indian stock market how to work

The Indian stock market operates through two primary exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Here’s a step-by-step overview of how the Indian stock market works:

1. Stock Market Basics

Stock Exchanges: The BSE and NSE are platforms where stocks (shares of companies) are bought and sold.
Securities: Stocks, bonds, mutual funds, and derivatives are traded in these markets.
Regulator: The Securities and Exchange Board of India (SEBI) regulates the stock market, ensuring transparency and protecting investors’ interests.

2. Listing of Companies

Companies that want to raise capital list their shares on the stock exchanges through an Initial Public Offering (IPO).
After the IPO, these shares become available for trading to the general public.

3. Market Participants

Retail Investors: Individual investors who buy and sell stocks for personal accounts.
Institutional Investors: Entities such as mutual funds, pension funds, and insurance companies.
Brokers and Brokerage Firms: Intermediaries who facilitate the buying and selling of securities on behalf of investors. They charge a commission for their services.

4. Trading Mechanism

Demat Account: Investors need a Demat (dematerialized) account to hold securities electronically.
Trading Account: Linked to the Demat account, it is used to place buy and sell orders.
Order Placement: Investors place orders through their brokers or online trading platforms. Orders can be market orders (executed immediately at current market prices) or limit orders (executed only at a specified price).

5. Price Determination

Prices of stocks are determined by supply and demand. Factors influencing prices include company performance, economic indicators, political stability, and global market trends.
Indices: BSE Sensex and NSE Nifty are benchmark indices representing the performance of a segment of the market. Sensex includes 30 major companies, while Nifty includes 50.

6. Trading Sessions

Pre-Opening Session: Allows for order matching and price discovery before the actual trading starts.
Normal Trading Session: The main trading period where most transactions occur.
Post-Closing Session: Allows for settlement and closing of outstanding orders.

7. Settlement Process

T+2 Cycle: Trades are settled on a T+2 basis, meaning the transaction is completed within two working days after the trade date.
Clearing Corporations: Entities like the National Securities Clearing Corporation Limited (NSCCL) ensure the smooth clearing and settlement of trades.

8. Regulatory Framework

SEBI sets the rules and regulations to ensure the market operates efficiently and fairly.
Investor Protection: Measures are in place to protect investors from fraud and malpractices.

9. Investment Strategies

Fundamental Analysis: Involves evaluating a company’s financial health, including earnings, revenue, and growth potential.
Technical Analysis: Focuses on historical price movements and trading volumes to predict future price movements.
Diversification: Spreading investments across different sectors and assets to reduce risk.

10. Market Sentiments

News, economic reports, and global events can impact investor sentiments and market movements.

Understanding these elements helps investors make informed decisions, align their investment strategies with market conditions, and manage risks effectively.

For more detailed information, you can refer to resources from SEBI and educational platforms like the National Institute of Securities Markets (NISM).