History & Basics of the Indian Share Market: A Complete Guide

The Indian Share Market has long been an essential part of the country’s economic growth. With a rich history and significant development over the years, it plays a vital role in the nation’s financial system. If you’re wondering, “What is the Share Market?” and how it works, you’re in the right place. In this article, we’ll dive deep into the basics of the Indian Share Market, explore the origins of major stock exchanges like BSE and NSE, and help you understand the fundamentals of trading.

What is the Share Market?

At its core, the share market is a place where people buy and sell shares or stocks of companies. These shares represent ownership in a company, and trading them allows investors to make a profit if the company’s value increases. In India, this market is divided into two main platforms: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Together, they form the backbone of the Indian financial market, providing a space for investors to trade securities in a regulated and organized manner.

History of the Indian Share Market

The Indian Share Market has a fascinating history that dates back to the 19th century. Let’s take a look at its evolution:

Early Beginnings

The roots of the Indian stock market can be traced back to 1875 when the Bombay Stock Exchange (BSE) was established. It was initially formed as an informal association of stockbrokers in Mumbai (then Bombay). These early traders used to meet under a banyan tree near the Bombay Port Trust Building, where they would discuss and trade shares. In fact, BSE is one of the oldest stock exchanges in Asia.

Formalization and Growth

By the late 19th and early 20th centuries, the Indian stock market started growing rapidly. The introduction of more companies and stocks increased trading activity. In 1956, the Securities Contracts (Regulation) Act was passed, bringing a legal framework to the stock market. The Indian government established a regulatory body, the Securities and Exchange Board of India (SEBI), in 1992 to monitor and protect investors’ interests.

Emergence of NSE

The National Stock Exchange (NSE) was established in 1992 in Mumbai to promote transparency and automation in trading. Unlike BSE, which operated on a floor-based system, NSE introduced electronic trading, revolutionizing the Indian share market. NSE’s electronic system brought in more participants, resulting in better liquidity and more efficient price discovery.

Modern Day Market

Today, the Indian Share Market is one of the largest in the world in terms of market capitalization and offers investors a wide variety of investment options. From large-cap companies to smaller, mid-cap stocks, the market is diverse and constantly evolving. With increasing financial literacy and access to online trading platforms, more people are participating in the stock market than ever before.

Key Components of the Indian Share Market

The Indian Share Market is made up of several essential components that help it function smoothly. Let’s explore these key elements.

1. Stock Exchanges: BSE and NSE

The two primary stock exchanges in India are BSE and NSE.

• Bombay Stock Exchange (BSE): Established in 1875, BSE is the oldest stock exchange in Asia. It lists over 5,000 companies and has a market capitalization of over $2 trillion. The BSE Sensex, which tracks the top 30 companies listed on the exchange, is one of India’s most widely followed stock market indices.
• National Stock Exchange (NSE): Established in 1992, NSE is India’s largest stock exchange by volume. It operates entirely on an electronic platform, ensuring quick and transparent trading. NSE’s Nifty 50 index tracks the performance of the 50 largest and most liquid companies in India.

2. Investors and Traders

The participants in the share market can be broadly categorized into two types:

• Investors: Investors buy stocks for the long term, typically with the intention of benefiting from capital appreciation and dividends. They often focus on the financial health and growth potential of companies.
• Traders: Traders, on the other hand, buy and sell stocks in the short term to make quick profits. They focus on price fluctuations and use various technical indicators to make trading decisions.

3. Stocks and Shares

A stock represents ownership in a company. When you buy a stock, you become a shareholder, and your ownership is proportional to the number of shares you hold. These stocks are traded on exchanges like BSE and NSE, and their prices fluctuate based on market conditions, the company’s performance, and investor sentiment.

4. Indices

Stock indices, like Sensex (BSE) and Nifty 50 (NSE), are used to measure the performance of a group of stocks. These indices provide an overall view of the market and help investors track how well the market or specific sectors are performing.

5. Brokers and Trading Platforms

To buy or sell shares, an investor must go through a broker. Brokers act as intermediaries between buyers and sellers and charge a commission for their services. In the digital age, many investors use online trading platforms to access the share market. These platforms allow easy buying and selling of stocks, making the market more accessible than ever.

How Does the Share Market Work?

The share market operates on the principle of supply and demand. Here’s how it works in simple terms:

• Buying and Selling: When you decide to buy shares, you place an order through your broker. The price of a stock is determined by its supply (how many shares are available) and demand (how many people want to buy it). If more people want to buy a stock, its price rises; if fewer people are interested, the price falls.
• Market Orders vs. Limit Orders: A market order is a buy or sell order placed at the current market price. A limit order is an order to buy or sell a stock at a specific price, ensuring that the trade is only executed if the price reaches the desired level.
• Settlement: After a trade is made, there is a settlement process where the shares are transferred to the buyer’s account, and the money is transferred to the seller. This process typically takes two business days, known as T+2 settlement.

Study of Share Market: Tips for Beginners

If you are new to the share market, here are a few tips to get started:

• Start Small: Begin by investing small amounts and gradually increase your investments as you learn more about the market.
• Research: Always research the companies you are investing in. Understand their financial health, management, and growth prospects.
• Diversify: Don’t put all your money in one stock. Diversifying across different sectors and stocks can help reduce risks.
• Follow Market Trends: Keep an eye on market trends, news, and economic indicators to make informed decisions.
• Learn About Risk: The share market involves risks, and it’s essential to understand them. Don’t invest money that you cannot afford to lose.

Conclusion

The Indian Share Market has a rich history, dating back to the 19th century, and has evolved into a major player in the global financial landscape. With key exchanges like BSE and NSE, the market offers numerous opportunities for investors and traders alike. Whether you’re interested in long-term investing or short-term trading, understanding the basics of the share market, such as the role of stocks, indices, and brokers, is crucial for success. By following a study of the share market and staying informed, anyone can participate in this dynamic financial world.

If you’re new to the Indian Share Market, start small, do your research, and be patient. The world of stocks can be rewarding, but it requires knowledge and discipline. Feel free to share your thoughts or ask questions in the comments below. Happy investing!