Introduction:-

Stock market is a place where people buy/sell shares of publicly listed companies. It offers a
platform to facilitate seamless exchange of shares. In simple terms, if A wants to sell shares of
Reliance Industries, the stock market will help him to meet the seller who is willing to buy
Reliance Industries. However, it is important to note that a person can trade in the stock market
only through a registered intermediary known as a stock broker. The buying and selling of shares
take place through electronic medium

Major Stock Exchanges in India

There are two main stock exchanges in India where majority of the trades take place - Bombay
Stock Exchange (BSE) and the National Stock Exchange (NSE). Apart from these two
exchanges, there are some other regional stock exchanges like Bangalore Stock Exchange,
Madras Stock Exchange etc but these exchanges do not play a meaningful role anymore.

National Stock Exchange (NSE)

NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed
companies. It was established in the year 1992 and is located in Mumbai. NSE has a flagship
index named as NIFTY50. The index comprises of the top 50 companies based on its trading
volume and market capitalisation. This index is widely used by investors in India as well as
globally as the barometer of the Indian capital markets.

Bombay Stock Exchange (BSE)

BSE is Asia’s first as well as the oldest stock exchange in India. It was established in 1875 and is
located in Mumbai. It has a total of ~5,295 companies listed out of which ~3,972 are available for
trading as on August 21, 2017. BSE Sensex is the flagship index of BSE. It measures the
performance of the 30 largest, most liquid and financially stable companies across key sectors.

Different Market Participants

There are a lot of individuals and corporate houses who trade in a stock market. Anyone who
buys/sells shares in a stock market is termed as a market participant. Some of the categories of
market participants are as follows:
 Domestic Retail Participants-These are individuals who transact in the markets.
 NRI’s and Overseas Citizen of India (OCI)-These are people of Indian origin who reside outside
India.
 Domestic Institutions-These are large corporate entities based in India (for example: LIC of
India).
 Domestic Asset Management Companies (AMC)-The market participants in this category would
be mutual fund companies like HDFC AMC, SBI Mutual Fund, DSP Black Rock and many more
similar entities.
 Foreign Institutional Investors-FIIs are Non-Indian corporate entities such as foreign asset
management companies, hedge funds and other investors.

Regulator of the Indian Stock Market

Securities Exchange Board of India
Securities Exchange Board of India (SEBI) is the regulatory body of the Indian Stock Markets.
The main objective of SEBI is to safeguard the interest of retail investors, promote the
development of stock exchanges, and regulate the activities of financial intermediaries and
investors in the market. SEBI ensures the following:
 The stock exchanges (BSE and NSE), brokers and sub-brokers conduct their business fairly.
 Corporate houses should not use markets as a mean to unfairly benefit themselves
 Small retail investors’ interest is protected.
 Large investors with huge cash should not manipulate markets.

Types of Financial Intermediaries in the Stock Market

From the time an investor places his order to buy shares till the time it is transferred to his Demat
account, a number of corporate entities are involved to ensure smooth transaction. These entities
are known as financial intermediaries and they work according to the rules and regulations
prescribed by SEBI. Some of the financial intermediaries are discussed below:

Stock Broker
A stock broker also known as a dealer is a professional individual who buys/sells shares on
behalf of its clients. A stock broker is registered as a trading member with the stock exchange
and holds a stock broking license. They operate under the guidelines prescribed by SEBI. An
individual needs to open trading/DEMAT account to transact in the financial market.

Depository and Depository Participants

A Depository is a financial intermediary that offers the service of DEMAT account. A DEMAT
account will have all the shares that an investor owns in electronic format. In India, there are only
two depositaries which offers DEMAT account services - National Securities Depository Limited
(NSDL) and Central Depository Services (India) Limited (CDSL). An investor cannot directly go to
the depositary to open the DEMAT account. He needs to appoint a Depository Participant (DP).
According to SEBI guidelines, banks, financial institutions and members of stock exchanges
registered with SEBI can become DPs.

Banks
Banks help to transfer funds from a bank account to a trading account. The client needs to
categorically mention which bank account has to be linked to the trading account to the stock
broker at the time of opening the trading account.

