The equity market is a place for buying and selling stocks and shares of companies. These transactions can occur either over the counter or on stock exchanges. Also known as the stock market or share market, it provides a common platform for buyers and sellers to trade equities or shares.
How is the equity market in India?
In India, the equity market is a vital segment of the financial landscape, comprising major stock exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These exchanges facilitate trading in various instruments such as stocks, derivatives, and exchange-traded funds (ETFs). The Securities and Exchange Board of India (SEBI) regulates the functioning of the equity market in India, ensuring transparency, fairness, and investor protection.
Types of equity market
The equity market consists of two main types: the primary market and the secondary market.
1. Primary market:
The primary market is the platform where companies introduce their shares to the public for the first time through an Initial Public Offering (IPO). This process allows businesses to raise capital by selling a portion of their equity to investors. Once the IPO process concludes, the company’s shares are listed on recognised stock exchanges such as the BSE or NSE, making them available for trading in the secondary market.
2. Secondary market:
The secondary market facilitates the buying and selling of shares that are already listed on the stock exchange. Unlike the primary market, this platform allows initial investors to liquidate their holdings by selling shares to other traders or investors. Additionally, it provides an opportunity for those who missed out on the IPO to purchase shares. The secondary market includes a wide range of securities, including shares, convertible bonds, and corporate bonds.
Trading in the secondary market is conducted through intermediaries called stockbrokers, ensuring a seamless process for both buyers and sellers. This market plays a crucial role in maintaining liquidity and ensuring a vibrant trading environment.
Top stock exchanges in the Indian equity market
India's equity market is anchored by two primary stock exchanges: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Both exchanges are critical to the trading infrastructure, contributing to the growth and stability of the Indian stock market.
National Stock Exchange (NSE)
Established in 1992, the National Stock Exchange was created to bring greater transparency and efficiency to India’s equity market. NSE revolutionised trading by introducing an end-to-end electronic trading system, a first in the country. Official trading on the capital market segment began in 1994, followed by the introduction of derivatives trading in 2000. Today, NSE is ranked as the 12th largest stock exchange in the world, demonstrating its global significance.
Bombay Stock Exchange (BSE)
The Bombay Stock Exchange, founded in 1875, is the oldest stock exchange in Asia and holds a historic place in India’s financial market. Situated in Mumbai’s Dalal Street, it is ranked 11th globally in terms of size and operations. The BSE stands out for its 6-microsecond trading speed, making it the fastest stock exchange in the world. Over the years, it has played a pivotal role in facilitating capital formation and providing a robust platform for trading a variety of financial instruments.
These two exchanges are integral to the functioning of India’s equity market, ensuring a regulated, transparent, and dynamic trading environment for investors and traders alike.
What is 'growth' in the equity market?
"Growth" in the equity market refers to the increase in the value of investments over time. This growth can be driven by various factors such as company performance, industry trends, macroeconomic conditions, and investor sentiment. Investors seek growth opportunities in the equity market by investing in companies with strong fundamentals, innovative business models, and promising growth prospects.
How do equity markets work?
Equity markets operate through the interaction of buyers and sellers who trade shares of publicly listed companies. Investors buy shares with the expectation of future returns in the form of capital appreciation and dividends. The price of shares is determined by supply and demand dynamics, influenced by factors such as company earnings, market sentiment, economic indicators, and geopolitical events.
What are the timings of the equity market?
In India, equity markets operate on weekdays from Monday to Friday. The equity market timing is divided into three sessions: pre-market session, normal market session, and post-market session. The pre-market session starts at 9:00 AM and lasts for 15 minutes, allowing investors to place orders before the market opens. The normal market session commences at 9:15 AM and concludes at 3:30 PM, during which continuous trading occurs. The post-market session, also known as the closing session, runs from 3:40 PM to 4:00 PM, facilitating the settlement of trades and providing an opportunity for price discovery.
What is the difference between stock and equity?
- Represents ownership: Both stocks and equity signify ownership in a company. When an individual owns stocks or equity in a company, they have a stake in the company's assets and earnings.
- Can refer to a company's shares: The term "stock" is often used interchangeably with "equity" to describe shares issued by a company. However, "equity" specifically refers to the ownership interest represented by those shares.
In summary, while both terms indicate ownership in a company, "stock" is a broader term that can encompass various types of ownership securities, whereas "equity" specifically denotes ownership through shares issued by a company.
What is equity in NSE?
Equity in the National Stock Exchange (NSE) refers to shares of ownership in companies that are listed and traded on the NSE. When you own equity, you hold a portion of the company and can benefit from its growth and profits through price appreciation and dividends.
How can I trade in equity?
To trade in equity, follow these steps:
- Open a trading account: Choose a brokerage firm and open a trading account and a Demat account.
- Complete KYC: Fulfill Know Your Customer (KYC) requirements by submitting necessary identification and address proof.
- Deposit funds: Transfer funds into your trading account.
- Place orders: Use your broker's trading platform to place buy or sell orders for shares.
- Monitor and manage: Keep track of your investments and manage your portfolio based on market conditions and your financial goals.
How to do online equity trading?
Online equity trading has become increasingly popular due to its convenience and accessibility. To engage in online equity trading in India, follow these steps:
- Open a Demat and trading account with a registered brokerage firm.
- Complete the necessary documentation and verification process.
- Fund your trading account through online banking or other acceptable methods.
- Use the trading platform provided by your broker to research stocks, place orders, and monitor your portfolio.
- Execute buy or sell orders based on your investment strategy and market analysis.
- Keep track of your investments, review performance regularly, and make informed decisions.
What are the things to know before you trade in equity?
Before trading in equity, consider the following factors:
- Understand the fundamentals of equity markets, including risk and return dynamics.
- Conduct thorough research on companies, industries, and market trends.
- Develop a well-defined investment strategy aligned with your financial goals and risk tolerance.
- Diversify your portfolio to mitigate risk and optimise returns.
- Stay informed about macroeconomic factors, regulatory changes, and geopolitical developments that may impact the market.
- Monitor your investments regularly and be prepared to adjust your strategy as needed.
Advantages
- Potential for high returns over the long term.
- Opportunity to invest in a diverse range of companies and sectors.
- Liquidity, enabling investors to buy and sell shares easily.
- Transparency in pricing and information dissemination.
- Possibility of receiving dividends and participating in corporate actions.
Disadvantages
- Volatility and market fluctuations may lead to short-term losses.
- Market risks such as systemic risk, sector-specific risk, and company-specific risk.
- It requires time, research, and expertise to make informed investment decisions.
- Subject to regulatory changes, geopolitical events, and economic uncertainties.
- Possibility of losing the entire investment in case of adverse market conditions.
Conclusion
The Indian equity market offers immense opportunities for investors to participate in the growth story of the country. By understanding the fundamentals, staying informed, and adopting a disciplined approach, investors can navigate the complexities of the equity market and harness its potential for wealth creation. However, it is essential to acknowledge the inherent risks and volatility associated with equity investments and take appropriate measures to manage them effectively. Ultimately, success in the equity market requires patience, diligence, and a long-term perspective.
Check out other related articles
- What is FINNIFTY
- What is stakeholders
- How intraday trading works
- What is Market Mood Index
- Know Everything About Stock Market Holidays
