CAPITAL MARKET IN INDIA

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

Kamini Sahu

Under the Guidance of

___________________

March 2023

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 CAPITAL MARKET IN INDIA

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

Kamini Sahu

Under the Guidance of

___________________

March 2023

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 B.L Amlani college of commerce and Economics

M.R Nathwani college of Arts, Vile Parle West

Certificate

This is to certify that Ms. Kamini Sahu has worked and duly completed
her Project Work for the degree of Bachelor in Commerce (Accounting &
Finance) under the Faculty of Commerce in the subject of Finance and
her/his project is entitled, “Capital Market In India” under my
supervision.

I further certify that the entire work has been done by the learner under
my guidance and that no part of it has been submitted previously for any
Degree or Diploma of any University.

It is her own work and facts reported by her/his personal findings and
investigations.

Name & Signature of Teacher:

Date of submission:

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 Declaration by learner

I the undersigned Miss Kamini Sahu here by, declare that the work embodied in this
project work titled “Capital Market in India” forms my own contribution to the
research work carried out under the guidance of _______________________ is a
result of my own research work and has not been previously submitted to any other
University for any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name and Signature of the learner

Date of submission:

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 Acknowledgment

To list who all have helped me is difficult because they are so numerous, and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.

I would like to thank my principal for providing the necessary facilities required for
completion of this project.

I take this opportunity to thank our Coordinator for her moral support and guidance.

I would also like to express my sincere gratitude towards my project guide whose
guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.

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 CAPITAL MARKET IN INDIA

Sr No Description Page No
1 Introduction

 Types of Capital Markets

 Primary vs Secondary Capital Markets
 Functions of Capital Market

2 History and Development of Capital Markets in India

3 Capital Market Reforms

 Capital Market reforms in India.

 Factors responsible for the growth of capital market in
India

4 Capital Market Regulators – Role of Indian Market Regulators

5 Need for Capital Markets
6 Capital Markets Instruments
7 How to Invest in Capital Markets
8 Online Stock Trading

Introduction
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Capital market is a financial system that matches investors who have money or
savings with those who want to borrow funds. It is a market for trading securities,
which can include stocks and bonds.

These high-risk investments pay a return to investors as interest or dividends.

In addition, capital markets include other types of securities, including currencies and
commodities such as gold and oil. Capital markets benefit the economy by
encouraging the efficient allocation of risk among participants in a competitive
environment.

The term "financial markets" may actually be more accurate than "capital markets."
Securities are sold not just by companies but also by governments and others.

Types of Capital Markets

Stock Markets
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In a stock market, investors buy or sell shares of publicly traded companies.

Investors buy shares because they hope the company will succeed and the stock
price will rise, increasing the market value of their investment.

Companies list shares on exchanges so they can raise capital to fund expansion or
projects. They also do so to give investors an opportunity to buy or sell securities
with relative ease through brokers who are members of that exchange.

Bond Markets

In a bond market, lenders provide funds to borrowers by buying their bonds for cash
or by purchasing them via a broker with the understanding that they will be repaid
with interest at a later date along with the original loan amount.

Individuals use bond markets when looking for safe investments that pay more than
money in savings accounts or CDs.

Commodity Markets

In a commodity market, investors buy commodities such as gold, oil, and wheat to
gain value through future price appreciation. Commodities are raw materials that can
be bought and sold via futures contracts or options on futures contracts.

Foreign Exchange (Forex) Markets

The forex market enables companies to purchase foreign currencies at specified

prices for the purpose of making international purchases or sales, transferring funds
across international borders, hedging exchange rate risk on investments in foreign
countries, etc.

Currency values fluctuate relative to one another, providing players in this market
with opportunities to make money buying low and selling high.

Primary vs Secondary Capital Markets

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 PRIMARY
SECONDARY
A primary market is one in which securities are first offered to the public through an
Initial Public Offering (IPO).

Companies that want more capital than they can raise from private individuals often
go public and sell shares of their stock on a stock exchange, such as the NYSE. The
company gets cash and buyers get stocks or bonds in a promising company.

After its IPO, a stock may also be traded over the counter on what is called
secondary markets.

Customers on these exchanges buy and sell stocks among themselves rather than
trade them directly with the issuing company or other investors/members of the
exchange. The SEC regulates both primary and secondary markets.

Functions of Capital Market

Formation of Capital: There are two types of individuals in the capital markets:
investors who don't need money right away and debtors who do. The capital markets
enable leftover funds to be invested and put to use rather than just hanging around.
Therefore, it gives firms the chance to borrow money and invest in new machinery or
other capital equipment rather than having ₹1 crore sitting in the locker. In exchange,
the investor obtains a dividend, and the company has access to more effective
machinery. This capital market role looks at the economy at a macro level.

Absence of Entry and Exit Barriers: Today's investors generally trade on the
capital markets using their mobile devices, making them more accessible than ever.
The spread of technology has virtually made financial markets accessible to
everyone. Investors are practically prepared to invest as soon as they open an
account with a broker. Additionally, there are now worldwide marketplaces. Due to
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the increased demand for assets, people can leave the market just as quickly as
they entered.

Economic Growth: The capital market promotes a marketplace for borrowers and
lenders, which results in a more effective flow of cash. Businesses in need of
corporate loans can apply on the capital market, and an underwriter will then issue
the loan. As an alternative, it can raise money by offering a portion of its business on
the stock market. Due to the fact that idle capital is put to use elsewhere in the
economy, this promotes economic growth. Simply put, it increases demand.
Businesses that require credit can make investments if they are granted it. The
company that offers the capital equipment that it invested in receives that money in
return. The economy can then continue to grow as a result of that money's
circulation. This aspect is considered to be one of the most important roles of capital
market.

Capital Liquidity: People with money can invest it owing to the financial markets.
They receive ownership of a bond or stock in exchange. However, they cannot use a
bond certificate to purchase a car, food, or other assets, thus it could be essential to
liquidate them. It is fairly simple for investors to sell their assets to a third party on
the capital markets in exchange for liquid funds (cash). There is nearly always a
buyer if one wishes to sell an item at the current market price, enabling you to
convert the asset into actual cash.

Price Regulation: Making sure the price of an asset is accurate is one of the capital
markets' primary objectives. A share's price may spike after receiving favourable
news or plunge after reading an unsatisfactory annual report. The prices fluctuate to
the point where the equity worth is represented in its price at that moment due to the
thousands of traders. Bond prices can change and adapt more quickly as a result of
supply and demand at the same time. For instance, during a recession, investors
typically choose bonds since they are perceived as a safer investment.

Provides Opportunity to Investors: If an investor wants a high level of risk or a low

level of risk, there are enough financial instruments available in the capital markets
to fit their needs. At the same time, capital markets give investors a chance to
increase their capital yield. Savings accounts pay very little interest, especially when
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compared to the rates on most equities. Therefore, the capital market offers
investors the chance to earn a higher rate of return, though there is also some risk
involved. This function of capital market stands in the favour of the investors
participating in it.