National Security Clearing Corporation Ltd (NSCCL) and

Indian Clearing Corporation Ltd (ICCL)
NSCCL and ICCL are 100% subsidiaries of National Stock Exchange and Bombay Stock
Exchange respectively. They ensure guaranteed settlement of transactions carried in stock
exchanges. The clearing corporation ensures there are no defaults either from buyers or sellers
side.

DEMAT Account and Trading Account

In order to trade in equities, it is mandatory to have a DEMAT account as well as the Trading
account.

DEMAT Account
DEMAT account or dematerialized account allows holding shares in electronic form instead of
taking physical possession of certificates. It is mandatory to have a DEMAT account to trade in
shares. DEMAT account holds all the investments an individual makes in shares, exchange
traded funds, bonds, government securities, and mutual funds in one place.

How to open DEMAT Account?

Below mentioned are the steps to open DEMAT account in India:
 To open a DEMAT account; an individual has to approach a depository participant (DP), an
agent of depository, and fill up an account opening form. The list of DPs is available on the
website of depository’s i.e. CDSL and NSDL.
 An individual must attach photocopies of KYC documents like identity proof, proof of address
along with the account opening form.
 The DP will provide the depository participant ID or client ID. All the purchase / sale of shares will
be through DEMAT Account

Trading Account
A trading account is used to place buy/sell orders in the stock market. One can open their trading
account with a stock broker who is registered with SEBI. An order can be placed either through
an online or offline mode. In the online mode, one can buy/sell stocks through the trading
terminal provided by the broker whereas; in the offline mode, an individual can ask its broker to
place an order on his/her behalf.

Key takeaways
 A stock market is a place where people buy/sell shares or stocks of publicly listed companies.
 NSE and BSE are the two major stock exchanges in India.
 An individual has to mandatorily open a trading account to trade in the stock market.
 There are different market participants like retail investors, domestic institutions and foreign
institutional investors
 Indian stock market is governed by SEBI.
 There are different financial intermediaries like stock broker, banks, depository participants etc.
 DEMAT account or dematerialized account allows holding shares in electronic form instead of
taking physical possession of certificates.
1

Types of Financial Intermediaries in the Stock Market

From the time an investor places his order to buy shares till the time it is transferred to his Demat
account, a number of corporate entities are involved to ensure smooth transaction. These entities
are known as financial intermediaries and they work according to the rules and regulations
prescribed by SEBI. Some of the financial intermediaries are discussed below:

Stock Broker
A stock broker also known as a dealer is a professional individual who buys/sells shares on
behalf of its clients. A stock broker is registered as a trading member with the stock exchange
and holds a stock broking license. They operate under the guidelines prescribed by SEBI. An
individual needs to open trading/DEMAT account to transact in the financial market.

Depository and Depository Participants

A Depository is a financial intermediary that offers the service of DEMAT account. A DEMAT
account will have all the shares that an investor owns in electronic format. In India, there are only
two depositaries which offers DEMAT account services - National Securities Depository Limited
(NSDL) and Central Depository Services (India) Limited (CDSL). An investor cannot directly go to
the depositary to open the DEMAT account. He needs to appoint a Depository Participant (DP).
According to SEBI guidelines, banks, financial institutions and members of stock exchanges
registered with SEBI can become DPs.

Banks
Banks help to transfer funds from a bank account to a trading account. The client needs to
categorically mention which bank account has to be linked to the trading account to the stock
broker at the time of opening the trading account.
 National Security Clearing Corporation Ltd (NSCCL) and
Indian Clearing Corporation Ltd (ICCL)
NSCCL and ICCL are 100% subsidiaries of National Stock Exchange and Bombay Stock
Exchange respectively. They ensure guaranteed settlement of transactions carried in stock
exchanges. The clearing corporation ensures there are no defaults either from buyers or sellers
side.

DEMAT Account and Trading Account

In order to trade in equities, it is mandatory to have a DEMAT account as well as the Trading
account.

