This article is authored by Harsh Vardhan Singh, pursuing B.A.LL.B from SRM University, DELHI NCR. It has been published by Centre by Corporate, Competition & Insolvency SRM University.

Indian Equity Exchange: Navigating the Dynamics of the Stock Market

INTRODUCTION

The stock market is part of the financial market where money is collected from surplus units and lent to deficit units.Here lenders are the investors and borrowers are the government and the companies. Companies uses securities to raise capital in public and private markets. Securities can be classified into two types : (a)Equity (b)Debt

(a) An equity security represents ownership held by a shareholders in an equity (a company,partnership and trust).It provides dividends from profit to his shareholders.

(b) A debt security represents borrowed money that must be repaid. In this investor gets principal and interest, irrespective of company making profit or loss.

In stock market we generally buys equity of a company.

 

DMAT Account and Depositories

Depository is an organisation that holds the securities(like shares/bonds etc.) in electronic form. Then facilitates it's trading online. Upon clients request, Depository can rematerialize it as well. A customer must open a 'Demat' account in a depository - partner which can be a bank or NBFC. SEBI regulates them under depository Act, 1946.

Indexes

(a)Sensex

It’s the weighted average of Free Float Market Capitalization of 30 companies selected by Bombay Stock exchange officials.

(b)Sensex

National stock exchange index of 50 companies

 

Evolution of Indian Stock Market

The 1830s saw the introduction of corporate share trading in Mumbai. Notably, during this period, bank and cotton press stocks were traded.

1850s: During this decade, the first stock exchange was established. It all began when a group of brokers located a space in Horniman Circle, Mumbai.

 1874: Dalal Street was established in downtown Bombay as more brokers joined the trend. Similar to Wall Street in the US, Dalal Street is now a byword for the whole Indian financial industry.

The Native Share & Stockbrokers Association, formerly known as the Bombay Stock Exchange, was founded in 1875 by a small group of brokers.

In the late 19th and early 20th centuries, exchanges began to occur in Madras, Ahmedabad, and Calcutta (now Kolkata). However, because BSE was based in Mumbai, which had become the nation's principal centre of trade, it continued to be the dominant exchange. However, stock trading was still only available to a select few.

1956 saw the passage of India's Securities Contracts Regulation Act, formalising the market for stocks.

1964 saw the debut of the US 64 mutual fund programme, India's first, by the recently established UTI. By 1988, the programme had raised Rs 6,400 crore, which had made UTI the dominant player in the Indian market.

1977 saw the listing of Dhirubhai Ambani's Reliance Industries, a company with petrochemical and textile operations. Retail investors showed a great deal of interest in the IPO, which helped to ignite the "cult of equity."

1986: On January 1st in this year, the 30-share BSE SENSEX index was created. This was the first stock index in the nation, with a base value of 100 and a base year of 1978–79.

1988: The formation of a financial market regulator was essential during this time due to the lack of transparency and unstable clearing and settlement mechanisms. As a result, SEBI, the Securities and Exchange Board of India, was founded. Nevertheless, it did not receive statutory authority until 1992.

1992 saw the founding of the National Stock Exchange of India Limited (NSE). It coincided with a strong increase in interest in the stock market brought on by Harshad Mehta's bull market.

1994 saw the NSE become the first exchange in India to offer a cutting-edge, fully automated electronic trading system that was based on a screen. On April 22 of this year, the NSE introduced the Nifty 50 index. The weighted average of 50 of the biggest Indian firms listed on the National Stock Exchange is represented by the benchmark Nifty 50 index for the Indian stock market.

The Nifty 50 index was previously determined using the whole market capitalization approach. However, a free-float methodology was used for the computation after June 26, 2009. The Nifty 50 index's base value of 1,000 and its base period of November 3, 1995 have been established.

When the Indian National Congress regained control in 2004, public trust in the government declined. It was reflected in the Sensex's 11.14% decline, the largest decline ever. The ETF listings were also released by the NSE.

The 2008 market collapse led to the creation of the IPO index. The 9:00 AM market timing was moved to 3:30 PM.

In 2014, the BSE reached a significant milestone by reaching a market capitalization of Rs 100 lakh crores, and the SME index surpassed the Rs 10 thousand crores threshold.

Following COVID-19 2020, a wave of capital poured into the market, leading to the opening of new DEMAT accounts. Retail investors' trust has shifted from safe havens like fixed deposits to investments in the stock market. A significant milestone of 7 crore registered users was reached in June 2021.

After a long journey, India's stock market is now among the top five globally in terms of market capitalization. It has consistently been one among the world's best-performing markets. For example, the Sensex has increased at a compound annual growth rate (CAGR) of 16% since its inception and 15% during the last 20 years.

 

 

How many Stock Exchange are there currently?

23 stock exchanges were added after independence to rival the BSE. Nonetheless, SEBI declared in 2012 that stock exchanges with a revenue of less than Rs 1,000 crore and a net worth of less than Rs 100 crore will close by 2015.

 

There are now just seven stock exchanges in India that are recognised.

 

(a)The Calcutta Stock Exchange,

(b)BSE and NSE

(c)The Stock Exchange of Magadh

(d)India's Metropolitan Stock Exchange

(e)NSE IFSC India International Exchange (India INX)

 

About SEBI

Under the Securities and Exchange Board of India Act, 1992, the Government of India formed the Securities and Exchange Board of India on April 12, 1992, with the dual goals of regulating and advancing the securities market and safeguarding the interests of investors in securities. The Securities and Exchange Board of India (SEBI), which has its main office in Mumbai, also maintains four regional offices: Ahmedabad, Chennai, Delhi, and Kolkata. In 1988, SEBI was established as a non-statutory regulatory agency to oversee the securities market. On January 30, 1992, it was granted statutory status.

