INDIAN STOCK MARKET : FUNCTIONS AND IMPORTANCE

* Mohd. Naved (Management)

Stock Market is also known as Stock Exchange or Share market in all over the World.
It is one of the important constituent of capital market. Stock market is an organized market
for the purchase and sale of industrial and financial security. Stock Exchange is convenient
place where trading in securities is conducted in systematic manner i.e. as per certain rules
and regulations. It is an investment intermediary and facilitates economic and industrial
development of any country in the world like India. In 12th centure France the Courretiers de
Change were concerned with managing and regulating the debts of agricultural communities
on behalf of the banks. Because these men also traded with debts, they could be called the
first brokers. A common misbelief is that in late 13th centure Bruges commodity traders
gathered inside the house of a man called Vander Beurz, and in 1409 they became the
"Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but
actually the family Vander Beurze had a building in Antewerp where those gathering
occurred, the merchants of that period, as their primary place for trading. This idea quickly
spread around the world. There are now stock markets in virtually every developed and most
developing economics, with the world's largest markets being in the USA, U.K., Japan,
China, Canada, Germany, France, South Korea, Netherlands and India.

In this article, we are going to attempt to explain the origin, function, purpose and
relation of the Stock Market to the modern financial system in India with the help of
government documents, journals and valuable books for meaningful conclusion.
Stock Market in India :
Indian Stock market is also known as National Stock Exchange (NSE) of India
limited. It is the leading stock exchange of the country. This market is located in business
capital of India at Mumbai. It was established in 1992 as the first demutualized electronic
exchange in the country. National Stock Exchange was the first exchange of India to provide
a modern, fully automated screen-based electronic trading system which offered easy
business facility to the investors spread across the length and breadth of the country.

Flagship Index (FI) of National Stock Exchange, the CNX, Nifty generally is used
extensively by investors in India and around the world as a barometer of the Indian Capital
market. NSE was set up by a set of leading Indian financial institutions at the behest of the
government of India to bring transparency to the Indian Capital Market. It is based on the
recomendations laid out by the government committee. NSE has been also established
* Research Scholar, Deptt. of Management, Noida International University, Noida (U.P.)

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with a diversified share holding comprising domestic investors include Life Insurance
Corporation (LIC) of India, State Bank of India, IFCI Limited, IDFC Limited and Stock Holding
Corporation of India Limited. On the other hand, the global key investors are Gagil FDI
Limited, GS Strategic Investment Limited, SAIF IISE Investments Muritius Limited, Aranda
Investments (Muritius Limited), Pte Limited and IP Opportunities Fund, etc. Hence, NSE is a
first exchange in India to introduc electronic trading facility thus connecting together the
investor base of the entire country. At present National Stock Exchange has about 2500
VSTs and 3000 leased lines spread over 2000 plus cities across India. Mumbai Stock
Exchange (BSE) is the oldest in India and operate in large majority of countries of the world.
Characteristics of Stock Market :
There are some most important characteristics of Stock market which are as below:

i) Stock Market is a market, where securities of corporate bodies, government and

semi-government bodies are bought and sold.
ii) This market deals with shares, debentures bonds and such securityes already
issued by the companies. It also deals with existing or second hand securities
and hence it is called secondary market.
iii) Stock Exchange does not buy or sell any securities on its own account. It merely
provided the necessary infranstructure and facilities for trade in securities to its
members and brokers who trade in securities. It also regulates the trade activities
so as to ensure free and fair trade.
iv) NSE maintain an official list of securities that could be purchased and sold on its
floor. Securities which do not figure in the official list of stock market or exchange
are called unlisted securities. Such unlisted securities cannot be traded in the
stock exchange.
v) All the transactions in securities at the stock exchange are affected only through
its authorised brokers and members. Outsiders or direct investors are not allowed
to enter in the leading circles of the stock exchange. Investors have to buy or sell
the securities at the stock exchange through the authorised brokers only.
vi) A stock exchange is an association of persons or body of individuals which may
be registered or unregistered.
vii) Stock Market is an organised market and requires recognition from the Central
Government.
viii) Buying and selling transactions in securities at the stock market are governed by

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the rules and regulations of stock market as well as SEBI Guidelines. No
deviation from the rules and guidelines is allowed in any case.

