The Indian share market and the stock market of other countries function in a similar manner. But here, we can look at the Indian share market in depth, how it started, and how you can start investing in it. Get ready for this roller coaster ride.
What is the Share Market?
A stock exchange can be explained as “a body of individuals – whether incorporated or not, constituted to regulate or even control the business of purchasing, selling or dealing in securities.”
“Securities refers to shares, bonds, scrip, stocks, debentures stock, and other marketable securities of incorporated companies or similar, government securities, and rights or interest in securities.”
The phrase “share market” in India refers to the country’s two major stock exchanges, the Bombay Stock Exchange and the National Stock Exchange. There are 22 regional stock exchanges as well.
How Does a Share Market Work?
Here is your answer to how the share market works in India:
- An Initial Public Offering (IPO) is the process by which a company enters the primary market.
- Investors can trade the issued equities in the secondary market once they are listed.
- Stockbrokers and brokerage firms are stock exchange-registered entities.
- Businesses raise funds by selling ownership holdings to the investors on the stock market. These equity investments are referred to as stock shares.
- Shareholders have voting rights as well as a residual claim on earnings in the form of capital gains or dividends when they purchase stocks.
- The share’s price (or value) is determined by the company’s valuation and the number of shares issued.
A Peep Into the History of India’s Share Market
The Indian Share market dates back to the late 18th century when the trading floor was located opposite the Mumbai Town Hall beneath the shade of a large banyan tree. A few people would gather under this tree to conduct informal cotton trades. This was because Mumbai was a busy trading port where important goods were frequently traded.
Following the passage of the Companies Act in 1850, investors began to take an interest in corporate securities. Around this time, the concept of limited liability emerged.
By 1875, a group known as ‘The Native Share and Stock Brokers Association’ had formed. This was the BSE’s forerunner.
The Ahmedabad Stock Exchange was established in the year 1894 primarily to facilitate trading in the shares of the city’s textile mills. The Calcutta Stock Exchange was established in the year 1908 to promote the trading of plantation and jute mill shares. The Madras Stock Exchange was founded in the year 1920.
The BSE became the first stock exchange in India to be recognized by the Government of India under the Securities Contracts Regulation Act in 1957.
The SENSEX debuted in 1986, while the BSE National Index debuted in 1989.
In 1988 – SEBI or the Securities and Exchange Board of India was established to supervise and regulate the securities industry and stock exchanges in India. It became an autonomous body with completely independent powers in 1992.
The National Stock Exchange or NSE was established in the year as the first demutualized electronic exchange to improve market transparency.
The NSE began operations in the Wholesale Debt Market (WDM) segment in 1994, equities in 1994, and derivatives in 2000.
The BSE transitioned from an open-floor trading system to an electronic trading system in 1995.
SEBI and the Forward Markets Commission (FMC) amalgamated in 2015 to tighten commodity market regulation, encourage local and foreign institutional involvement, and launch new products.
How You Can Invest in the Indian Share Market
There are two main ways that you can invest in the Indian share market, and that is through the:
- a) Primary Share Market
An initial public offering (IPO) is used to make a primary share market investment. Once the company has received and counted all applications for the IPO, the shares are allocated to investors based on demand and availability.
Application Supported by Blocked Amount (ASBA) simplifies IPO application through your net banking account. As an example, if you apply for shares valued at 1 lakh, the money would be blocked in your bank account rather than being paid straight to the company.
Once your shares have been allocated, the exact amount is debited, and the balance is issued. This method needs to be followed by all IPO applicants. After shares are assigned, they are posted on the stock exchange and could be traded within one week.
- b) Secondary Share Market
The secondary share market is where stock buying and selling amongst investors takes place.
To invest in the secondary share market – follow these steps:
- Using your linked banking account – open a Dematerialization and trading account.
- Access that trading account.
- Select the right shares for you.
- Ascertain that you have the necessary funds in your account to purchase the shares.
- Next, determine whether you wish to buy or sell a certain share.
- Wait for the buyer or the seller to accept the request.
- Pay for and buy the shares – or transfer the shares and get the money to complete your stock market transaction.
Final Takeaway
The process of investing in stocks is simple, and if you want to get started – there is no stopping you. But, if there is one thing you need to keep in mind – it is the fact that these stocks do not offer guaranteed returns and carry a risk factor.
