What is Share Market

New to stock market? I will take you through the world of share market in this article. Firstly, let
us learn what is share market? Share market is where buying and selling of share happens.
Share represents a unit of ownership of the company from where you bought it. For example,
you bought 10 shares of Rs. 200 each of ABC company, then you become a shareholder of
ABC. This allows you to sell ABC share anytime you want. Investing in shares allows you to fulfill
your dreams like higher education, buying a car, building a home, etc. If you start investing at a
young age and stay invested for a long time, the rate of return will be high. You can plan your
investment strategy based on the time you need money.
By buying share, you are investing money in the company. As the company grows, the price of
your share too will increase. You can get profit by selling the shares in the market. There are
various factors that affect the price of a share. Sometimes the price can rise and sometimes it
can fall. Long term investment will nullify the fall in price.
Why at all a company sells it shares to the public? A company requires capital or money for its
expansion, development, etc. and for this reason it raises money from public. The process by
which company issues shares is called Initial Public Offer (IPO). We will read more about IPO
under Primary Market.
You would have always heard people talking about bull market and bear market. What are they?
Bull market is one where the prices of stocks keep rising and the bear market is where the prices
keep falling. Where all these buying and selling happens? NSE (National Stock Exchange) and
BSE (Bombay Stock Exchange). These are the two major stock exchanges in India and are
regulated by SEBI (Securities and Exchange Board of India). Brokers act as an intermediary
between the stock exchange and the investors. So to start investing or trading, you have to open
a demat account and trading account with a broker. You can open demat account online easily
through a simple process. After linking your bank account with these accounts, you can start your
investment journey.

Two kinds of Share Market:

Share market is categorized into two namely:
 1. Primary Market
 2. Secondary Market

Primary Market:
 A company or government raises money by issuing shares in the primary market by the
process of IPO.

 The issue can be either through public or private placement.

 Issue is public when the allotment of shares is made to more than 200 persons; Issue is
private when the allotment is made to less than 200 persons.

 Price of a share can be based on Fixed price or Book building issue; Fixed price is
decided by the issuer and mentioned in offer document; Book building is where the price of an
issue is found out based on the demand from the investors.

Secondary Market:
The shares bought in the primary market can be sold in the secondary market. Secondary
market operates through over the counter (OTC) and exchange traded market. OTC markets are
informal markets wherein two parties agree on a particular transaction to be settled in future.
Exchange traded markets are highly regulated. Also called as auction market wherein all
transactions happen via the exchange.

Why is Share Market important?

Share market plays a vital role in aiding the companies to raise capital for expansion and growth.
Through IPOs, companies issue shares to the public and in turn receive funds that are used for
various purposes. The company gets listed on the stock exchange after IPO and this provides an
opportunity to even a common man to invest in the company. The visibility of the company
increases as well.
You can be a trader or investor in the share market. Traders hold stocks for a short period of time
whereas investors hold stocks for a longer duration. As per your financial needs, you can choose
the investment product.
The investors in the company can use this investment to fulfill their life goals. It’s one of the major
platforms for investment as it provides liquidity. For instance, you can buy or sell share anytime
based on the need. That is, financial assets can be converted to cash anytime. It offers ample
opportunities for wealth creation.
You know well that you can earn money by investing in shares. The following are the ways
through which your money grows.
 1. Dividends
 2. Capital Growth
 3. Buyback


Dividends:
 1. These are the profits the company earns and it is distributed as cash among the
shareholders.
 2. It is distributed according to the number of shares you own.

Capital Growth:
Investment in equities/ shares leads to capital appreciation. The longer is the duration of
investment, the higher the returns. Investment in stocks is associated with risks as well. Your risk
appetite is based on your age, dependants and need. If you are young and don’t have any
dependants, you can invest more in equities to get more yield. But if you have dependants and
commitments, you can allocate more portion of money to bonds and less to equity.

Buyback:
The company buys back its share from the investors by paying a higher value than the market
value. It buys back shares when it has a huge cash pile or to consolidate its ownership.