History and Development of Capital Markets in India

In April 1601 the English East India Company sent its first expedition to the East
Indies. Four ships, Ascension, Dragon, Hector, and Susan were used in making four
expeditions. The shareholders in the first two voyages made a profit of 95% on their
investment but the fourth one in 1608, consisting of ship Ascension and Union was a
complete disaster and as a result of which the investor in this expedition lost all their
capital.

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Capitalism is essentially the investment of money in the expectation of making a
profit, and huge profits could be made at some considerable risk by long-distance
trading ventures of this kind.

The first 12 voyages were each financed separately, with capital committed to one
voyage only and the profits of the voyage distributed among its shareholders,
according to traditional merchant practices. This was, however, a risky way of
financing long-distance trade, for it exposed capital to a long period of uncertainty in
far-away and unknown places. Risk could be spread by sending out several ships on
each expedition, so that not all the eggs were in one basket, but whole expeditions
could, nonetheless, be lost, as in 1608. The company shifted to a method of finance
that spread risks over a number of voyages and then became a fully fledged joint-
stock company, with, after 1657, continuous investment unrelated to specific
voyages. In 1688 trading in its stocks began on the London Stock Exchange.

Basically, capital is money that is invested in order to make more money. By

extension the term capital is often used to refer to money that is available for
investment or, indeed, any asset that can be readily turned into money for it. Thus, a
person’s house is often described as their capital, because they can turn it into
capital either by selling it or by borrowing on the strength of it. Many small
businesses are indeed set up in this way. It is, however, only possible to turn
property into capital if its ownership is clearly established, its value can be
measured, its title can be transferred, and a market exists for it. A characteristic
feature of the development of capitalist societies is the emergence of institutions that
enable the conversion of assets of all kinds into capital.

In India there are four important phases on which the development of stock
exchange is judged. The first phase is from the inception of the capital markets in
India upto the First World War i.e.1875-1919. This phase brings out initial
development in the capital market in India. This studies the inception of the capital
market, limitations for the development at the early stage and the emergence of
various stock exchanges in India. The second phase starts from 1920 i.e. the period
when industrial revolution had spread over a large part of globe, but India, under
British Empire, remained underdeveloped country. The phase is restricted upto 1947

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when India got independence. It also highlights the glimpses of development during
the volatile period for the market as well as Indian polity. The third phase starts with
1947 i.e. independence and it is upto 1990 i.e. announcement of the New Economic
Policy. This was the period when the capital market in India has shown development
in real sense. Quantitatively as well as qualitatively, there was a remarkable
development in capital market during this phase. The final phase starts from 1991 to
the present date. Especially after the adoption of Liberalization - Privatization -
Globalization (LPG) policy, there is huge attention of the global financial markets on
Indian capital market. As India still remains a promising country for the investors and
since now foreign investment is permitted in Indian capital market, lots of
developments have taken place since last two decades.

Inception Phase (upto 1919)

The history of capital market in India dates back to almost 200 years. Indian stock
markets are one of the oldest in Asia. In the early nineteenth century, there are some
signs of existence of capital market in India. Though the records are meager, there
are some evidences of presence of capital market during the first half of the
nineteenth century. During those days, the East India Company was in a dominant
position. The business in its loan securities was transacted even at the close of
eighteenth century. In 1830’s business on corporate stocks and shares in bank and
cotton presses took place in Mumbai (the then Bombay). There were only 6 brokers
recognized by banks and merchants during 1840 and 1850. Even after trading list
was broadened in 1839, there was no corresponding growth in the turnover of the
markets.

In the decade of 1850’s, there was a rapid development of commercial enterprise

and brokerage business attracted many people in to the field and by the year 1860,
the number of brokers increased to 60.

In 1860-61 American civil war started. Therefore, cotton supply from the US and
Europe was stopped. Thus, the’ share mania’ began in India. The number of brokers
increased to almost 250. However, at the end of American civil war, a disaster again
took place in 1865. This disaster was so hard that, a share of bank of Bombay which

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had touched Rs.2850 could be sold at Rs.87. This was true almost for all securities
traded in the market.

At the end of the American civil war, the brokers who had no place to trade, found
the place in the year 1874. This place was a street in Mumbai where the brokers
used to come and negotiate on a piece of paper which later took the form of share
certificate. The place where the brokers assembled and transacted business
regularly, is now known as Dalal Street and the building which is popularly reckoned
as a premier stock exchange, is now known as ‘Jijibhoy Towers’. In 1887, these
brokers formally established the ‘Native Share and Stock Exchange Association’. It
was just an association of persons which was purely informal. It was not given a
separate status as a corporate or business entity. However, in 1895, the stock
exchange acquired a premise in the same street and it was formally inaugurated in
1899. Thus, the stock exchange of Mumbai (now called as BSE) came into
existence.

Next to the city of Mumbai, Ahmedabad gained more importance in this regard. The
cotton business which was a prominent business for both of these cities was a
common feature. Especially after 1880, many textile mills started in Ahmedabad,
rapidly surged and expanded their business. As the new mills were floated, the need
for stock exchange was realized and in 1894, the brokers formed the ‘Ahmedabad
Share and Stock Brokers Association’.

During the same time Calcutta was emerging as a centre for jute industry. Apart from
jute, tea and coal industries were the major industries in and around Calcutta city.
From the experiences of ‘share mania’ in Mumbai during 1861-65, there was a boom
in jute shares in 1870’s. This was further followed by a boom in tea shares in the last
two decades of the nineteenth century i.e. from 1880 to 1900. The similar boom was
also experienced in coal business between 1904 and 1908. The leading brokers of
Calcutta then in June 1908 formed the ‘Calcutta Stock Exchange Association.’

In the nineteenth century, industrial revolution too, was taking place in various parts
of the world. India, under British Empire, was not an industrially emerging country.
But then, since Britishers had an industrial revolution (especially in Europe), the raw
material was mostly supplied from the Indian sub continent and thus, slowly India
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became a major supplier of raw materials for the European market which was a
developed market.

Due to this reason, indirectly, in the beginning of the twentieth century, the industrial
revolution was on the way in India. At the same time, ‘Swadeshi Movement’ in India
also got the momentum. In 1907, the Tata Iron And Steel Company Limited was
inaugurated (which is now popularly called as (TISCO). This was an important
development in industrial advancement of Indian enterprises. Further, due to the
First World War some of the Indian industries prospered. These industries included
cotton and jute textiles, steel, sugar, paper, flour mills etc. At that time most of the
Indian industries which enjoyed prosperity, were providing the raw material for the
industrially developed European market.

Umbrella growth (1920-1946)

In 1920 the city of Madras (now Chennai) had a first experience of a stock exchange
functioning in the city. The Madras Stock Exchange was formed with 100 members in
1920. But this exchange had a very short life. When the boom came to an end, the
number of members decreased from 100 to meager 3. Finally, in 1923, the Madras
Stock Exchange went out of existence.

In 1935, the stock market activity again improved, especially in south India. In this
part of the country, there was a huge increase in the number of textile mills and
many plantation companies. In 1937, a stock exchange was again instituted in
Madras which was then called as Madras Stock Exchange Association Pvt. Ltd.
Later on, the name of the stock exchange was changed to Madras Stock Exchange
Limited.