DEMAT Account
DEMAT account or dematerialized account allows holding shares in electronic form instead of
taking physical possession of certificates. It is mandatory to have a DEMAT account to trade in
shares. DEMAT account holds all the investments an individual makes in shares, exchange
traded funds, bonds, government securities, and mutual funds in one place.

How to open DEMAT Account?

Below mentioned are the steps to open DEMAT account in India:
 To open a DEMAT account; an individual has to approach a depository participant (DP), an
agent of depository, and fill up an account opening form. The list of DPs is available on the
website of depository’s i.e. CDSL and NSDL.
 An individual must attach photocopies of KYC documents like identity proof, proof of address
along with the account opening form.
 The DP will provide the depository participant ID or client ID. All the purchase / sale of shares will
be through DEMAT Account

Trading Account
A trading account is used to place buy/sell orders in the stock market. One can open their trading
account with a stock broker who is registered with SEBI. An order can be placed either through
an online or offline mode. In the online mode, one can buy/sell stocks through the trading
terminal provided by the broker whereas; in the offline mode, an individual can ask its broker to
place an order on his/her behalf.

Key takeaways
 A stock market is a place where people buy/sell shares or stocks of publicly listed companies.
 NSE and BSE are the two major stock exchanges in India.
 An individual has to mandatorily open a trading account to trade in the stock market.
 There are different market participants like retail investors, domestic institutions and foreign
institutional investors
 Indian stock market is governed by SEBI.
 There are different financial intermediaries like stock broker, banks, depository participants etc.
 DEMAT account or dematerialized account allows holding shares in electronic form instead of
taking physical possession of certificates.
 Introduction to Primary Market
Primary market is a market wherein corporates issue new securities in order to raise funds. The
company which issues its shares is called issuer and the process of issuing shares to public is
known as public issue or Initial Public Offer (IPO). This entire process involves various
intermediaries such as Merchant Banker, Bankers to the Issue, Underwriters, and Registrars to
the Issue. All these intermediaries are registered with SEBI.

Steps to be followed by companies going for an IPO

 The company appoints a merchant banker for the IPO process. The merchant banker assists the
company in the IPO process.
 The company has to apply to SEBI with a registration statement. This statement has details
about the business of the company, reason for coming out with an IPO and the financial details
of the company.
 Once SEBI receives the registration statement, it decides whether the company should be
allowed to go for an IPO or not.
 After the company gets initial approval from SEBI, it needs to prepare the Draft Red Herring
Prospectus (DRHP). DRHP is a document which consists of information about the business of
the company and the industry that it operates in. This document gets circulated to the public. It
includes details such as estimated size of the IPO , estimated number of shares being offered to
public, how does the company plan to utilize the funds, financial statement of the company,
promoter details etc.
 The company now has to advertise about the IPO through TV and print advertisements in order
to build awareness about the company and its IPO offering. This process is called as the IPO
road show.
 The company or the issuer of the IPO has to decide the price band between which the company
would like to go public. For example, the company has decided a price band of Rs 200-205. So,
if an investor wishes to invest in the IPO, he can choose to buy shares at a price anywhere
between 200 and 205.
 After the price band is fixed, the company has to officially open the window so that public can
subscribe for shares. The subscribers can bid for an IPO within the price band decided by the
company. This is also called as Book Building.
 After the subscribing window is closed (which is generally open for 2-3 days), the price point at
which the issue gets listed is decided. The shares are then listed on the respective stock
exchanges.

Procedure to apply for an IPO

 The subscriber compulsorily needs a DEMAT account to apply for an IPO. He also needs to
apply for ASBA (Applications Supported by Blocked Amount) through the bank to which he has
linked his trading and DEMAT account.
 One can apply for an IPO offline as well as online.
 In offline mode, the subscriber needs to collect the IPO form from the stock broker and submit
the duly filled form. The broker will then submit the form to your bank to which you have linked
the trading account.
 In online mode, one can directly login to net banking services of the bank to which he has linked
his trading account and apply for the IPO.

