If you are new to the investing in equities, you will have numerous questions about the workings of a stock market. This article will help you get some insight on Indian Stock Market ecosystem that enables you to invest in equities.
What is a stock market?
Just as the name suggests, it is a market for stocks (another term for equity). Consider it as a shop that you would go to, to buy equities or sell them.
Let me explain this further with an example of daily grocery products that you would shop for. The sellers all gather in one common place in the town to sell their product and the buyers too would go there to get a wide range of products to choose from. For practical reasons, you cannot go looking throughout the town for the seller of a particular product; similarly, if you want to purchase the shares of L&T, you cannot directly go to the company. Besides, it will also limit your options to choose from. It is your money, so you want to make a wise decision on which product to buy.
So because you want to make the most of your money and the seller wants to get the best price, the two have a common platform of the 'stock market.'
The stock exchange electronically receives your 'buy request' and will match it with investors looking to sell it. For example, you want to purchase 400 shares of Infosys, the stock market with match your order collectively with three sellers selling 150, 200 and 50 shares.
Stock exchanges in India
There are two main stock exchanges in India, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These two make up the stock market scene in India. There are other regional stock exchanges like Madras Stock Exchange, but the level of trade and listings are far lower than these two.
Who are the participants in the Indian Stock Market?
By participant I mean anyone buys or sells stocks in the market. In India they are:
- Indian Retail Participants- These are Indian citizens like me and you buying or selling for individual gain.
- NRI and OCI- These are Indians living abroad.
- Indian Institutions- Large Indian companies like LIC invest in large sums in various stocks. It also includes corporate bodies and banks.
- Indian Asset Management Companies- These are mainly companies that invest pooled money through mutual funds. Their business day-in and out is investment management.
- Foreign Investors: Large foreign asset management companies also invest in Indian stock market.
All the participants are looking to make money and in the race to make the most they could adopt wrongful practices. To watch over these fraudulent practices, India has an apex body.
The regulator of Indian Stock Market
SEBI or The Securities and Exchange Board of India is the body regulating the Indian stock market.
The functions of SEBI include:
- Development of Stock Exchanges and see to it that they are conducting fair business
- To moderate practices of all the participants
- To protect interest of small investors
- To watch if investors with large capitals aren't manipulating the market
- To see to it that corporates do not use the stock market to make selfish gains
The SEBI has various entities that follow the rules specified by it. The entities include credit rating agencies, stock brokers, depositories, etc. They help in the smooth and controlled functioning of the stock market activities.
How do you access the stock market?
You access the stock market through your stock broker. They are registered traders who place an order on your behalf to the buy or sell a certain stock at a particular rate.