In 1934, Lahore Stock Exchange was formed but it had a very short life. It was
merged with the Punjab Stock Exchange Limited which was incorporated in the year
1936 at Ludhiana.

The Second World War broke out in 1939. It had some direct as well as indirect
impact on the Indian industries. Initially, due to the world war, there was a sharp
boom. Immediately, it was followed with a sharp decline due to the fear of extending

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period of world war and its ill effects on the economy. After 1943, the situation again
changed and by that India was recognized as a supply base.

On account of restrictive controls on cotton, bullion, seeds and other commodities,

those enterprises dealing in these commodities, were found in the stock exchange
as it provided source of finance for their business. They were interested to join the
trade and their number increased sharply. Many new associations were formed for
this purpose. This led to the emergence of stock exchanges being formed in different
parts of the country.

Around this time, some more stock exchanges which came into existence were- the
Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited
(1940) and Hyderabad Stock Exchange Limited (1944). In Delhi, around this time
two separate stock exchanges were formed viz. ‘Delhi Stock and Share Broker’s
Association Limited’ and the ‘Delhi Stock and Share Exchange Limited’. During the
World War II, these two exchanges were floated.

Post independence Growth

During the World War II, there was a fear about its adverse effects on the Indian
industries. But in the post world war period there was a fear of depression which
proved to be true. Most of the stock exchanges suffered almost a sharp fall during
the post world war period. At the same time there was a development on political
frontthat India got independence. After partition, the Lahore stock exchange was
shifted to Delhi and later on it merged with Delhi Stock Exchange. In 1947, both of
the stock exchanges in Delhi were amalgamated into the ‘Delhi Stock Exchange
Association Limited’.

In southern India, the Bangalore Stock Exchange was registered in 1957 and it was
recognized in 1963. By this time, only few stock exchanges were recognized by the
Central Government. The first act to regulate and recognize the exchanges came
into force in 1956 i.e. Securities Contracts (Regulation) Act, 1956. The established
stock exchanges of Mumbai, Ahmedabad, Calcutta, Madras, Delhi, Hyderabad and
Indore were recognized under the act. The recognition was given on the condition
that members of other associations were required to be admitted by the recognized

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stock exchanges on a concessional basis. But as per the principles of unitary control,
all the ‘pseudo stock exchanges’ were refused the recognition by the government
and hence these ‘pseudo’ stock exchanges became defunct. Thus, during the early
sixties even through number of exchanges were incorporated, only 8 ‘recognized’
stock exchanges were left in India. For nearly twenty years thereafter, the number
remained unchanged. Again after that period, in 1980’s, many more stock exchanges
were established.

There were 21 recognized stock exchanges upto the year 1990. The stock
exchanges during this period, not only grew in number, but also the number of listed
companies and capital raised by these companies grew considerably. Especially
after 1985, there has been a remarkable growth in the stock exchanges due to the
favourable government policies towards the securities markets.

Post Reform Phase (1991 Onwards)

After independence, there was a steady growth in the stock markets in India. After
1985, the number of stock exchanges increased sharply. But after 1991, there was
really a qualitative development in the Indian market. The uses of technology, variety
of products, investor protection are the areas which emerged during the last two
decades. Even though there was quantitative increase in the Indian capital market;
there were some inherent limitations like lack of liquidity, imperfections in the
information, lack of transparency, long settlement periods etc. During this time
benami transactions and some frauds also took place in the Indian stock markets.
This affected the small investors to a great extent. The last decade of the twentieth
century saw the emergence of two important stock exchanges viz. Over The Counter
Exchange of India (OTCEI) and the National Stock Exchange (NSE).

Over The Counter Exchange Of India (OTCEI)

In 1992 , to provide improved services , the country’s first ring less, scrip less and
electronic stock exchange OTCEI was created by some of the prominent financial
institutions like UTI, ICICI, IDBI , SBI Capital Markets, IFCI, GIC, Canbank Financial
Services. The trading at OTCEI is done over the centres across the country. The
securities traded at OTCEI are classified into listed securities, permitted securities

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and initiated debentures. The feature of this exchange is that instead of share
certificate, a counter receipt is generated out at the counter which substitutes the
share certificate and the same is used for all transactions.

National Stock Exchange (NSE)

On the basis of recommendations of the Pherwani Committee, the National Stock

Exchange was incorporated in 1992. With the advent of liberalization of the
economy, it was necessary to lift the trading system of Indian stock markets at par
with the international standards. The establishment of NSE was one step forward in
this direction. NSE was incorporated by IDBI, ICICI, IFCI, insurance companies and
selected commercial banks. Trading at NSE is of two broad categories viz.
‘Wholesale Debt Market’ and ‘Cash Market’. Wholesale Debt Market is segment
which is similar to money market while Cash Segment is a place of normal activity of
purchase andsale of securities.

The National Stock Exchange is a pioneer exchange in introducing screen based

trading mechanism. The use of technology and broad based participation are the key
features of NSE. In its short life so far of less than two decades, it has gone past the
many landmarks of the BSE which is a popular stock exchange in India. NSE gains
vital importance in the Indian capital market as it provides much needed
professionalized service and protection to the small investors.

Interconnected Stock Exchange (ISE)

The formation of NSE changed the way in which the stock exchanges were
functioning. Modern infrastructure, technology, transparency and corporate
governance are now becoming the features in the corporate the world. It also forced
BSE to adopt the new technology and with this, NSE and BSE crossed boundaries
and started functioning, operating throughout India. This affected the functioning of
small and regional exchanges.

This led to the birth of the Inter-connected Stock Exchange of India Ltd. (ISE).
Federation of Indian stock exchanges, in a meeting held in 1996, constituted a
steering committee to evolve an interconnected market system. Thus, regional stock

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exchanges promoted ISE, which was given recognition by SEBI in 1998 and formal
trading was started in 1999. ISE was launched with an objective of converting small,
fragmented and illiquid markets into a large, efficient and liquid market. But there has
not been much success to this exchange and the objectives are still far from being
achieved.

Capital Market Reforms

Capital market is one of the most important segments of the Indian financial system.
It is the market available to the companies for meeting their requirements of the long-
term funds. It refers to all the facilities and the institutional arrangements for
borrowing and lending funds. In other words, it is concerned with the raising of
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money capital for purposes of making long-term investments. The market consists of
a number of individuals and institutions (including the Government) that canalize the
supply and demand for long -term capital and claims on it. The demand for long term
capital comes predominantly from private sector manufacturing industries,
agriculture sector, trade and the Government agencies. While, the supply of funds for
the capital market comes largely from individual and corporate savings, banks,
insurance companies, specialized financing agencies and the surplus of
Governments.

