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The Indian Stock Market
To some people stock market will always be a risky business, but if you play your cards right, it can turn into “eighth wonder of the world”. Stock market can literally turn dreams into reality. With the ever increasing and expanding economy, Indian stock market is achieving heights. It’s clearly evident now, unluckily India is the second most affected country by corona virus but still stock market is maintaining its levels.
Indian stock market, one of the most exciting stock markets of the world. I bet, entering in this market would provide you experiences that even developed ones can’t. Indian stock market has been able to provide exceptional performance in recent years, back in 2014 Indian stock market emerged to be among the world’s best performer.
HISTORY OF INDIAN STOCK MARKET
Indian stock market has an extremely fascinating and rich history with a simple and informal start. Security trading was introduced in India by Britishers back in 18th century when East India Company began trading in loan securities. Particularly Corporate shares started trading in 1830s in Bombay. These shares mostly belonged to banks and cotton mills. Slowly and steadily this expanded, till the mid of 18th century, 22 share brokers began trading at the opposite of the town hall of Bombay under a banyan tree, that tree still stands there! As this platform kept on expanding, more and more people started getting involved in it. To accommodate more stock brokers, the town hall location had to be shifted to a group of banyan trees at the meadow street junction. This shift continued taking place as the no. of stockbrokers increased. Finally, they settled at the Dalal Street in 1874. This group was considered as informal until they organized themselves as the Bombay Stock Exchange (BSE) in 1975. The BSE is the oldest stock exchange in Asia.
After BSE, Ahmadabad Stock Exchange was formed in 1894 mainly focusing on textile mills. Then Calcutta Stock Exchange and Madras Stock Exchange followed in 1894and 1920 respectively.
These stock exchanges were still private entities serving their native areas and there was no regulatory act that contained them. This further led to the introduction of Securities Contract (Regulation) Act of 1956. BSE was the first exchange to be granted permanent recognition under this act.
POST INDEPENDENCE PHASE
Post independence, BSE dominated the stock market. Although BSE dominated the volume of trading but still low transparency, informal clearing, settlement system and many other factors were a cause of worry. The need of Stock Market regulator was being felt by every investor. This led to the formation of SEBI in 1988 and as a non-statutory body (specially formed by government without passing any act of Parliament) in 1992.
After the Harshad Mehta Scam in 1992, people weren’t able to trust BSE, transparency was needed. This led to the formation of the National Stock Exchange (NSE) in 1992 itself which got recognized as a stock exchange in 1993 and trading began on it from 1994. Here trading took place electronically. Responding to this BSE also launched their electronic trading system known as BSE online trading (BOLT) in 1995.
The BSE launched its sensitivity index called Standard and Poor’s BSE Sensex in 1986; it is an index of 30 companies and depicts the overall performance of the exchange.
Reacting to this NSE also launched its sensitivity index, CNX Nifty, now known as Nifty 50, in 1996. It also depicted the overall performance of the exchange, but unlike BSE it consisted of 50 companies.
CURRENT STOCK EXCHANGES
Stock market is still dominated by NSE and BSE. With over 5500companies listed on listed on BSE and approx. 1900 on the NSE. However the significant companies are listed on both exchanges. Both exchanges are having similar mechanism and market cap of around US$ 2.2 trillion.
BSE and NSE are not the only stock exchanges. Post independence 24 stock exchanges were present. However now we are only having 9 recognized stock exchanges and they are:
- Bombay Stock Exchange Ltd.
- National Stock Exchange Ltd.
- Calcutta Stock Exchange Ltd.
- Indian commodity Stock Exchange Ltd.
- Metropolitan Stock Exchange of India Ltd.
- India International Exchange (India INX)
- NSE IFSC Ltd.
- Multi Commodity Exchange of India Ltd.
- National Commodity & Derivatives Exchange Ltd.
Stock market is divided into different sectors representing their contribution to the market. A sector constitutes a no. of different publicly traded companies; they share similar objectives and provide similar products and services. Some of the major listed sectors that have considerable contribution to the economy are:
- BANKING SECTOR
- AUTOMOBILE SECTOR
- INFORMATION TECHNOLOGY SECTOR
- METAL SECTOR
- REAL ESTATE SECTOR
- FMCG SECTOR
- MEDIA & ENTERTAINMENT SECTOR
- PHARMACEUTICALS SECTOR
- POWER SECTOR
- PSU BANK SECTOR
TRADING HOURS AND SETTLEMENT
Equity markets used to follow T+2 rolling settlement, but now SEBI targets to bring down this time to T+1 and in future it will be brought down to T means the trade will be settled on the same day it was initiated.
Trading on stock exchanges take place between 9:55 a.m. and 3:30 p.m., Indian Standard Time (+ 5.5 hours GMT).
FACTORS AFFECTING INDIAN STOCK MARKET
Stock market is extremely volatile and past situations are evidence for that. This volatility brings opportunities as well as risks and to be aware of those we must know about the factors on which the stock market depends. Some considerable factors are:
MONETARY POLICIES BY RBI
RBI commands the flow of money among people in the country by making necessary policies. RBI revises its policies on a regular basis to control inflation. In Layman terms, when RBI increases repo rates, lending (loan) rates are also increased; this in turn decreases liquidity in market. This decreased liquidity among the economy has an adverse effect on the stocks and vice – versa. This situation shows how regulations made by RBI directly affect the stock market.
