Understanding the Indian Stock Market: An Introduction to Investing

The stock market is a place where shares or stocks of publicly listed companies are bought and sold or traded. Publicly listed companies are those that have their shares listed on stock exchanges, enabling the general public to freely buy or sell these shares in the open market. Companies have to go public or they should be listed in the stock market These stocks represent a portion of ownership in a company and their value can fluctuate based on various factors. In India , there are two primary stock exchanges where stocks are traded-Bombay stock exchange(BSE) and National Stock Exchange(NSE). Both exchanges have their own index ,the BSE Sensex and NSE Nifty 50 respectively which are used as a benchmark to track the performance of the stock market. There is a regulatory authority to regulate and govern Indian stock market for its smooth functioning. This authority is known as Securities and Exchange Board of India (SEBI). For anyone to trade or invest in the stock market, it is necessary to have a Trading account , Demat account and a Bank account.All trading activities like purchase and sale of shares take place through trading accounts. Demat accounts function by providing a means to hold shares in an electronic format. They convert physical shares into digital form, effectively dematerializing them. When you open a Demat account, you receive a unique Demat account number, enabling you to electronically execute and settle your trades.

Besides SEBI and publicly listed companies other stock market participants includes Stock brokers,Clearing house,transfer agents,settlement banks,Depository and Depository participants. All these participants have unique role in the stock market. Stockbrokers are professionals who engage in the buying and selling of stocks and other securities on behalf of retail and institutional clients. They operate either through a stock exchange or through over-the-counter channels, earning a fee or commission in exchange for their services. A clearing house is a financial institution established to facilitate the orderly exchange (referred to as clearance) of payments, securities, or derivative transactions. A transfer agent refers to a trust company, bank, or a similar institution appointed by a corporation to perform the essential task of maintaining accurate financial records for investors and tracking the account balances of each individual investor.The settlement bank is the final financial institution to receive and report the completion of a transaction between two entities.Depositories are institutions that offer services for Demat accounts, where shares are stored in electronic form. Depository participants act as intermediaries connecting investors/traders with the depository.

How do trading takes place on Exchanges

Trading on both exchanges occurs via computer-based systems. The order matching process is facilitated by an electronic limit order book, which matches the buy and sell orders submitted by investors. Investors specify their desired price limits for their orders, and the electronic system automatically matches these orders based on the specified limits within the system. Through the electronic mechanism, buyers and sellers can engage in transactions without any prior knowledge of each other. This trading process is highly transparent and fair, as it operates under the guidelines set by SEBI (Securities and Exchange Board of India). The stock exchanges' trading hours are from 9:15 a.m. to 3:30 p.m., Monday to Friday. A pre-opening period from 9 a.m. to 9:15 a.m. precedes the regular trading hours. It's important to note that orders placed outside market hours will not be executed.Equity market transactions follow a T+1 settlement process, meaning that if a stock purchase transaction occurs on Monday, it will be reflected in the shareholder's demat account by Tuesday. The delivery of shares is conducted in dematerialized form. Each stock exchange operates its own clearing house, which assumes responsibility for managing all settlement risks associated with the transactions.