Policy Measures and Initiatives

A number of initiatives have been undertaken by the Government, from time to time,
so as to provide financial and regulatory reforms in the primary and secondary
market segments of the capital market. These measures broadly aim to sustain the
confidence of investors (both domestic and foreign) in the country's capital market.
The policy initiatives that have been undertaken in the primary market during 2006-
07 include:-

 SEBI has notified the disclosures and other related requirements for
companies desirous of issuing Indian depository receipts in India. It has been
mandated that:- (i) the issuer must be listed in its home country; (ii) it must not
have been barred by any regulatory body; and (iii) it should have a good track
record of compliance of securities market regulations.
 SEBI has specified that shareholding pattern will be indicated by listed
companies under three categories, namely, 'shares held by promoter and
promoter group'; 'shares held by public' and 'shares held by custodians and
against which depository receipts have been issued'.
 In accordance with the guidelines issued by SEBI, the issuers are required to
state on the cover page of the offer document whether they have opted for an
IPO (Initial Public Offering) grading from the rating agencies. In case the
issuers opt for a grading, they are required to disclose the grades including
the unaccepted grades in the prospectus.
 SEBI has facilitated a quick and cost-effective method of raising funds, termed
as 'Qualified Institutional Placement (QIP)' from the Indian securities market

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 by way of private placement of securities or convertible bonds with the
Qualified Institutional Buyers.
 In order to regulate pre-issue publicity by companies which are planning to
make an issue of securities, SEBI has amended the 'Disclosure and Investor
Protection Guidelines' to introduce 'Restrictions on Pre-issue Publicity'. The
restrictions, inter alia, require an issuer company to ensure that its publicity is
consistent with its past practices, does not contain projections/ estimates/ any
information extraneous to the offer document filed with SEBI.
 In order to strengthen the 'Know Your Client' norms and to have sound audit
trail of the transactions in the securities market, 'Permanent Account Number
(PAN)' has been made mandatory with effect from January 1, 2007 for
operating a beneficiary owner account and for trading in the cash segment.
 In order to implement the proposal on creation of a unified platform for trading
of corporate bonds, SEBI has stipulated that the BSE Limited would set up
and maintain the corporate bond reporting platform. The reporting shall be
made for all trades in listed debt securities issued by all institutions such as
banks, public sector undertakings, municipal corporations, corporate bodies
and companies.
 The application process of FII investment has been simplified and new
categories of investment (insurance and reinsurance companies, foreign
central banks, investment managers, international organizations) have been
included under FII.
 Initial issue expenses and dividend distribution procedure for mutual funds
have been rationalized.
 Mutual funds have been permitted to introduce Gold Exchange Traded Funds.
 In the Government securities market, the RBI has ceased to participate in
primary issues of Central Government securities, in line with the provisions of
Fiscal Responsibility and Budget Management Act (FRBM Act).
 Foreign institutional investors have been allowed to invest in security receipts.

Capital market reform enables the capital markets to embrace new ideas and
techniques affecting the capital market. Capital market liberalization is one such

P a g e 21 | 50
capital market reform that is adopted by various countries to strengthen their
economy.

A capital market is a place that handles the buying and selling of the securities. This
is the ideal place where both the governments and companies can raise their funds.
The capital markets of all the countries have undergone a number of reforms in the
history. Economic theories are made and implemented to reform the functionalities of
the capital market. The prime objective behind all the policies and reforms was
obviously to strengthen the capital market of a particular country as much as
possible.

It has been always a big question to the economists whether to allow or not to allow
the foreign investments in the country. Packaged with both advantages and
disadvantages, the liberalization of the capital markets has always been
controversial. In the 1980s and 1990s when the US Treasury and International
Monetary Fund (IMF) tried to push world-wide capital-market liberalization, there had
been enormous opposition. Economists were not in the support of free and
unfettered markets.

Now, when the capitalist countries, developing capitalist countries, underdeveloped

countries and a large number of socialist countries have nodded their support to the
capital market reform and capital market globalization, the global capital market has
evolved in a new identity. The concept of capital market is not restricted to the share
and bond trading in the developed capitalist countries only but is equally influenced
by the capital markets of developing and underdeveloped countries as well. Now the
economic or financial change in one country can affect the capital market of other
country in real time. Almost all the countries are now exposed to the inter-country
trades and inter-country investments. The use of internet and electronic media has
added some more feasibility to the practice. Exchange of information is fast and
accurate with internet. Another advantage of this system is that it brings the entire
world in a single place. The capital market is one of the industries that enjoy the
maximum facility of the internet service.

The Indian capital market has witnessed major reforms in the decade of 1990s and
thereafter. It is on the verge of the growth. Thus, the Government of India and SEBI
P a g e 22 | 50
has taken a number of measures in order to improve the working of the Indian stock
exchanges and to make it more progressive and vibrant.

Recent financial crises, whose effects have been particularly severe in developing
countries, have led to a wide-ranging debate on international financial reform. This
debate has had to confront the implications of the huge growth of international
capital movements, one of whose consequences has been the increased
"privatization" of external financing for developing countries. The paper begins with
surveys of major features of the post-war evolution of the system of governance of
the international financial system and of the principal trends in capital flows to
developing countries during the past three decades.

These set the stage for a selective review of appropriate policy responses to
international financial instability, with the main focus on proposals for remedying
structural and institutional weaknesses in the global financial architecture through
such means as greater transparency and improved disclosure, strengthened
financial regulation and supervision, more comprehensive and even-handed
multilateral policy surveillance, and bailing in the private sector by arrangements for
orderly debt workouts. In view of the continuing absence of effective measures at the
global level for dealing with financial instability, the paper puts special emphasis on
the maintenance by developing countries of national autonomy regarding policy
towards capital movement.

Reforms in Capital Market of India

The major reforms undertaken in capital market of India includes:

1. Establishment of SEBI: The Securities and Exchange Board of India (SEBI)

was established in 1988. It got a legal status in 1992. SEBI was primarily set
up to regulate the activities of the merchant banks, to control the operations of
mutual funds, to work as a promoter of the stock exchange activities and to
act as a regulatory authority of new issue activities of companies. The SEBI
was set up with the fundamental objective, "to protect the interest of investors
in securities market and for matters connected therewith or incidental thereto."

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 The main functions of SEBI are:
 To regulate the business of the stock market and other securities
market.
 To promote and regulate the self regulatory organizations.
 To prohibit fraudulent and unfair trade practices in securities market.
 To promote awareness among investors and training of
intermediaries about safety of market.
 To prohibit insider trading in securities market.
 To regulate huge acquisition of shares and takeover of companies.

2. Establishment of Creditors Rating Agencies: Three creditors rating

agencies viz. The Credit Rating Information Services of India Limited (CRISIL
- 1988), the Investment Information and Credit Rating Agency of India Limited
(ICRA - 1991) and Credit Analysis and Research Limited (CARE) were set up
in order to assess the financial health of different financial institutions and
agencies related to the stock market activities. It is a guide for the investors
also in evaluating the risk of their investments.

3. Increasing of Merchant Banking Activities: Many Indian and foreign

commercial banks have set up their merchant banking divisions in the last few
years. These divisions provide financial services such as underwriting
facilities, issue organising, consultancy services, etc. It has proved as a
helping hand to factors related to the capital market.