Under the Union Finance Ministry's direction, SEBI is an independent institution. The following individuals oversee the Security and Exchange Board of India (SEBI):

 

(a)The Indian Union Government nominated the chairperson.

(b)Two officers from the Union Finance Ministry make up the group.

(c)The Reserve Bank of India has one member.

(d)The Union Government of India nominates the remaining five members. There should be three full-time members- among the five.

The SEBI chairperson currently in office is Ms. Madhabi Puri Buch, who succeeded the outgoing chairman Ajay Tyagi on March 2, 2022.

The range of work that SEBI does is fairly extensive. It has the authority to establish policies, guidelines, directives, and other things pertaining to the primary and secondary securities markets. SEBI's guidelines and regulations also apply to intermediaries and specific financial institutions that operate in the securities markets. SEBI has the authority to control the following divisions:

(a)Participants, custodians, and depositories

(b)Trust deeds and debenture trustees

(c)Mutual funds, FII merchant bankers, and insider trading

(d)Investment advisors, share transfer agents, registrars for capital issues, and portfolio managers

(e)Venture capital funds, stockbrokers, underwriters, bankers to the offerings, and subbrokers

(f)significant takeovers and share acquisitions

In order to protect investors, it also publishes standards for information disclosure and operational openness on the pricing of securities, bonus and preferential issuance, and other financial instruments.

In addition to encouraging the growth and regulation of the securities market, one of the main responsibilities of the Security and Exchange Board of India, as stated in the SEBI Preamble, is safeguarding the interests of securities investors.

The demands of the three groups that make up the securities market are also under the purview of SEBI:

(a)Securities issuers

(b)Market intermediaries

(c) Investors

 

Indian Stock Market vs US stock market

(a)The act of diversification

Even though Indian companies dominate the Indian stock market, it nonetheless presents special investing options that can boost portfolio growth. It is possible to make significant profits by concentrating on India's quickly growing industries, such as technology, pharmaceuticals, and renewable energy. Furthermore, there are opportunities for long-term growth due to the nation's diverse economy, which is being driven by a growing middle class. The Indian market has the ability to yield significant profits and is resilient even during global downturns, so it shouldn't be undervalued, even though the US market may offer more international exposure. In addition to worldwide diversification efforts, investors can get a robust and well rounded portfolio by strategically investing in both the US and Indian stock markets.

(b) Market Capacity and Size

In terms of market capitalization, the US stock market, which includes significant indices like the S&P 500, Dow Jones Industrial Average, and Nasdaq, is the biggest in the world. It is home to a wide range of national and international businesses in several industries. On the other hand, albeit noteworthy, the Indian Stock Market, exemplified by indices like the BSE Sensex and Nifty 50, is relatively smaller. The varied levels of economic development in the two nations are reflected in this size difference.

(c) Market Development and Investing Expertise

With a rich history of investor engagement, substantial liquidity, and cutting-edge financial instruments, the US stock market is extremely developed. Individual traders, mutual funds, pension funds, and a wide range of institutional and retail investors are drawn to it. Technological developments, growing investor knowledge, and economic changes have all contributed to a considerable evolution of the Indian stock market. It might, therefore, continue to be more volatile and vulnerable to outside shocks than its US equivalent.

(d) Listing Conditions and Availability

When it comes to the listing requirements for foreign companies, the US Stock Market has a significant influence on the Indian market. Due to its laxer standards, the US Stock Market has drawn a sizable number of foreign companies. Due to this dynamic, US investors have access to a greater range of international businesses, which enhances their diversification prospects. On the other hand, indigenous enterprises have historically constituted the majority of the Indian stock market. Nonetheless, acknowledging the possible advantages of international investment, India has pushed foreign companies to list on its markets, resulting in a more varied and expansive investment environment in the nation.

(e) Economic Elements and Prospects for Growth

India is categorised as an emerging market with significant development potential, whereas the US is a developed, diversified economy with consistent growth. While investments in the Indian market offer the attraction of increased capital appreciation driven by a youthful population, urbanisation, and rising consumption, investments in the US market may offer stability and dividend income.

Which Market is the best?

Indian and US stock markets provide advantages and disadvantages. Each has its own distinct characteristics; in the Indian market, there is greater risk and volatility, but in the US market, there is greater diversification and less volatility. Furthermore, investors find the Indian regulatory landscape more difficult to navigate than the highly regulated US market, which offers a wealth of investment opportunities. The ultimate choice you make about an investment in any market ultimately comes down to your investment objectives and risk tolerance.

Thus, before choosing an investment, thorough market study and analysis are crucial. Dependable broking platforms provide comprehensive information about both marketplaces online. But before anything else, find a way to make sensible investments in overseas markets by opening a Demat account with a trustworthy broking company.

 

Conclusion

For investors, the Indian stock market offers a dynamic environment with both opportunities and problems. It continues to be a vital channel for capital formation and wealth creation in the nation due to its quick expansion, wide range of industries, and rising participation from individual investors.

But managing the Indian stock market calls for perseverance, diligence, and a solid grasp of the workings of the market. Market movements are influenced by a number of factors, including volatility, regulatory changes, geopolitical unrest, and global economic trends. As a result, investors must remain educated and modify their strategy as necessary.

The Indian stock market continues to draw interest from domestic and foreign investors despite these obstacles because of its potential for long-term growth and profitability. Through meticulous investigation, portfolio diversification, and self-control, investors can capitalise on the prospects offered by the Indian stock market while reducing potential hazards.

 

In the end, despite its fair share of difficulties, the Indian stock market continues to be a crucial driver of economic expansion and prosperity, providing a wealth of chances for those prepared to take advantage of its potential and work through its complexity.