Table of Contents

S. No. Topic Page No.

1. Introduction

2. Need of Stock Market

3. Emergence of Stock Exchanges

4. The Indian Stock Market

5. Role of Stock Market in the Growth of Indian

Economy

6. Comparison of Indian stock market with Global

stock market
7. Conclusion
 Introduction

What is stock market?

The market in which shares of publicly held companies are issued and traded
either through exchanges or over-the-counter markets. Also known as equity
market, the stock market is one of the most vital components of a free-market
economy, as it provides companies with access to capital in exchange for giving
investors a slice of ownership in the company. The stock market makes it
possible to grow small initial sums of money into large ones, and to become
wealthy without taking the risk of starting a business or making the sacrifices
that often accompany a high-paying career.

The stock market lets investors participate in the financial achievements of the
companies whose shares they hold. When companies are profitable, stock
market investors make money through the dividends the companies pay out and
by selling appreciated stocks at a profit called a capital gain. The downside is
that investors can lose money if the companies whose stocks they hold lose
money. The stocks’ prices go down and the investor sells the stocks at a loss.

Shareholders

Any person or other institution that owns at least one share of a company’s
stocks. Shareholders are a company’s owners. They have the potential to profit
if the company does well, but that comes with the potential to lose if the
company does poorly. A shareholder may also be referred to as “stockholder”.

Why does company issue stocks?

To raise money companies can either borrow it from somebody or raise it by

selling part of the company which is known as issuing stock.
A company can borrow by taking a loan from a bank or by issuing bonds. Both
methods come under “debt financing”. On the other hand, issuing stock is called
“equity financing”. Issuing stock is advantageous for the company because it
does not require the company to pay back the money or make interest payment
along the way.

Why buy stocks?

Ownership has its own privileges. As a shareholder, you have some basic rights.
You can vote for or against the candidates who have been nominated to the
company’s board of directors. They are the people who set company policy and
choose the chief executive who runs the business. You can also vote for or
against proposals the directors or other shareholders make to influence what
happens at the company and how it is managed. You also have the right to sell
your stock at any time- although you may choose to hold it onto for years.

The reason people buy stocks is to make money by investing in companies they
believe will make money. People are seeking positive returns.
 Need of stock market
Stock market is an important part of the economy of a country. The stock
market plays a pivotal role in the growth of the industry and commerce of the
country that eventually affects the economy of the country to a great extent.
That is the reason that the government, industry and even the central bank of the
nation keep a close watch on the happenings of the stock market. The stock
market is important from both the industry point of view as well as the
investor’s point of view.

The primary function of the stock exchange is to raise funds for business
expansion and thus play the most important role of supporting the growth of the
industry and commerce in the country. The secondary function of the stock

market is that it serves the role of common platform for the buyers and the
sellers of these stocks that are listed at the stock market.
 Emergence of stock exchanges

National stock exchange (NSE)

The NSE is India’s leading stock exchange covering various cities and towns
across the country. It is located in the financial capital of India, Mumbai. NSE
was established in the mid-1990s as a demutualised electronic exchange. NSE
provides a modern, fully automated screen-based trading system, with over two
lakh trading terminals, through which investors in every nook and corner of
India can trade.

Bombay stock exchange (BSE)

The Bombay stock exchange is one of the oldest stock exchanges in Asia. It was
established as “The Native Share & Stock Brokers Association” in 1875. It is
the first stock exchange in the country to obtain permanent recognition in 1956
from the Government of India under the Securities contracts (regulation) act,
1956. The Exchange’s pivotal and pre-eminent role in the development of the
Indian capital market is widely recognized and its index, SENSEX, is tracked
worldwide.

Over the counter exchange of India (OTCEI)

The OTC Exchange of India (OTCEI), also known as the Over-the-Counter-

Exchange of India, is based in Mumbai, Maharashtra. An electronic stock
exchange based in India that is comprised of small and medium sized firms
looking to gain access to the capital markets. It is India’s first exchange for
small companies, as well as the first screen-based nationwide stock exchange in
India.
 The Indian Stock Market

Regulators in the India stock Market

1. Reserve Bank of India (RBI): It is the apex monetary Institution of

India. It is also called as the Central bank of the country.
2. Securities and exchange board of India (SEBI): SEBI was first
established in the year 1988 as a non-statutory body for regulating the
securities market. It became an autonomous body in 1992 and more
powers were given through an ordinance. Since then it regulates the
market through its independent powers.