4. Candid Performance of Indian Economy: In the last few years, Indian

economy is growing at a good speed. It has attracted a huge inflow of Foreign
Institutional Investments (FII). The massive entry of FIIs in the Indian capital
market has given good appreciation for the Indian investors in recent times.
Similarly many new companies are emerging on the horizon of the Indian
capital market to raise capital for their expansions.

5. Rising Electronic Transactions: Due to technological development in the

last few years. The physical transaction with more paper work is reduced.

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 Now paperless transactions are increasing at a rapid rate. It saves money,
time and energy of investors. Thus it has made investing safer and hassle
free encouraging more people to join the capital market.

6. Growing Mutual Fund Industry: The growing of mutual funds in India has
certainly helped the capital market to grow. Public sector banks, foreign
banks, financial institutions and joint mutual funds between the Indian and
foreign firms have launched many new funds. A big diversification in terms of
schemes, maturity, etc. has taken place in mutual funds in India. It has given a
wide choice for the common investors to enter the capital market.

7. Growing Stock Exchanges: The numbers of various Stock Exchanges in

India are increasing. Initially the BSE was the main exchange, but now after
the setting up of the NSE and he OTCEI, stock exchanges have spread
across the country. Recently a new Inter-connected Stock Exchange of India
has joined the existing stock exchanges.

8. Investor's Protection: Under the purview of the SEBI the Central

Government of India has set up the Investors Education and Protection Fund
(IEPF) in 2001. It works in educating and guiding investors. It tries to protect
the interest of the small investors from frauds and malpractices in the capital
market.

9. Growth of Derivative Transactions: Since June 2000, the NSE has

introduced the derivatives trading in the equities. In November 2001 it also
introduced the future and options transactions. These innovative products
have given variety for the investment leading to the expansion of the capital
market.

10. Insurance Sector Reforms: Indian insurance sector has also witnessed
massive reforms in last few years. The Insurance Regulatory and
Development Authority (IRDA) was set up in 2000. It paved the entry of the
private insurance firms in India. As many insurance companies invest their
money in the capital market, it has expanded.
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 11. Commodity Trading: Along with the trading of ordinary securities, the trading
in commodities is also recently encouraged. The Multi Commodity Exchange
(MCX) is set up. The volume of such transactions is growing at a splendid
rate.

Factors responsible for the growth of capital market in India

There had been considerable growth in the capital market in India. the following are
the factors responsible for the growth of capital markets in India:

1. Growth of stock exchange in India: the origin of capital market in India

started from 1875 by the establishment of Bombay stock exchange (BSE).
formerly called as the native share and stockbroker’s association. at present
there are 24 stock exchange in India. BSE in the oldest stock exchange and
NSE is the largest stock exchange in India. NSE established in 1994 and in
terms of volume its thirds largest stock exchange in the world. the stock
market in India facilitates -
 listing of securities
 trading in securities

2. Growth of financial institutions: a no of FI are operating their business in

India such as UTI.LIC,GIC, EXIM bank, SIDBI, IFCI,IDBI etc. it contributed
imp role for development of capital market -

 provides medium to large term funds

 refinancing commercial banks
 equity participation of shares issued by public companies
 provides merchant banking facilities

3. Growth of mutual funds: mutual fund company collect the fund from savers
people and then invest in primary and secondary market in diversified pattern.

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 number of company are providing mutual fund service like UTI mutual fund,
icici mutual fund etc.

 the first mutual fund to be set up in India was the unit trust of India in
1964.

 in 1993 the government of India changed its policy to allow the entry of
private corporate firms and foreign institutional investor into the mutual
fund segment.

4. Growth of merchant banking services in India: they provides no of services to

corporate sector
 advice to project finance
 merger and acquisition
 loan syndication
 financial restructuring
 advise regarding the capital issue
 portfolio management

5. Development of venture capital funds: Venture Capital mean financial

investment in a highly risky project made in the hope of earning a high rate of
return. the economic liberalization in India post 1991 appears to have a boost
to the venture capital movement in India. which in turn to provide medium and
long term funds to those firm from the primary market and by way of loans
from financial institutions and banks.

6. Development of credit rating agency: the development of credit rating

agencies gave a boost to capital market in India. CRISIL the first credit rating
agency in India was set up in 1987. at present there are others credit rating
agency such as CARE and ICRA. Credit rating agency provides rating to
credit instrument issued to corporate firms. Investor rely on credit rating and
invest in the companies and thus firm can obtain medium and long term funds

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7. Setting up SEBI: SEBI perform the important functions like
 regulates the working of mutual fund
 regulated the working of stockbroker and sun broker.
 regulate the merchant banking services.
 protection of investor interest etc.

8. National securities clearing corporations: it was set up in 1996 to

guarantee all trades on national stock exchange. NSCC interpose between
the parties to the trade at the NSE. example. when A and B make a trade then
NSCC interpose between them. in other words if A was supposed to buy from
B then NCC buys from B and then still to A. if either A or B default the NSCC
still meet the obligation for the other round of the trade. thus every trad takes
place in freed from the risk of counter party defaulting. this in turn avoids
payment crisis on the NSE.

9. Corporate governance: In 1999 SEBI had set up a committee under the

chairmanship of Mr K.M. Birla to draft the code on corporate governance. the
Birla committee drafted a code on corporate governance which calls for
proper governance on the part of board of director and good management on
the part of management of listed companies. the purpose of corporate
governance is to protect of the stockholders with special reference to
shareholders and other investors.

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Capital Market Regulators – Role of Indian Market Regulators

Often in the haste of becoming a market participant, trader, or investor, we forget to

know the roots governing the Stock Market. This means that we overlook the rules,
regulations that guide the flow of Indian capital market regulators.

This becomes important for us to know because they have a major impact on our
financial decisions. At times, any change in the rules or regulations of the Act,
governing the Indian Capital Market tends to bring substantial change in market
psychology or sentiments. This eventually affects our financial decisions.

The Ministry of Finance (MoF), the Securities & Exchange Board of India (SEBI), and
the Reserve Bank of India (RBI) are the three regulatory authorities governing Indian
capital market regulators.

Ministry of Finance (MoF)

The Department of Economic affairs directly manages the Capital Markets segment
under the directions of MoF. This segment formulates the rules for the efficient
growth of the Stock Market which includes derivatives, debt, and equity. It also
formulates regulations for safeguarding the interest of the investors.

This segment regulates the Indian Capital Market regulators through the following
laws:

 Depositories Act, 1996

 Securities Contract (Regulation) Act, 1956
 Securities and Exchange Board of India Act, 1992

Reserve Bank of India (RBI)

The Reserve Bank of India Act, 1934 governs policies framed by the Reserve Bank
of India. The functions of RBI in this regard are as follows:

 Implementation of Monetary and Credit policies

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  Issuance of Currency Notes
 Government’s Banker
 Banking System Regulator
 Foreign Exchange through Foreign Exchange Management Act, 1999
 Managing payment & settlement system

Securities & Exchange Board of India (SEBI)

The Securities & Exchange Board of India (SEBI)  Act, 1992 regulates the functioning
of SEBI. SEBI is the apex body governing the Indian stock exchanges.