Stock Exchange in India

A stock exchange is a place where securities, shares, bonds and other
financial instruments are listed and bought and sold by traders or
brokers. To be able to trade on a stock exchange, securities must be
listed on it. Stock exchanges help companies to raise funds.
Therefore the company needs to list themselves in the stock
exchange. Shares listed on the stock exchange are known as equity
and these shareholders are known as Equity Shareholders. Here we
shall discuss the Stock Exchange in India.

Indian stock exchange is one of the oldest markets in Asia and is a

yardstick to measure the health and progress of the economy of the
country. Over the course of the period, the market has transitioned
into the electronic market and securities are dealt in dematerialization
form.

There are two major stock exchanges in India- National Stock

Exchange of India (NSE) and Bombay Stock Exchange (BSE).
National Stock Exchange was established in Mumbai in 1992 and
started trading in 1994. Bombay Stock Exchange was established in
1875 in Mumbai.

Other stock exchanges are as follows-

1. Calcutta Stock Exchange in Kolkata

2. India International Exchange
3. Metropolitan Stock Exchange
Market Indices

There are two major indices in the stock exchange of India – Sensex
and Nifty. Sensex comprises of the weighted average of the market
capitalization of stock of 30 well established and financially sound
companies across different key sectors in India. Nifty comprises of
top 50 companies in 12 sectors of the Indian economy in one
portfolio. It reflects the health of the Indian economy from a broader
perspective.

SENSEX is an indicator of Bombay Stock Exchange and NIFTY is

an indicator of National Stock Exchange of India.

Trading Hours and Settlement on Stock Exchange of India

Trading in the stock market in India takes place in between 9:55 AM

to 3:30 PM Indian Standard Time, Monday to Friday.

Settlement of securities takes places in T+2 period. It means if the

transaction has happened on Tuesday, it will be settled on Thursday.

Source: freepik.com

Functions of Stock Exchange in India

Stock exchange in India ensures –

1. Stability of prices of securities.

2. Convenient and transparent place to trade in securities.
3. Help companies to raise their funds.
4. Promote the habit of saving and investment
5. Provide forecasting service.
How to Deal in Stock Exchanges in India

In order to deal in stock exchange in India, one must have a Demat

A/c. It is just like a bank account. Various banks in India provide this
facility. Through Demat A/c, an investor can buy or sell securities in
trading hours.

Regulation of Stock Exchange in India

Entire stock exchange of India is regulated by the Securities and

Exchange Board of India (SEBI) which was established in 1992 as an
independent authority. SEBI has the power to impose fines and
penalties in case of violation of rules and regulations. It plays a
pivotal role and protects the interest of investors in the stock
exchange of India. SEBI promotes education and training of
intermediaries of the stock market.

Bull Market and Bear Market

A bull market is a market where buyers are aggressively buying the

shares in an expectation that shares price will rise and will sell at later
date. A bear market is a market where prices are falling.

Strong economic conditions, high employment levels, the favorable

government are few factors which lead to a bull market whereas poor
economic conditions, natural adversity, unemployment or sudden
unfavorable political changes lead to bear market.

Future of Stock Exchange in India

In a growing economy like India, the future of stock exchange is

bright and the volume of transactions will grow substantially in the
coming years.
Out of 1.2 billion people, there are only 20 million demat accounts as
of now. Government’s initiative to bring retail customers in mutual
funds and foreign investments in India will help the stock exchange
of India.

MAJOR STOCK EXCHANGE IN INDIA

 BOMBAY STOCK EXCHANGE (BSE)

