In recent years there has been a significant rise in trading in India, which has many people wondering what exactly is going on? India is regarded as having an emerging market that has huge potential for growth in the future. There has already been an increase in FX trading, as well as in other market trading in India, so people are interested to know if there’s an opportunity here. Although it only makes up around 3% of the global market capitalization, the gross domestic product (GDP) in India has been growing at a significant rate of around 7-8% annually. If you’re interested in how trading works then take a look below as we discuss some of the main components of the Indian market.
There are two main stock exchanges in India where the vast majority of trades are done. These are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The NSE is a relatively new stock exchange that was founded back in 1992; however, trading didn’t begin until 1994. The BSE, on the other hand, has been around since 1875.
The NSE is the newer exchange, and it’s also the biggest stock market with respect to the volume of trading that takes place on it. It should be noted that the larger firms are listed on both stock markets.
Trading is carried out on these exchanges by a trading computer that matches orders through an electronic order book. The whole process relies on orders to create buy and sell prices, unlike other exchanges that rely on market makers to quote bids and offers. There are advantages and disadvantages to exchanges functioning in this way. One benefit is that the market is a lot more transparent, as you can see every sell or buy order that has been processed. The downside to this, however, is that there isn’t the same guarantee of an order being completed, so traders may not have their trade go through every time.
The BSE and the NSE both work on a rolling settlement of T+2. This essentially means that if a trade is placed within market hours on a Tuesday, it will be settled by Thursday at the latest. Both the BSE and NSE have Monday to Friday trading hours of 9:55 a.m. to 3:30 p.m. Indian Standard Time, which is 5.5 hours ahead of GMT. An interesting component of these two exchanges is that the shares have to be delivered in dematerialized form. The transaction is controlled by a clearing house that takes the responsibility for all risks, and each exchange has its own clearing house.
A market index tracks how well a certain group of stocks are performing, and is assigned a value so that a trader can see if a particular industry is doing well. In India there are two main market indexes that people like to pay close attention to. The Sensex, a market index for equities, is the oldest major market index in India. It was created back in 1986, and currently follows 30 firms that are on the Bombay Stock Exchange.
The second major market Index in India that people pay close attention to is the Nifty 50, which tracks 50 shares that are listed on the National Stock Exchange. This market index is not as old as Sensex, having been created as recently as 1996.
The Securities and Exchange Board of India (SEBI) is in charge of all regulation, supervision, and development of the markets in India. It was created back in 1992, and functions as an independent entity. The SEBI has the power to issue penalties to rule-breakers.
Since 1990, foreign investment has been permitted on all stock exchanges in India. There are two main types of investments that can be made as a foreigner. The first one is known as a foreign direct investment, which refers to any investment made where the investor has control of the management and operation of a company. The second one is known as a foreign portfolio investment, which refers to investments made in shares where the investor does not control any of the management and operation of the company.