The primary functions of SEBI are as follows:

Protective Functions

I. It checks Price rigging

II. Prohibits insider trading
III. prohibits fraudulent and Unfair Trade Practices

Development Functions

I. SEBI promotes the training of intermediaries of the securities market.

II. SEBI tries to promote activities of stock exchange by adopting a
flexible and adaptable approach.

Regulatory Functions

I. SEBI has framed rules and regulations and a code of conduct to

regulate the intermediaries such as merchant bankers, brokers,
underwriters, etc.
II. These intermediaries have been brought under the regulatory purview
and private placement has been made more restrictive.
III. SEBI registers and regulates the working of stockbrokers, sub-brokers,
share transfer agents, trustees, merchant bankers, and all those who
are associated with the stock exchange in any manner
IV. SEBI registers and regulates the working of mutual funds etc.

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 V. SEBI regulates takeover of the companies.
VI. SEBI conducts inquiries and audits of stock exchanges.

The participation in the Indian Stock Market of both the domestic or foreign financial
intermediaries is governed by the regulations framed by SEBI. Additionally, Foreign
Portfolio Investors (FPIs) can participate in the Indian Stock Market after registering
them with an authorized Depository Participant.

National Stock Exchange of India (NSE)

NSE is responsible for formulating and implementing the rules pertaining to:

 Registration of Members
 Listing of Securities
 Monitoring of Transactions
 Compliance
 Other additional functions related to the above functions.
 NSE itself is regulated by SEBI and is under regular vigilance for all regulatory
compliances.

Stock Exchange

In simple terms, a Stock Market is a platform where people buy and sell stocks,
prices of which are set according to the prevalent demand and supply situation. It is
very similar to a marketplace where traders buy and sell goods, quoting prices on the
basis of the demand for the good and the availability or supply of it.

The term trade, in the context of the bourses, means the transfer of money from the
seller to the buyer in exchange for a security/ share. The price at which the seller
sells or the buyer buys is listed on the stock exchange. You can easily trade through
a trading member registered on a Stock Exchange.

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Need for Capital Market

Capital market plays an extremely important role in promoting and sustaining the
growth of an economy. 

 It is an important and efficient conduit to channel and mobilize funds to

enterprises, both private and government
 It provides an effective source of investment in the economy.
 It plays a critical role in mobilizing savings for investment in productive
assets, with a view to enhancing a country's long-term growth prospects,
and thus acts as a major catalyst in transforming the economy into a
more efficient, innovative and competitive marketplace within the global
arena.
 In addition to resource allocation, capital markets also provide a medium
for risk management by allowing the diversification of risk in the economy.
 A well-functioning capital market tends to improve information quality as it
plays a major role in encouraging the adoption of stronger corporate
governance principles, thus supporting a trading environment, which is
founded on integrity.
 Capital market has played a crucial role in supporting periods of
technological progress and economic development throughout history.
 Among other things, liquid markets make it possible to obtain financing for
capital-intensive projects with long gestation periods. This certainly held
true during the industrial revolution in the 18th century and continues to
apply even as we move towards the so-called "New Economy".
 Capital markets make it possible for companies to give shares to their
employees via ESOPs
 Capital markets provide a currency for acquisitions via share swaps
 Capital markets provide an excellent route for disinvestments to take
place
 Venture Capital and Private Equity funds investing in unlisted companies
get an exit option when the company gets listed on the capital markets

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The existence of deep and broad capital market is absolutely crucial in spurring the
growth our country. An essential imperative for India has been to develop its capital
market to provide alternative sources of funding for companies and in doing so,
achieve more effective mobilisation of investors' savings. Capital market also
provides a valuable source of external finance.

For a long time, the Indian market was considered too small to warrant much
attention. However, this view has changed rapidly as vast amounts of both
international and domestic investment have poured into our markets over the last
decade. The Indian market is no longer viewed as a static universe but as a
constantly evolving one providing attractive opportunities to the investing community.

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Capital Market Instruments

Capital market instruments ensure a seamless flow of funds in an economy. They

transfer surplus funds from investors to those in need of capital for expansion and
therefore help in the balanced growth of the economy by promoting investments and
savings.

The capital market has two parts—primary and secondary markets. Companies
issue securities for the first time through the Initial Public Offering (IPO) on primary
markets. While the trade of already issued securities happens on the secondary
market. The buy and sell of capital market instruments are done in exchange for
monetary value.

There are several instruments traded in the capital market. The common ones are as
follows:

Stocks (Equities)- Stock is a capital market instrument issued by companies to

raise capital. It is also known as equity share. Investment in company stocks gives
you ownership and voting rights in the company. The partial ownership in the
company extends until you sell the shares in the secondary market or the company
liquidates. Also, you become a partner in the company’s profits and losses, and the
returns are offered as dividends. The increase in the share value depends on the
organisation’s performance which impacts the investor’s return. Considered a high-
risk instrument, equity generates higher returns than other instruments in the capital
market in the past.

Preference shares- Preference shares are the shares that get preference in case of
dividend payment or liquidation payouts. It means the company has to pay dividends
or payouts to preference shareholders before equity shareholders. However,
preference shareholders do not enjoy voting rights in the company. Preference
shares are typically not traded in the secondary market like equity shares. The types
of preference shares include:
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  Redeemable: The issuing organisation can redeem the preference shares by
choosing buyback at a later stage.
 Irredeemable: A company can redeem the irredeemable shares only when it
liquidates.
 Convertible: An investor can convert these preference shares into equity after
a specific time.

According to the Companies Act, 2013, Indian companies cannot issue irredeemable
preference shares. Instead, they can issue redeemable shares that must be
redeemed within 20 years of their issue.

Debt - Governments and companies issue debt instruments to finance capital-

intensive projects. Issued on primary or secondary markets, debt is a form of
borrowing with no ownership rights in the organisation. The debt instruments usually
have limited tenure, after which the issuing entity has to return the principal amount.
The interest payments are made annually, semi-annually, quarterly or monthly. Debt
instruments include municipal, government and corporate bonds/debentures. The
investments in debt are considered less-risky than equity. However, the default risk
may be higher if the financial health of the issuing company is not good. So, you
must invest in debt instruments after analysing the financial status of the issuing
organisation.

Mutual Funds- A fund created by contribution from a number of investors is known

as a Mutual Fund. The money is then invested in securities like equities, bonds,
money market instruments, and other securities available in the market. It offers
investors an opportunity to invest in diversified and professionally managed
securities at a relatively low cost. You can choose to get these funds managed by
expert and professional portfolio managers who will do meticulous research before
investing your money.

Derivatives- Derivatives are capital market instruments that derive their value from
an underlying asset. The underlying assets can be bonds, stocks, metals,
commodities, currency, etc. The trade of these instruments is based more on
speculation, however these can also be used for hedging and arbitrage purpose as
well. Thus, considered more volatile and riskier than equity, derivatives are suitable
P a g e 35 | 50
for experienced investors in the financial market. Derivatives are traded on the
secondary market, and the common ones in India are:

 Future contracts
 Options contract
 Exchange-traded funds (ETFs)

ETFs are capital market instruments where many investors pool their resources to
invest in bonds, equity or gold. Having features of both shares and mutual funds,
most ETFs are registered with the Securities and Exchange Board of India (SEBI).
Like mutual funds, ETFs are beneficial for investors looking to invest in an index, a
basket of stocks or a commodity.