While Bombay Stock Exchange Limited is now synonymous with Dalal Street, it was not always
so. In the 1850s, five stock brokers gathered together under Banyan tree in front of Mumbai
Town Hall, where Horniman Circle is now situated. [7] A decade later, the brokers moved their
location to another leafy setting, this time under banyan trees at the junction of Meadows Street
and what was then called Esplanade Road, now Mahatma Gandhi Road. With a rapid increase in
the number of brokers, they had to shift places repeatedly. At last, in 1874, the brokers found a
permanent location, the one that they could call their own. The brokers group became an official
organization known as "The Native Share & Stock Brokers Association" in 1875. [8]
The Bombay Stock Exchange continued to operate out of a building near the Town Hall until
1928. The present site near Horniman Circle was acquired by the exchange in 1928, and a
building was constructed and occupied in 1930. The street on which the site is located came to
be called Dalal Street in Hindi (English: Broker Street) due to the location of the exchange.
On 31 August 1957, the BSE became the first stock exchange to be recognized by the Indian
Government under the Securities Contracts Regulation Act. Construction of the present building,
the Phiroze Jeejeebhoy Towers at Dalal Street, Fort area, began in the late 1970s and was
completed and occupied by the BSE in 1980. Initially named the BSE Towers, the name of the
building was changed soon after occupation, in memory of Sir Phiroze Jamshedji Jeejeebhoy,
chairman of the BSE since 1966, following his death.
In 1986, the BSE developed the S&P BSE SENSEX index, giving the BSE a means to measure
the overall performance of the exchange. In 2000, the BSE used this index to open its derivatives
market, trading S&P BSE SENSEX futures contracts. The development of S&P BSE SENSEX
options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading
platform.
Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to an
electronic trading system developed by CMC Ltd. in 1995. It took the exchange only 50 days to
make this transition. This automated, screen-based trading platform called BSE On-Line Trading
(BOLT) had a capacity of 8 million orders per day. Now BSE has raised capital by issuing shares
and as on 3 May 2017 the BSE share which is traded in NSE only closed with ₹999 . [9]
The BSE is also a Partner Exchange of the United Nations Sustainable Stock Exchange
initiative, joining in September 2012. [10]
BSE established India INX on 30 December 2016. India INX is the first international exchange of
India.[11]
BSE launches commodity derivatives contract in gold, silver.
NATIONAL STOCK EXCHANGE(NSC)
National Stock Exchange was incorporated in the year 1992 to bring about transparency in the
Indian equity markets. Instead of trading memberships being confined to a group of brokers, NSE
ensured that anyone who was qualified, experienced and met the minimum financial
requirements was allowed to trade.[9] In this context, NSE was ahead of its time when it separated
ownership and management of the exchange under SEBI's supervision. Stock price information
which could earlier be accessed only by a handful of people could now be seen by a client in a
remote location with the same ease. The paper-based settlement was replaced by electronic
depository-based accounts and settlement of trades was always done on time. One of the most
critical changes involved a robust risk management system that was set in place, to ensure that
settlement guarantees would protect investors against broker defaults.
NSE was set up by a group of leading Indian financial institutions at the behest of
the Government of India to bring transparency to the Indian capital market. Based on the
recommendations laid out by the Pherwani committee, NSE was established with a diversified
shareholding comprising domestic and global investors. The key domestic investors include Life
Insurance Corporation, State Bank of India, IFCI Limited , IDFC Limited and Stock Holding
Corporation of India Limited. Key global investors include Gagil FDI Limited, GS Strategic
Investments Limited, SAIF II SE Investments Mauritius Limited, Aranda Investments (Mauritius)
Pte Limited and PI Opportunities Fund I.[10]
The exchange was incorporated in 1992 as a tax-paying company and was recognized as a
stock exchange in 1993 under the Securities Contracts (Regulation) Act, 1956, when P. V.
Narasimha Rao was the Prime Minister of India and Manmohan Singh was the Finance Minister.
NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The
capital market (equities) segment of the NSE commenced operations in November 1994, while
operations in the derivatives segment commenced in June 2000. NSE offers trading, clearing
and settlement services in equity, equity derivative, debt, commodity derivatives, and currency
derivatives segments. It was the first exchange in India to introduce an electronic trading facility
thus connecting the investor base of the entire country. NSE has 2500 VSATs and 3000 leased
lines spread over more than 2000 cities across India.
NSE was also instrumental in creating the National Securities Depository Limited (NSDL) which
allows investors to securely hold and transfer their shares and bonds electronically. It also allows
investors to hold and trade in as few as one share or bond. This not only made holding financial
instruments convenient but more importantly, eliminated the need for paper certificates and
greatly reduced incidents involving forged or fake certificates and fraudulent transactions that
had plagued the Indian stock market. The NSDL's security, combined with the transparency,
lower transaction prices and efficiency that NSE offered, greatly increased the attractiveness of
the Indian stock market to domestic and international investors

Delhi Stock Exchange (DSE) is a defunct stock exchange located in New Delhi.

