The Indian Stock Market: Important Things to Know

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The Indian Stock Market: Important Things to Know

When it comes to the Indian stock market there are only 2 types of investors, including those who are aware of the Indian based investment opportunities and the ones who aren’t aware. India has a burgeoning market just like all of the other markets throughout the world, but not everyone knows what they need to know about it. Here is a quick overview of it and how those who are interested can get involved and what you should know before you start trading.

NSE and BSE

There are 2 stock exchanges in India where the majority of the trading happens, including the NSE or National Stock Exchange and the BSE or Bombay Stock Exchange. The BSE was created in 1875, while the NSE was founded back in 1992 before starting the trading during 1994. However, they both follow the same settlement process, trading hours and trading mechanisms and the majority of the companies in India can be found on both of the exchanges. NSE dominates in the area of spot trading and derivatives trading. Innovation, market efficiency and reduced costs are created by the competition that both of the exchanges provide together.

Mechanism for Trading

The trading can happen at both of the exchanges through the limit order book, which is an open electronic system that creates the matches using a trading computer. There aren’t any specialists or market makers and the entire process works by being order-driven. This means that the investors need to place market orders that are then automatically matched with the ideal limit orders. This means that both the sellers and buyers are anonymous and more transparency is possible since all of the sell and buy orders for the trading system are displayed. The various orders need to be placed by the brokers, which allow for online trading for the retail customers.

Trading Hours and Settlement Cycle

The equity spotting market as a rolling settlement of T+2, which means that any trade that happens on Monday would be settled by Wednesday. All of the trading must take place from 955am until 330pm according to Indian standard time, which is +5.5 hours GMT and happens Monday until Friday. The share delivery happens in the dematerialized form with a clearing house for every unique exchange, which takes on all of the settlement risk and serves as the central counterparty.

Market Index

There are 2 main market indexes in India and they are S&P CNX Nifty and Sensex. The oldest one is Sensex, which was started back in 1986, and it is for equities and it has the shares of some 30 firms that are found on the BSE. Nifty has some 50 shares that are found on the NSE and it was first created back in 1996. Nifty represents nearly 62% of the entire free float market capitalization.

Who Can Invest

Before the 1990s India didn’t allow for outside investments and there are 2 classifications for foreign investments, including FPI or foreign porfolio investment and FDI or foreign direct investment. If the investor is taking part in the various day-to-day operations and management, then it is considered as FDI, while those who don’t have control over those are considered to be FPI. If you are going to invest in India, then you should register to be a FII or foreign institutional investor or a sub-account of any registered FII. The investors mainly consist of asset management companies, banks, insurance companies, sovereign wealth funds, endowments and pension and mutual funds. Foreign individuals aren’t currently allowed to invest in the stock market directly, but must be registered as an FII.

If you are interested in trading on the Indian stock markets, then you should be aware of who exactly can invest and what you need to do to get involved. The NSE and BSE are the main exchanges in the country and they have the Sensex as well as S&P CNX Nifty indexes. The hours of trading are all done in IST Monday through Friday and all trades are credited 2 days after completed. Make sure that you are aware of what needs to be completed before you can trade and that you find the right broker with online trading facilities to get started.

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