Foreign exchange instruments - The foreign exchange instruments are traded on

the foreign market. They consist of derivatives and currency agreements. The
currency agreements are further categorised into:

 Currency futures
 Currency swaps
 Currency options

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How to Invest in the Capital Market?

Investing in the share market can be tricky especially as a beginner. If you want to
invest in stocks, you should keep in mind that there are two types of share markets:
primary and secondary share markets.

Investing in the Primary Share Market.

Investments in the primary share market are through an Initial Public Offering (IPO).
After a company receives all the applications made for an IPO by investors, the
applications are counted and shares are allotted based on demand and availability.
To invest in both primary and secondary markets, you need to have a Demat account
that will hold electronic copies of your shares. Additionally, a trading account is also
important which will help in buying and selling shares online.

In rare cases, it is also possible for a trader to apply directly from their bank account.
IPO application through net banking is made easy via a process that is known as
Application Supported by Blocked Amount (ASBA).

As per the ASBA process, if one applies for shares that are worth ₹1 lakh, instead of
being sent to the company, these funds will be blocked into their bank account. Once
you receive your allotment of shares, the exact amount will then be debited with the
balance being released. All applications that are sent to IPOs are required to follow
this protocol. Once shares are allotted to traders, they are listed on the stock
exchange, and you can begin trading them within one week.

Investing in the Secondary Share Market

Secondary share market investing or trading refers to the regular purchase and sale
of shares or stocks. There are a few simple steps to follow before you start investing
in the secondary share market.
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Step 1: Open a Demat and trading account.

This is the starting point to invest in the secondary market. Both of these accounts
should be linked to a pre-existing bank account for a seamless transaction.

Step 2: Selection of shares.

Log into your trading account and choose the shares that you wish to sell or buy.
Ensure that you have the requisite amount of funds in your account to purchase
those shares.

Step 3: Select the price point

Decide the price at which you want to buy or sell a share. Wait for the buyer or seller
to reciprocate that request.

Step 4: Complete the transaction

Once the transaction is complete, you receive either shares or money for the stocks
that you have respectively purchased or sold.

Ensure that you are mindful of the duration for which you remain invested and the
financial goals you wish to achieve through your investments.

Documents required for opening a Demat/Trading Account

To begin investing in the share market, you need to have the following documents:

 PAN Card
 Aadhaar Card
 Name on a cancelled cheque from their active bank account showing IFSC
Code, account number, Account holder’s name, and signature.
 Documents detailing that the applicant earns a steady income.
 A proof of address that is based on a list of documents that have been
accepted by your broker, depository participant, or bank
 Passport-sized photographs of the applicant.

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Things to keep in mind before investing

Although stock trading isn’t as difficult as it seems, it is possible to be swept away by

the world of trading without being rewarded by it in the long term. To prevent this
outcome, keep the following points in mind before investing:

 Diversify your portfolio.

A diverse portfolio is a healthy portfolio. If a particular asset class dominates your

portfolio, it will not offer a steady stream of funds your way when that instrument is
going through a low patch. To offset the low periods of one asset class, financial
advisors recommend adding alternative asset classes. For instance, equity is often
offset with investments in bonds or other debt instruments. This balance in a portfolio
can secure one against a period of market crisis.

 Understand your investor profile

Your investor profile can reveal the kind of instruments that are best suited to your
risk appetite. This allows you to ensure that you are taking on the amount of risk that
is best suited to your lifestyle.

 Create an investment plan

You can avoid potential pitfalls down the line if you have an investment plan that
states the amount of revenue you wish to earn from your investments and the time
horizon you potentially need to remain invested to earn that amount.

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Online Stock Trading

More and more people are getting into online stock trading nowadays. With the
transaction process being nearly as simple as online shopping, anyone can start
trading in minutes. If you are a newbie though, learn the basics of stock trading
before entering the online stock market.

Stock market investment can be rewarding. But it can be costly too, especially if you
are a beginner. Investing in stocks requires strategy, knowledge, and patience.
Mastering these skills ensures a smooth journey to long-term wealth creation.

HOW TO START STOCK TRADING ONLINE

You can start stock trading easily with the help of your internet-connected
smartphone or computer via an online trading platform. Other than that, here’s what
you will need—a savings account, a demat account, and a trading account. You will
also need to find a broker. A broker is an intermediary who facilitates a link between
the trader and the stock exchange.

INSTRUMENTS YOU CAN TRADE

Indian stock exchanges allow you to invest in various kinds of trading instruments.
These range from equities and initial public offerings (IPOs) to derivatives and many
other asset classes. Different stock exchanges let you trade different financial
instruments.

For example, let’s consider the two major stock exchanges of the country—the
National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Both the
NSE and the BSE deal in not only stocks but also securities like bonds, debentures,
commodities, currencies, and more.

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HOW TO INVEST IN STOCKS BETTER

You can become a stock investor by following a few key principles. These include
strategies derived from expert investors and knowledge gained from extensive
research. The secret to becoming successful in trading lies in understanding when to
apply what strategy. But before you begin stock trading:

DECIDE YOUR GOALS

Before investing, you must determine the purpose and duration of your investment.
Try figuring out your answers to a few critical questions:

 By when will you need your cash back—in six months, a year, five years, or
longer?
 What are you saving for—retirement, your child’s education, purchase of a
home, or home renovation?
 Does the online stock market fit your investment needs?

If your investment horizon is short—say, just a few years—consider a fixed-income

investment. This can be a safeguard against stock market volatility in the short term,
for there is no guarantee that all of your capital will be available in case you need it.

Your goal and time horizon will decide how much capital you will need and what kind
of return would be best. In this case, you could use an online financial calculator to
estimate how much capital you are likely to need in future.

To put it simply, the growth of your portfolio depends on three factors:

 The amount you have invested

 The return on your capital
 The period of your investment

Ideally, it’s important to hold stocks for a long duration. This allows companies time
to grow and increase the potential for stocks to provide positive returns through
capital appreciation. The rule of thumb is to start saving as soon as possible and

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invest for the long term. This can help improve returns and keep your risk appetite
healthy.

UNDERSTAND YOUR RISK APPETITE

A person’s risk capacity can be influenced by his education, income, and wealth. As
these increase, risk tolerance generally increases. However, as one gets older, one’s
risk tolerance tends to decrease.

Simply put, your risk tolerance is how you feel about the risk involved when you bet
your money. Each person has a different risk appetite. For instance, you might be
someone who would risk Rs 500 to win Rs 5,000. Or you may bet Rs 5,000 to win
Rs 5,000. Your risk tolerance can be a factor in choosing the stock trade that you
make.

The idea of perception is particularly important in investing. The risk-taking capacity

of a person can change according to their perception of the risk. As you gain
knowledge about how stocks are bought and sold, and about the volatility of the
market, it becomes easier for you to make better-informed decisions.