Indian stock market is hugely impacted by politics and it was clearly evident when stock market touched its peak when NDA govt. was formed. Unstable govt. effect the market adversely, after all growth of a country is dependent on politicians. Policies made by govt. also affect the market positively as well as negatively.
This factor is very much evident and plays a great role in stock market’s performance. Recent situations support this statement, whenever tensions between India and China escalated, stock market was affected adversely. Also when govt. like USA and Japan support Indian trade by allowing permissions or by reducing trade barriers related stocks tend to boom.
Scams are extremely unfortunate for Indian stock markets, out of those “price rigging” is the main one. People lose their trust on markets and a major bearish sentiment is carried on. Past scams like the Ketan Parekh scam or the Harshad Mehta scam was a complete disgrace to the market.
This refers to any incident that affects a large no. of people. It can be natural as well as man-made. These types of incidents can affect demand of products, cost of raw materials, import-export, and transportation cost, in all affecting the price of goods as all the countries are interdependent, directly or indirectly. Change in price of goods further affects our stock market. This includes incidents such as natural disasters, pandemics, man-made disasters etc.
SOME BILLIONARES WHO MADE FORTUNE THROUGH STOCK MARKET
We come across movie scenes that show people multiplying money by luck and then a thought comes across our mind- ‘These miracles only happen in movies’. But it’s not the case with stock market. For real, there are many people who’ve made their fortune just by the means of stock market. Our special article would be incomplete if we don’t mention these miracles happening to people like you and me. Who knows, you might be the next one.
Some of the richest investors are:-
Popularly called as “The Big Bull” or the “Indian Warren Buffet”; is one of the most successful traders. He belonged to finance background as his father was an income tax officer, being a chartered accountant himself; he was very much interested in stock market. He started investing with Rs. 5000 only. His investment career got a boost when he bought 5000 shares of Tata tea for Rs. 43 and sold them for Rs. 143 in just 3 months. Later he bought 6 crore shares of Titan for Rs. 3 approx. in 2003, the stock is still in his portfolio and is trading around Rs. 1,162 approx. Just unbelievable! Now he also owns asset management firm, RARE enterprise, works as a chairman of Aptech Ltd. and Hungama digital media Pvt. Ltd. This guy has a very optimistic view towards Indian stock market.
Radhakishan Damani, one of the most simple and richest investors who prefer to stay away from public conferences and press releases. After his father’s death he had to close his ball bearing business and started assisting his brother in their stock broking business, which was inherited from their father. He knew that to make more money he can’t just sit back and look others investing, so he started investing himself. He had limited knowledge of investing but he knew the potential of Indian stock market. Initially he made a few mistake, then he learned from those mistakes and kept on increasing his knowledge, at last he became successful. After becoming a successful investor, he observed that being an investor he was just a part of others success stories. Then he started his own company- D Mart, which is a giant and successful retailer chain in India. He also owns Bright Star Investment firm and also acts as decision maker for many big firms like India Cements.
This man was born in a lower middle-class family in Kochi and had a life full of struggles and hardships, initially. He went to Bombay in 1990 in search of job and worked in a stock broking firm. He was an absolute beginner at stock market. Working 4 years in stock broking firm he gained knowledge and became an expert. Then he got a job as a Research analyst and fund manager in another firm. In 1999 he went back to Kochi and started investing himself. He started with investing in ‘Geojit Financial services’ and got multifold returns with that. Believing in himself, he started his own Portfolio management firm called ‘Equity Intelligence’. Today he is listed among the richest investors and has picked many stocks that have given multifold returns.
Vijay Kedia, belonged to a family of stock brokers. After his father’s death he had to continue his father’s business. He started with trading, lost some amount in that then realized that trading was not his cup of tea. He learned stock analysis and then changed into an investor. In all he had around Rs. 35000 at that time. He invested that amount in Punjab Tractors. Within 3 years that investment multiplied into 6 times! Exiting that, he invested all the returns in ACC. The stock had a very little movement for a year, later that stock gave 10 times returns. Today he is one of the richest Indian investors.
These are just few examples. There are many more people like them.
When they can do it, why can’t you?
FUTURE OPPORTUNITIES IN INDIAN STOCK MARKET
Despite this pandemic, experts believe that Indian stock market will outperform in future. Stock market depends on the economy of the country. We know that due to this pandemic we had a bad result for GDP, this quarter. We have to keep one thing in mind that other developed countries have also reported negative GDP for this quarter. Many experts also believe that Indian economy can observe a V shaped recovery.
In recent past Deutsche Bank, also stated that Indian economy is likely to grow to $ 7 trillion by 2030. Indian stock market is already performing well even if India remains to be the second most affected country by this virus as well as tension existing at Indo-China Border. Amid this pandemic situation and US-China trade war one thing that turned out to be fruitful for India is that foreign companies have their production bases in India and some even expanding their existing bases e.g. apple, Samsung etc. This will generate employment for Indians, contribute towards the GDP and would definitely have a positive impact on Indian economy in Long term.
Most of the well known investors are optimistic on Indian Economy. We also need to think same towards our economy and keep working hard. After all we belong to a country where people are considered to be most ambitious and hard working, everybody comes across hurdles and challenges, be it a person or a country but being hardworking we can overcome those hurdles whether it is a pandemic or anything else.