Stock Index

The stock index function as an indicator of the general economic scenario of a

country / region / sector. If the stock market indices are growing, it indicates
that the overall general economy of the country is stable and that the investors
have faith in the growth story of the economy. If, however, there is a plunge in
the stock market index over a period of time, it indicates that the economy of
the country is in troubles waters. It is also an indication of what the corporates
in that country are facing. A stock index is created by selecting a group of high
performing stocks.

Indian stock Indices

There are two main indices of the Indian stock market:

NIFTY

NIFTY is a major stock index in India introduced by the National stock

exchange. NIFTY was coined for the two words ‘National’ and ‘FIFTY’. The
word fifty is used because; the index consists of 50 actively traded stocks from
various sectors.
So, the NIFTY index is a bit broader than the Sensex which is constricted using
30 actively traded stocks in the BSE.

NIFTY is calculated using the same methodology adopted by the BSE in

calculating the Sensex- but with three differences.

They are:

1. The base year is takin as 1995

2. The base value is set to 1000
3. NIFTY is calculated on 50 stocks actively traded in the NSE
4. 50 top stocks are selected from 24 sectors

SENSEX

The SENSEX (SENSitve indEX) was introduced by the Bombay stock

exchange on January 1 1986. It is one of the prominent stock indexes in India.
The Sensex is designed to reflect the overall market sentiments. It comprises of
30 stocks. These are large, well-established and financially sound companies
from main sectors.
 Role of stock market in the growth of Indian economy
Stock markets influence economic activity through the creation of liquidity.
Liquid financial market was an important enabling factor behind most of the
early innovations that characterised the early phases of the Industrial
Revolution.

Recent advances in this area reveal that stock markets remain an important
conduit for enhancing development. Many profitable investments necessitate a
long-term commitment of capital, but investors might be reluctant to relinquish
control of their savings for long periods. Liquid equity markets make
investments less risky and more attractive.

At the same time, companies enjoy permanent access to capital raised through
equity issues. By facilitating longer-term and more profitable investments,
liquid markets improve the allocation of capital and enhance the prospects for
long-term economic growth. Furthermore, by making investments relatively less
risky, stock market liquidity can also lead to more savings and investments.

Over the years, the stock market in India has become strong. The number of
stock exchanges increased from 8 in 1971 to 9 in 1980 to 21 in 1993 and further
to 23 as at end- March 2000. The number of listed companies also moved up
over the same period from 1,599 to 2,265 and thereafter to 5,968 in 1990 and
9.871 in March 2000.

The market capitalisation at BSE as a percentage of GDP at current market

prices also improved considerably from around 28 per cent in the early ‘nineties
to over 45 per cent at the end of the ‘nineties, after witnessing a fall in certain
intervening years.
In 1998, India ranked twenty-first in the world in terms of market capitalisation,
nineteenth in terms of total value traded and second in terms of number of listed
domestic companies.

Though the Indian stock market was founded more than a century ago, it
remained quite dormant from independence in 1947 up to the early ‘eighties,
with a capitalisation ratio (market capitalisation to GDP) of only 4 per cent.

However, the patterns of demand for capital have undergone significant changes
during the last two decades and improved stock market activity. It may be
recalled that till the ‘nineties, institutional term-lending acted as the primary
source of Industrial finance in India.
 Comparison of Indian stock market with Global stock
market

The Indian stock exchanges hold a place of prominence not only in Asia but
also at the global stage. The Bombay Stock Exchange (BSE) is one of the oldest
exchanges across the world, while the National Stock Exchange (NSE) is
among the best in terms of sophistication and advancement of technology. The
Bombay Stock Exchange, established in 1875, is the oldest in Asia. National
Stock Exchange, a more recent establishment which came into existence in
1992, is the largest and most advanced stock market in India is also the third
biggest stock exchange in Asia in terms of transactions. It is among the 5
biggest stock exchanges in the world in terms of transactions volume.

Comparative levels of values of stock of different countries in 2018

 Conclusion

One can make a lot of money investing in stocks called trading in the stock
market but it is not something for the new investors. Care must be taken when it
comes to stock instruments. The investor must have a solid understanding of
stocks and how they trade in the market or risk losing money in a volatile type
of investment.

1. Having stock in a company means that you are an owner.

2. A stock represents equity while a bond is a debt.
3. In investing, the riskier the investment the bigger the chance of making more
money.
4. Stocks are volatile. Prices change according to supply and demand.

The main objective behind promoting the development of stock markets in India
was to contribute to raising capital and assisting its allocation process in order
to strengthen the Indian economy.