ix) This market is a particular market place where authorised brokers come together
daily on the floor of market called trading circles and conduct trading activities.
The prices of different securities traded are shown on electronic boards. After the
working hours market is closed. All the working of stock exchanges is conducted
and controlled through computers and electronic system.
x) NSEs are the financial barometer and development indicators of national
economy of the country. Industrial growth and stability is reflected in the Index of
Stock Exchange (ISE).
Functions of Stock Market :
This market has some of the important functions of stock market / secondary
market are following :
A) Pricing of Securities :
The stock market helps to value the securities on the basis of demand and supply factors.
The securities of profitable and growth oriented companies are valued higher as there is more
demand for such securities. The valuation of securities is useful for investors, government and
creditors. The investors can know the value of their investment, the creditors can value the credit
worthiness and government can impose taxes on value of securites.
B) Economic Barometer :
Any stock exchange in the world is a reliable barometer to measure the economic
condition of any country like India. Every major change in country and economic is
reflected in the boom or recession cycle of the economy. Stock market is also known as
a pulse of economic mirror reflects the economic conditions of a country.
C) Contributes to Economic Growth :
In stock market Securities of various companies are bought and sold and this
process of disinvestment and reinvestment helps to invest in most productive investment
proposal and this leads to capital formation and economic growth.
D) Safety in Stock Exchange :
In stock exchange only the listed securities are traded and stock market
authorities include the companies names in the trade list only after verifying the
soundness of company. The companies which are listed they also have to operate within
the strict rules and regulations. This ensures safety of dealing through stock market.
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E) Scope for Speculation and Spreading of Equity Cult :
This market encourges people to invest in ownership securities by regulating new issues,
better trading practices and by educating public about investment. To ensure liquidity and
demand of supply of securities the stock market permits healthy speculation of securities.
F) Better Allocation of Capital :

The share of profit making companies are quoted at higher prices and are
actively traded so much companies can easily raise fresh capital from Stock exchange.
The general public hesitates to invest in securities of loss making companies. So, Stock
market facilitates allocation of investor's fund to profitable channels.
G) Liquidity and Stock Market :
The main function of stock market is to provide ready market for sale and
purchase of securities. The presence of stock market gives assurance to investors that
their investment can be converted into cash whenever they want. The investors can
invest in long term investment projects without any hesitation, as because of Stock
market they can convert long term investment into short term and medium term.
H) Saving and Investment :
The Stock market promotes or offers attractive opportunities of saving and
investment in various securities. These opportunities encourage people to save more
and invest in Securities of corporate sector rather than investing in unproductive assets
such as gold, silver, etc.
Stock Market and Modern Financial System :

The financial system under stock market in most of the countries has undergone
a remarkable transformation generally in western countries. One features of this
development is disintermediation. A portion of the funds involved in saving and financing,
flows directly to the financial markets instead of being routed via the traditional bank
lending and deposit operations. The general public interest in investing in the Stock
market, either directly or through mutual funds, has been an important component of this
process. Statistics show that in recent decades, shares have made up an increasingly
large proportion of households' financial assets in many countries as well as India.
The trend towards forms of saving with higher risk has been accentuited by new rules
for most funds and insurance, permitting a higher proportion of shares to bonds. Similar
tendencies are to be found in India as well as developing countries. In all developed
economic systems, such as the European Union, the USA, Japan and other developed

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nations, the trend has been the same. Saving has moved away from traditional (government
insured) "bank deposits to more risky securities of one sort or another". Therefore, a second
transformation is the move to electronic trading to replace human trading of listed securities.
The major part of this adjustment is that financial portfolios have gone directly to shares but a
good deal now takes the form of various kinds of institutional investment for groups of
individuals such as pension funds, mutual funds, hedge funds, insurance investment of
premiums through this modern electronic system in the country.

In conclusion, it may be say that National Stock Exchange is a first exchange in

India to introduce electronic trading facility thus connecting together the investor base of
the entire country. Currently NSE has 2500 VSTs and 3000 leased lines spread over
2000 plus cities across India. Mumbai Stock Market is the oldest in India like London
Stock Exchange. Hence, Stock markets are the financial barometer and development
indicators of national economy of the country, industrial growth and stability is reflected
in the index of stock exchange. There is also need to attract investor to investment more
fund in stock market. The exchanges provide real-time trading information on the listed
securities, facilitating price discovery. In fact, the stock market is often considered the
primary indicator of a country's economic strength and development.

References:
1. Lynch Peter (2000) : One Upon Wall Street (Five Side), PP. 110-129.
2. Ashu Dutt : Master The Stock Market, Buzzing Stock Publishing House, India.
3. Ankit Gala and Jitendra Gala : Guide To Indian Stock Market, Buzzingstock
publishing House, India.
4. Parag Parikh : Stock To Rich : Insights on Investor Behaviour, Mc Graw Hill
Education Private Limited, India.
5. The Economic Times : Stock Market in India (Various Issues), India.

6. Naved, M. and Srivastava, Prabhat (2015). The Profitability of Five Popular

Variations of Moving Averages on Indian Market Index S&P CNX Nifty 50 During
January 2004-December 2014. Advances in Economics and Business
Management, p.27-32.

7. Naved, Mohd. "Technical Analysis of Indian Financial Market with the Help of
Technical Indicators." International Journal of Science and Research (IJSR),
ISSN (Online) (2015): 2319-7064.
8.

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