It was incorporated on 25 June 1947 and was allowed to exit business by SEBI in January 2017.
[1]

The exchange is an amalgamation of Delhi Stock and Share Brokers' Association Limited and
the Delhi Stocks and Shares Exchange Limited. [2] It was India's fifth exchange and was one of the
premier stock exchanges in India.
The Delhi Stock Exchange was well connected to 50 cities with terminals in North India and had
over 3,000 listed companies. It had received the market regulator's permission from BSE and
had become a member. It used to facilitate the DSE members to trade on the BSE terminals. The
exchange was also considered the same from NSE.
Delhi Stock Exchange has paired up with the National Securities Depository Limited (NSDL), and
commenced trading in dematerialised shares. This started September, 1988. However, the
option for delivering shares either in physical or demat form started in November 1998. [citation
needed]
 DSE initialised its Rs. 1.25 billion Trade Guarantee Fund on 27 July 1998. TGF guarantees
all the transactions of the DSE interse through the stock exchange. If a member fails to honour
the settlement commitment, TGF undertakes to fulfil the commitment and complete all the
settlement without disruption.

AHMEDABAD S.E
The stock exchange was established as a Public Charitable Trust in 1894 following the
establishment of the Bombay Stock Exchange in 1875. Earlier the stock exchange functioned
under the framework of the Bombay Securities Contracts Act, 1925. Following the passage of
The Securities Contract Regulations Act, 1956 the Gujarat Share & Stock Exchange, Indian
Share and General Exchange Association and Bombay Share and Stock Exchange, Share and
Stock Brokers Association merged with the Ahmedabad Share and Stock Brokers Association
and gave rise to ASE as it stands today.
ASE is the oldest stock exchange after Bombay Stock Exchange in India. ASE functioned in a 93
years old heritage building up to 1996 after which it shifted to a more modern building. [2][3][4][5] The
stock exchange went live on 12 December 1996. Initially, ASE used a system provided by IBM.
Since June 1999, ASE operates on Ahmedabad Stock Exchanges' Online Trading System
(ASETS). This system was provided to ASE by Tata Consultancy Services Pvt. Ltd. Members of
the ASE can also trade on the Bombay Stock Exchange through a system called IBOSS. Today
the stock exchange has 333 trading members.
Market regulator Securities and Exchange Board of India (SEBI) has issued notice to the ASE for
withdrawal of recognition stating that regional stock exchanges whose net worth was less than
Rs 100 crore and turnover less than Rs 1,000 crore would be closed. [6] The old stock exchange
building listed as a heritage building was put up for sale.

Role of Stock Markets in the Economic

Growth of India are as follows:
The role of stock markets as a source of economic growth has been
widely debated. It is well recognised that stock markets influence
economic activity through the creation of liquidity. Liquid financial
market was an important enabling factor behind most of the early
innovations that characterised the early phases of the Industrial
Revolution.

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Recent advances in this area reveal that stock markets remain an

important conduit for enhancing development. Many profitable
investments necessitate a long-term commitment of capital, but
investors might be reluctant to relinquish control of their savings
for long periods. Liquid equity markets make investments less risky
and more attractive.

At the same time, companies enjoy permanent access to capital

raised through equity issues. By facilitating longer-term and more
profitable investments, liquid markets improve the allocation of
capital and enhance the prospects for long-term economic growth.
Furthermore, by making investments relatively less risky, stock
market liquidity can also lead to more savings and investments.

Over the years, the stock market in India has become strong. The
number of stock exchanges increased from 8 in 1971 to 9 in 1980 to
21 in 1993 and further to 23 as at end- March 2000. The number of
listed companies also moved up over the same period from 1,599 to
2,265 and thereafter to 5,968 in 1990 and 9.871 in March 2000.

