Stock Markets in India
On a daily basis, stocks are exchanged and traded in number of stock markets around the world. The liquidity they bring is a vital component for economic growth.
Stock exchanges are open markets and they trade financial assets. Whether they are associated with a company or whether acting as an individual, stock exchange is a place where stocks are bought and sold. There are many stock exchanges around the world and each of them plays a part in determining the overall financial & economic condition of any economy.
Stock exchanges deal in a number of financial instruments like stocks, bonds and equities. Corporate as well as government bonds are traded in stock exchanges. Equities consist of popular investment options, bonus issues, rights issues, and all other forms of shares and stocks. Mediators such as stockbrokers, financial advisors and brokerage houses facilitate the actual trading of stocks.
Stock Markets in India - a brief summary
- India's oldest and first stock exchange: Mumbai (Bombay) Stock Exchange. It was established in 1875 and has over 6,000 stocks listed.
- Total number of stock exchanges present in India: 22
- They are located in: Ahmedabad, Bangalore, Calcutta, Chennai, Delhi etc.
- There is also a National Stock Exchange (NSE) that is located in Mumbai.
- There is also an Over the Counter Exchange of India (OTCEI) which allows the listing of small and medium sized companies.
- The regulatory agency that oversees the functioning of stock markets is Securities and Exchange Board of India (SEBI), which is also located in Mumbai.
Opportunities for Foreign Investors in Indian Stock Markets
- Direct Investment
Foreign companies are now permitted to have a majority stake in their Indian affiliates; except in few restricted industries. In certain specific industries, foreigners can also have holdings up to 100 per cent.
- Investment through Stock Exchanges
Foreign Institutional Investors (FII) on registration with the Securities and Exchange Board of India (SEBI) as well as the Reserve Bank of India (RBI) are allowed to operate in Indian stock exchanges subject to the guidelines issued by SEBI
Important requirements under the guidelines
Portfolio investments in the primary or secondary markets are subject to a ceiling of 30 per cent of issued share capital for total holding of all the registered FII's. In any one company an FII holding is subject to a ceiling of 10 % of the total issued capital.
However, while applying the ceiling of 30 per cent, the following are excluded:
- Foreign investment under a financial collaboration that is permitted up to 51 per cent in priority areas.
- Investment by FII's through GDR's, offshore single/regional funds, and euro convertibles.
Disinvestment is permitted through a broker of a Stock Exchange.
A registered FII needs to buy or sell only for delivery. It is not permitted to offset a deal. It’s also not allowed to sell short.
Investment in Euro Issues or Mutual Funds floated overseas
Foreign investors can invest in Euro issues of Indian companies & in India-specific funds that are floated abroad.
Broking Business
Foreign brokers on registration with the SEBI can now route the business of registered FIIs. Guidelines for the same are issued by SEBI.
Asset Management Companies and Merchant Banking
Foreign participation in AMCs i.e. Asset Management Companies and Merchant Banking Companies is now permitted.
BSE India
The Bombay Stock Exchange Limited is officially known as the Stock Exchange, Mumbai. It is the main stock exchange in India which operates a bulk of the share sharing and the equity market of the country. It is also the oldest stock exchange in Asia and has the most number of listed companies in the world with over 4700 companies.
It is owned by the Bombay Stock Exchange Limited and is located at Dalal Street. It is popularly known as BSE. It was founded in 1875 and since then, has become the mainstay of the equity and stock market in India. On the global scenario, BSE ranks as the 12th largest stock exchange.
The BSE SENSEX (SENSitive indEX) is the index of the stock exchange that is widely used in India as well as other parts of Asia. It is also sometimes referred to as the "BSE 30". Most of the trading of shares in India takes place in the Bombay Stock Exchange
NSE India
In 1991, the Pherwani Committee recommended to establish the National Stock Exchange (NSE) in India. In 1992 IDBI was authorized by the Government of India for establishing this exchange.
In National Stock Exchange there is trading of bonds, government securities and equity shares. India's Stock Exchanges particularly the National Stock Exchange has achieved world standards in recent years.
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