it is imperative to understand the two types of stock exchanges in India.
BSE or Bombay Stock Exchange
The first one would be the Bombay Stock Exchange, which is one of the oldest stock exchanges around the world and it has the tenth ranking in the world’s largest stock exchange.
The market capitalization in this case stands at a higher rate with more than 6000 companies listed under the same.
The performance of the stock exchange works by Sensex and as of June 2019, if touched 40312.07.
NSE or National Stock Exchange
National Stock Exchange would be the second with attribution as a Pioneer of among the electronic stock exchange markets in India.
We know this stock exchange market as it has the aim to get rid of the monopolistic impact of the former.
The market capitalization of this exchange market was a huge number and it is deemed as the twelfth largest stock exchange market globally.
The performance of this stock exchange works in nifty and their investors all around the world have access to the same and they can find out the capital market performance in the country.
Being an essential part of the Indian stock market, a stock exchange in India tends to highly sway the country’s financial sector to a great level.
Their collective performances happen to be one of the deciding factors of Indian economic growth.
Moreover, all major of stock exchanges in the world are strictly dependent on each other; if by chance, one major stock exchange falls, it will have an instantaneous ripple effect on all of the other major exchanges around the world.
For instance, if the index of the BSE somehow goes down, its consequence will be all the way to NYC, TSE, SSE, etc without a doubt.
Stock Exchange – Conclusion
Recently, there has been a positive indication from major magazines stating that the pandemic has impacted the Indian stock market to the height regardless of the lack of employees and workers.
The stock market has impacted a particular sentiment among the investors that the pandemic has opened up new opportunities for them.
Regardless of the pandemic situation, the countries are doing far better in coming up with strategies to boost their economy.
The Reserve Bank of India has also reported that there has been a trade deficit recently. However, the government is currently on to it, handling the same.
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