Secondary Market
The secondary market is where the securities issued in primary market are bought and sold on
the stock exchanges - Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and
others. BSE and NSE are the most widely traded exchanges in India with a market capitalisation
of Rs 1,25,18,954 crore and Rs 12,282,127 crore respectively.

Key Takeaways
 Primary market is a market wherein corporates issue new securities in order to raise funds.
 The secondary market is where the securities/shares issued in primary market are bought and
sold on the stock exchanges.
 The company which issues its shares is called issuer and the process of issuing shares to public
is known as public issue or Initial Public Offer (IPO).
 Any individual who subscribes for an IPO needs to compulsorily have a DEMAT account. He also
needs to apply for ASBA.
1

Stock
A stock (or a share) is an ownership interest in the underlying business. If you are the owner of
the stock, you own a proportionate stake of the company whose stock you own. For E.g. if you
own 1000 shares in HDFC Bank, you own 0.00003955% (No. of shares you own / No. of shares
of HDFC bank in issue) of the bank.

Types of Stocks
Growth
Companies that consistently manage to grow their profits faster than their industry peers are
called growth stocks. Their faster growth is generally the result of some sustainable competitive
advantages. Since they need to constantly fund their growth, they typically pay out little or no
dividends. The investors are rewarded from appreciation in stock price. Since competitors can
emulate them and eliminate their competitive advantage, growth stocks are more risky than
some of the categories we discuss next.
Value
Stocks available at a significant discount to their intrinsic value fall under this category. These are
sound businesses in sectors that are not favored by the market presently. Some of them pay a
significant share of their profits as dividend or resort to share buybacks when their shares are out
of favor.
Dividend Yield
These are companies that generate significant amount of cash in the business and do not have
enough profitable opportunities to deploy the cash. So, they return most of it to the shareholders
in the form of dividends.
Cyclical
These are companies whose profits are linked to economic cycles. They report significant profits
when economic growth is strong and struggle to report profits when economic growth slows
down. Typical examples are commodity companies in metals, cement, oil & gas etc.

Online trading is simply buying and selling assets through a brokerage's internet-based
proprietary trading platforms. The use of online trading increased dramatically in the mid- to
late-'90s with the introduction of affordable high-speed computers and internet
connections. Stocks, bonds, mutual funds, ETFs, options, futures, and currencies can all be
traded online. Also known as e-trading or self-directed investing.

Traditionally, investors and traders have to call their brokerage firms to make a trade for
them. If John wanted to purchase 50 shares of Intel, he would call his broker with a buy order
request. The broker would let John know the market price and confirm the purchase order. If
the investor is making a limit order, the broker has to confirm the limit price, how long to
keep the order open for, what account to purchase the shares in (if John has multiple
investment accounts), etc. The investment representative must also confirm the commission
costs for making the trade. When all has been established, the broker would place the trade in
the system which is linked to trading floors and exchanges, such as the New York Stock
Exchange (NYSE) or the NASDAQ. The client would receive a trade confirmation by mail
and a monthly or quarterly statement of account showing a list of his investments. If John
wanted to transfer some cash from his trading account to his checking account, and vice
versa, he would also have to call in to make that transaction request.

Today, with the advent of the internet in the digital era, more and more investors are
using online trading platforms offered by their brokers for DIY (do-it-yourself) investing.
The online trading platforms serve as a hub with multiple tools for the investor or trader. The
investor can place buy and sell orders; place market, limit, stop, stop-loss, and stop-limit
orders; check the status of an order; view real-time stock quotes; read news on companies;
view the list of securities currently held through the dashboard; etc. An investor can also
access his or her investment statements, confirmation statements, and investment tax forms
using the online system. Most discount brokerages that are affiliated with banks also provide
added convenience for their digital clients by linking their bank accounts to their investment
accounts. This way, an investor can easily initiate a transfer between accounts held under the
same financial institution.

The advent of online trading has reduced costs for both investors and discount brokers. To
encourage people to do their investing themselves, brokers have lower commissions for
trades placed online than for trades placed over the phone with a representative. It is not
uncommon to pay somewhere between $4.95 to $9.99 for an online trade; same trade which
would cost about $29.99 if made over the phone. The lower fees have also made the capital
markets accessible to a wider range of people who may not have been able to afford the
higher commission fees of a personal advisor or over-the-phone trade. As brokers transition
into automated trading, they save costs on their ends from hiring fewer human
representatives.