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The market capitalisation at BSE as a percentage of GDP at current

market prices also improved considerably from around 28 per cent
in the early ‘nineties to over 45 per cent at the end of the ‘nineties,
after witnessing a fall in certain intervening years.

In 1998, India ranked twenty-first in the world in terms of market

capitalisation, nineteenth in terms of total value traded and second
in terms of number of listed domestic companies.

Though the Indian stock market was founded more than a century
ago, it remained quite dormant from independence in 1947 up to
the early ‘eighties, with a capitalisation ratio (market capitalisation
to GDP) of only 4 per cent.

However, the patterns of demand for capital have undergone

significant changes during the last two decades and improved stock
market activity. It may be recalled that till the ‘nineties, institutional
term-lending acted as the primary source of Industrial finance in
India.
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Financial Institutions raised money through Government-

guaranteed bonds at low rates of interest, which, in turn, lent funds
at concessional rates of interest. This system provided corporates a
cushion to absorb the relatively high risk of implementing new
projects.

This, in turn, discouraged the corporates to raise risk capital from

equity markets. On this account, the debt market segment, this is
sensitive to ‘economic information’, also remained underdeveloped
and illiquid. With the onset of the reforms process in the ‘nineties.
Institutions had to raise resources at market related rates.

At the same time, the market has witnessed the Introduction of

several new customised bonds at maturities tailored to suit Investor
needs and with market-driven coupons.

Along with this development, a number of measures were initiated

to reform the stock markets, which helped to improve the overall
activity in the stock market significantly.

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The turnover ratio increased from a low of 6.7 per cent at the
beginning of the ‘nineties, to reach 35.1 per cent in 1999-2000,
excepting certain years of relative inactivity.

The Indian capital market has experienced a significant structural

transformation over the years. It now compares well with those in
developed markets. This was deemed necessary because of the
gradual opening of the economy and the need to promote
transparency in alternative sources of financing.

The regulatory and supervisory structure has been overhauled with

most of the powers for regulating the capital market having been
vested with the Securities and Exchange Board of India (SEBI).

Apart from changes in the fundamental factors, information

asymmetries and the associated constraints to efficient price
discovery remain at the heart of the volatile movements in stock
prices.

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The extent of stock price volatility is also influenced by the extent of

integration between the domestic and international capital markets
as well as the regulatory framework governing the stock market.

In India, two most important factors which had a significant

bearing on the behaviour of stock prices during the ‘nineties were
net investments by FIIs and trends in the international stock
exchanges, especially NASDAQ.

Stock market volatility has tended to decline in recent years, with

the coefficient of variation (CV) in the BSE Sensex working out to
17.51 per cent during 1995-96 to 1999-2000. Asset price bubbles
entail significant risks in the form of higher inflation when the
bubble grows in size and in the form of financial instability and lost
output when the bubble bursts.
Monetary and fiscal authorities, therefore, closely watch the asset
market developments. The positive wealth effect resulting from bull
runs could impart a first round of risk to inflation. If the Bull Run is
prolonged, a second round of pressure on prices may result from
subsequent upward wage revisions.

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Since financial assets are used as collaterals, asset booms may also
give rise to large credit expansion. When domestic supply fails to
respond to the rising demand, it could give rise to higher external
current account deficit.

The asset price cycles may follow. When the asset prices collapse,
firms may face severe financing constraints as a result of declining
value of their collaterals, making lenders reluctant to lend at a scale
they do when asset prices are rising. Recognising these alternative
complexities emanating from asset market bubbles, information on
asset prices is being increasingly used as a critical input for the
conduct of public policies.

Exchanges in the country, offer screen based trading system. There

were 9,487 trading members registered with SEBI as at end March
2008. Over the period, the market capitalization has grown
indicating more companies using the trading platform of the stock
exchange.

The All-India market capitalization was around Rs. 51,497,010

million (US $ 1,288,392 million) at the end of March 2008. The
market capitalization ratio is defined as market capitalisation of
stocks divided by GDP. It is used as a measure to denote the
importance of equity markets relative to the GDP.

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