How does the Share Market Work?
Regulator
SEBI (Securities and Exchange Board of India): As the primary regulator, SEBI is responsible for protecting the interests of investors and promoting the development of the securities market. It ensures fair and transparent trading practices.
Market Segments
The stock market operates through exchanges where buyers and sellers execute trades electronically.
Primary Market (Raising Capital)
When a private company wants to raise money from the public for the first time, it does so through an Initial Public Offering (IPO). This is the primary market, where the company sells its shares directly to investors. The capital raised is used for business expansion, research and development, or other corporate initiatives.
Secondary Market (Trading)
After the initial public offering, the company’s shares are listed on a stock exchange (NSE or BSE). This is the secondary market, where the majority of trading takes place. Here, investors buy and sell existing shares from one another without the direct involvement of the company. The price of a stock at any given moment is determined by the collective sentiment of buyers and sellers. If there is high demand for a stock, its price will rise, and if there is more supply than demand, the price will fall.
Key Exchanges
National Stock Exchange (NSE)
The NSE, founded in 1992, revolutionized the Indian market with its fully automated electronic trading system. It is now the largest exchange in India by trading volume and liquidity, with its performance tracked by the Nifty 50 index. The NSE is a hub for institutional investors and active traders seeking high-volume transactions.
Bombay Stock Exchange (BSE)
The BSE, established in 1875, is Asia’s oldest stock exchange and a cornerstone of the Indian financial market. Its primary benchmark is the Sensex, which tracks the performance of 30 top companies. With a vast number of listed companies, it offers a wide range of investment opportunities for both large and small investors.
Participants
- Retail Investors: Individual, non-professional investors who buy and sell securities for their own personal accounts, typically in smaller quantities
- Institutional Investors: Large professional organizations, such as pension funds or mutual funds, that invest on behalf of their clients or members, often in large volumes.
- Brokers: Intermediaries who facilitate the buying and selling of securities between investors and the stock exchanges.
- Banks & NBFCs (Non-Banking Financial Company): Financial institutions that participate in the market by offering investment services, acting as underwriters, and providing credit.
- Debt Instruments: Financial instruments, like bonds, that represent a loan made by an investor to a borrower, typically a company or government.
- Mutual Funds & ETFs: Pooled investment vehicles that collect money from many investors to invest in a diversified portfolio of securities.
