The functioning of Stock Market in India…!!
The Indian stock market index (BSE) has reached an all-time high of 40267 in the June of 2019. It currently forms one of the largest avenues of investment in the country. Investors, both domestic and foreign, trade billions of rupees of share each day. The stock market is a place where an investor can trade in different financial instruments such as shares, bonds and derivatives.
A stock exchange is a mediator which allows buying/selling of shares. The exchange provides a platform for traders to trade financial products. The companies, brokers, traders and investors must register with SEBI and the Exchange (BSE, NSE or regional exchanges) before trading. NSE (National Stock Exchange) is the largest stock exchange in India in terms of total and average daily turnover of equity trading volume. BSE Sensex is an indicator of all the major companies listed on the Bombay stock exchange, which is situated in Mumbai. Each stock in the index is assigned a weightage based on its current market capitalization or price. The weight represents whatever be the impact that the stock’s price change has on the value of the index.
Before understanding or learning the nuisance of trade, one must know about the working of the stock market in India .
The company first files a draft over document with the SEBI. It contains all the information about the company, shares being diluted and price brands and so forth. After getting the nod from SEBI, the company offers its shares to investors through an IPO on the primary market.
After an IPO is launched, the company distributes and allots shares to investors who bid during the IPO. Further shares are listed in the stock market to enable trading. In case, if investors fail to invest during the IPO, they can buy in the secondary market.
Broker agencies are mainly intermediaries between the Indian stock market and investors. On receiving successful instructions from the client, the broker can place their order. After getting a match of the buyer and seller, the trade is executed. A confirmation will be sent from exchange to both broker and investor.
Settlement of the Order:
When an order is placed, then there are several parties involved in the processing and settlement process. If the buyers and sellers are matched, the stock exchange sends a confirmation to both parties to avoid defaults. Now further the trades are settled, when the buyer receives the shares and seller receive their funds. The Indian stock market adopts the T+2 settlements, so the whole settlement occurs within two working days from the day of the transaction.
So, as an investor before making any investment decision, one must position the portfolio on prevailing market condition. If there is a sharp fall in the stock market, then it’s better to alert their financial plan or investment strategy. In such a situation, some investors may get excited to excessively ramp up exposure in equities market to benefit from the market correction, while other conservative investors may take out all the money to be on the safe side.