Stock market is the medium which is used by the investors to invest their money in different financial instruments like shares, bonds and derivatives. Stock market acts as a mediator to buy or sell out the shares.
In India, there are two regulatory bodies for stock market:
- Bombay Stock Exchange: It was founded in 1875. It is known as the oldest stock exchange in Asia. The benchmark index of BSE is SENSEX which comprises 30 stocks.
- National Stock Exchange: It was founded in 1992 in Mumbai. The benchmark index of NSE is NIFTY which comprises 50 stocks.
There are two types of market:
Primary market where the shares are listed by the companies for the first time and Secondary market in which the shares are allowed to buy or sell by the investors during initial public offering (IPO).
Now let us see how stock market works in India.
Participants: Stock exchange provides a platform to deal in trading by buying or selling the products. There are many participants like companies, brokers, traders and investors who need to get registered with SEBI and exchange before trading.
Steps to invest in stock market:
- IPO: In this a file draft document to be filed by the company with SEBI. This document comprises the details of the company like company shares, diluted shares, price bands, etc. once it gets approval, the company offers the shares to the investors in the primary market.
- Distribution: In this the shares are allotted by the company to the investor who bid in IPO and then listed on the stock market for the trading. If any investor missed to bid in the primary market, are given the opportunity in the secondary market.
- Stock brokers: There are many registered broking agencies which are like mediators between stock market and investors. Once they receive instructions from the clients, they place their order in the markets and once the buyer and seller match, the trade gets started successfully. A confirmation is received by both agency and investor from the stock exchange.
- Order processing: After getting the confirmation to avoid the defaulter, the process starts in which the buyer receives the share and seller receives the funds for that share which is sold out. Indian stock market follows T2 settlement in which it takes 2 working days for the settlement from the date of transaction.
So this is how stock market works in India. As a beginner this much knowledge you should have about the stock market.