Another benefit of online trading is the improvement in the speed of which transactions can
be executed and settled, because there is no need for paper-based documents to be copied,
filed and entered into an electronic format. When an investor enters an order online, the order
is placed in a database which checks for the best price by searching all the market exchanges
that trade the stock in the investor's preferred currency. The exchange with the best price
matches the buyer with a seller and sends the confirmation to both the buyer’s broker and the
seller’s broker. All this is done within seconds of placing a trade, compared to making a
phone call which has to go through several confirmation steps before the rep can enter the
order.

It is up to an investor or trader to do his due diligence on a broker before opening an online

trading account with the company. Before an account is opened, the client will be asked to fill
out a questionnaire about his or her investment and financial history to determine what type
of trading account is suitable for the client. If the investor has little knowledge about the
different types of securities and trading strategies in the financial world, a simple cash
account will be opened for him for doing simple buy and sell orders on stocks, mutual funds,
bonds, and ETFs. On the other hand, a sophisticated trader who would like to implement
various trading techniques will be given a margin account in which he can buy, short, and
write securities such as stocks, options, futures, and currencies.

Not all securities are available to be traded online, depending on your broker. Some brokers
require that you call them to place a trade on any stocks trading on the pink sheets and select
stocks trading over-the-counter. Also, not all brokers facilitate derivatives trading in
commodities and currencies through their online platforms. For this reason, it is important
that the trader understands what a broker offers before signing up with the trading platform.

Stock Market is one of the most versatile sectors in the financial system, and Stock Market
plays an important role in economic development. Stock Market is a hub where facilities are
provided to the investors to purchase and sell their Shares, Bonds and Debenture etc. In
other words, Stock Market is a platform for trading various securities and derivatives without
any barriers. In Stock Market various companies are listed to their business venture through
public issues. In the current scenario, long term investors are investing in the companies
through Stock Market to attain pro􀃶t. In India listed Stock Market are Bombay Stock
Exchange (BSE), the National Stock Exchange (NSE) and the Calcutta Stock Exchange
 (CSE). These three are largest Indian Stock Market. Volatility is a statistical measure of the
dispersion of returns for a given security or Market Index. Commonly, the higher the volatility
greater the risk associated with the security. Volatility estimation is important for several
reasons associated with different people in the market. Developed markets continue to
provide over long period of time with higher returns constituting low volatility. Indian market
has started becoming informational more efficient compared to developed countries

The main objectives of stock market are:

1. RAISING MONEY FOR BUSINESS: Stock exchanges around the world enable companies
around the world to raise money. Nowadays, they're mostly electronic markets where
licensed stock brokerages, and the traders representing them, buy and sell shares.
Through exchanges, private companies sell stock in the form of publicly traded shares.
Those wishing to invest in stock place buy or sell orders through regulated brokerage
firms.
2. CAPITAL FORMATION: The primary function of a stock exchange is to help companies
raise money. To accomplish this task, ownership in a private corporation is sold to the
public in the form of shares of stock. Funds received from the sale of stock contribute to
the firm's capital formation. Companies plan to use the newly-raised funds to invest in
productive business assets and grow revenues and profits. This positive business
expansion then may be reflected in a higher stock trading price.
3. SECURITY AND TRANSPARENCY: The legitimate sale of stock on any exchange
requires reliable and accurate information. By requiring a high level of transparency from
all trading companies, the stock exchange creates a more secure environment for
investors, which helps them to determine the risks of investing.
4. TRADING OF STOCKS: An organized and regulated stock exchange facilitates the
efficient trading of stock and other investment vehicles. Without this highly controlled
and coordinated stock exchange, the global trading of stock would not be possible.
Through the stock exchange, any individual or company may buy or sell shares in
another company. In fact at any one time, there are thousands of company shares being
traded through millions of individual transactions.