How Does the Stock Market Work in India?

While you are talking with your buddies, one of them tells you that he made an investment in the stock market and made a nice return, which makes you want to know more about how the Indian stock market operates.

In this blog post, we’ll describe how the Indian stock market works.

How Does the Stock Market Work in India?

The stock market can be defined as a financial marketplace that helps individuals buy and sell shares, derivatives, ETFs, etc. The stock market plays a key role in bringing together businesses seeking to raise funds for expansion and investors seeking investment opportunities. SEBI acts as a regulator and oversees the smooth functioning of the market.  

For example, suppose Investor A wants to sell a share of ITC at INR 490 and another Investor B wants to buy a share of ITC at INR 490. The stock market provides a platform to buyers and sellers and matches them. The share owned by Investor A gets transferred to Investor B, and Investor A receives INR 490 in exchange for selling the share.

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Participants in the Stock Market

The various stock market participants are mentioned below-

• SEBI – The Securities and Exchange Board of India, or SEBI, oversees the Indian stock market. Its principal goal is to protect investors’ interests by upholding ethical standards. Every other player, including exchanges and brokerage houses, must abide by the rules that SEBI periodically updates. 
• Stock Exchange –It is a marketplace that makes purchasing and selling bonds, stocks, exchange-traded funds, and other financial products easier. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are India’s primary stock markets. All companies that go public through initial public offerings (IPOs) must list on one of these exchanges to facilitate stock liquidity. 
• Brokerage Houses – These businesses or establishments serve as an intermediary between investors and the stock exchange. These organizations carry out orders on behalf of customers; in return, they receive a commission or brokerage. They are subject to SEBI regulations and are registered with the exchanges. 
• Traders and Investors – They are the key participants in the stock market, and without them, the stock market would not function. If investors believe a firm will grow, they purchase shares of that company through stock brokers and realize profits when the share prices appreciate. 

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Types of Market

There are two types of financial markets, as listed below:

Primary Market

The primary market is also known as the new issues market, where businesses first register to obtain capital by making their stocks, bonds and debentures available to the public. An IPO, or initial public offering, refers to the entire process that includes the share offering, share subscription, and share allocation. The corporation may be trying to raise money for several reasons, such as growth or to pay off previous debt. 

Secondary Market

Following the IPO’s issuance and allocation process, the shares are listed on the stock exchange, also referred to as a secondary market. The exchange makes it simple for traders or investors to buy and sell the company’s shares. They need to have a Demat Account to purchase and sell those shares.

Example of Buying a Share

For instance, an investor wishes to buy stocks of a company. He must first open a Demat Account to hold shares in electronic form and a trading account to purchase and sell stocks. After opening the account, he needs to transfer money from his bank account to the trading account. Now, he can purchase a company’s stock according to his risk tolerance. He can easily sell the stock on the exchange and realize his profit once the stock reaches the target price.

Evaluation of Stock Before Investing

Investors can use the following two methods to analyze stocks before investing-

• Technical Analysis – This analysis methodology uses technical indicators like Bollinger Band, RSI (Relative Strength Index), and chart patterns to analyze the movement of the stock price. The majority of investors that use this strategy do so in an attempt to generate short-term profits. 
• Fundamental Analysis – Investors using this method need to analyze the company’s financial statements and other fundamental factors influencing its performance. Investors who want to make long-term investments in the market choose this strategy.  

Read Also: How to Start Stock Market Trading With Low or Limited Capital

Conclusion

In summary, investors who invest in equities through the stock market can generate substantial returns, but there are also a number of risks associated with them. Whether you want to make short-term or long-term investments, you must understand how the market operates before you put any money into it. You should also speak with an investment expert before making any decisions. 

Frequently Asked Questions (FAQs)