Stress and anxiety could be a deal-breaker here. Assessing your risk tolerance can
help you figure out the right trade for you. Any asset that triggers emotional
responses as opposed to logical responses is probably a bad choice for you.

BUILD A TRADING STRATEGY

Trading strategies differ for both traders and investors. For traders, the challenge is
to seek profits from market movements. In contrast, for investors, the objective is to
earn profits from the long-term price movements of the assets held. While a trader
may perform tens and hundreds of trades in a week, an investor focuses on buying
and holding an asset for anywhere from a few months to several years.

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If you are an investor, learn to understand the fundamentals of the companies. You
can check our University section on Fundamental Analysis for this. Alternatively, if
you want to start stock trading, you can learn Technical Analysis first.

CONTROL YOUR EMOTIONS

Having control over your emotions is the key to profitable stock trading. In the short
term, the stock price of a company reflects the emotions of the entire investment
community. When investors become worried about the company, its stock price sees
a decrease. Similarly, when investors feel positive, the stock price increases.

During a trading day, the prices of securities move up and down. These short-term
price movements are the results of rumours, hopes, and speculations. To read them
correctly, you would need to carry out technical analysis of the company’s assets and
management.

While investing in stocks, you would also need to determine a few things to make
your trading strategy work. For example, when you buy a new stock, estimate the
highest and the lowest price of the stock. Then, specify the price at which you will
liquidate your holdings. This technique is known as a stop-loss order. It represents
an exit strategy that can safeguard your portfolio against loss.

LEARN THE BASICS

For a new investor, it is important to gain knowledge about the fundamentals of the
stock market. As the stock market follows the laws of supply and demand, keep an
eye on financial news, websites, and newspapers. It will help you to become an
efficient investor.

Here are a few things you need to do to get better at trading:

 Familiarise yourself with terms related to the stock market. This includes
understanding terms such as ‘price-to-earnings ratio’, ‘earnings per share’,
‘return on equity’, and ‘compound annual growth rate’. Here is a helpful list
you can refer to.

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  Research and discover effective stock-picking methods. Learn about
fundamental and technical analysis, know how they are conducted, and see
which aligns best with your strategy.
 Understand the various types of stock market orders—limit order, stop market
order, stop-limit order, trailing stop-loss order, etc.
 Try to diversify across stocks. This can help you across different market
conditions. Sometimes when some stocks fall, some companies’ stock prices
go up. This can help safeguard your portfolio.

RESEARCH AND SELECT YOUR STOCKS

As soon as your trading account is opened, you can begin investing. Next, pick your
stocks and decide how much you want to invest.

Traders usually pick a stock after conducting a thorough analysis of a company.

They look at public information such as earnings reports, annual reports, and other
research reports from professional analysts. Nowadays most brokers provide this
information to their investors.

At first, pick one or two stocks and invest a certain amount of money that you can
afford to lose. If everything goes as expected, you can invest the gains back into the
stocks, or maybe into some other companies. However, do not invest more funds
unless you are sure of your assumptions. Try doing some research on other
companies in the meanwhile.

SELECT AN ONLINE BROKER

To conduct stock trading, you need to open an account with an online stock market
trading partner. They would provide you with tools and support to carry out stock
trading. If you already know how to select a broker, you can go ahead and compare
the options. Ideally, beginners should compare the options based on customer
support, educational resources, as well as commissions and maintenance charges.
Once you start trading more often and get some practice under your belt, you could
switch to an affordable broker.

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Additionally, do consider the trading software offered by the broker. For new traders,
a streamlined, easy-to-navigate platform would be a lot easier to use than one that is
designed exclusively for professionals.

BE CAREFUL WITH LEVERAGE

Traders can borrow money and execute stock trading using leverage. In such cases,
you only have to pay a small percentage of the trade value. This is called margin
trading. For instance, if someone wants to buy 100 shares valued at Rs 100 for a
total cost of Rs 10,000, you can place the order with say 10% or Rs 1,000. Many
traders use this option to improve the returns they earn. However, this can also
mean a higher-than-normal loss if the stock price does not move in the way you
want.

Leverage is a tool popular among stock traders. The best time to use it would be
after you gain experience and have confidence in your decisions. Reconsider your
risk when starting out. You can slowly increase the risk you take with time. This can
keep you safe in the long run.

DIVERSIFY YOUR INVESTMENTS

Experienced investors like Warren Buffett have stressed that stock diversification is
essential to identify and lower ‘concentration’ risk. This is the simplest way to insure
your portfolio from any potential loss.

Spreading your assets across various categories is known as diversification. To

manage the risk of your portfolio efficiently, you can own stocks of different
companies in different industries and consider other investment options. This way,
you can safeguard your holdings during different market conditions.

THE BOTTOM-LINE

You don’t need a lot of money to do online stock trading; knowledge is what counts
the most. Your online stock market journey will become much easier once you know
the fundamentals. Also, it may help to open an account with a reliable broker like

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Kotak Securities that offers a smooth investment experience and has a dedicated
knowledge bank.

The best way to create wealth is by starting to save early. Then invest money in a
diversified portfolio that matches your risk profile. If you are willing to trade in stocks,
just ensure that you do the homework.

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Difference between Stock Market and Share Market

Generally, people enter the financial market to enjoy a bit more income. Thus, they
lack knowledge of the money market terms. It is difficult for a newbie to understand
terms such as ‘share’, ‘stock’, and ‘equity’. But not having a clear understanding can
be a problem.

An investor should be familiar with these terms well before they start investing. Being
aware of their meanings helps you invest wisely. In this article, we will talk about
stock market vs share market and see what their differences are. A new investor may
not always know the difference between stock market and share market. As a result,
their vision gets blurry. Let’s break the terms into parts and see their meanings first.

Meaning of share market

The term ‘share’ is associated with investment options like mutual funds and limited
partnership. But both markets are based on the same thing—trading.

Shares are units of the total valuation of a company. For instance, if you invest in a
company, you will receive a certain number of shares, depending on the money you
invest.

The share market is a market where a company offers its shares to raise funds and
continue the growth of its business. It is a place where an investor can buy part
ownership in any company.

It is a platform to buy and sell shares. In general, shares refer to stock ownership of
a particular company.

When you buy the shares of a company, you become a ‘shareholder’ of that
company. For example, when someone claims to own shares in a company, it means
they have invested in a specific firm and is a shareholder of such a firm.

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An investor also enjoys a part of profits earned by the company through dividends. If
the business does not perform well, the investor also needs to bear the loss.

Meaning of stock market

The stock market, also known as the stock exchange, is a place where stocks,
equities, and other securities and bonds are actively traded.

The term ‘stock’ is used to mean the ownership certificate of any company.

A stock market provides the infrastructure to trade in a secure and controlled

manner. The stock market brings the stock seller and buyer together.

The Securities and Exchange Board of India (SEBI) regulates the stock exchanges
in India. Hence, fair pricing and transparency of transactions are assured.

A stock cannot be bought or sold if it is not listed with a stock exchange. In the stock
market, stockbrokers trade companies’ stocks, securities, and bonds.

India’s two principal stock exchanges are the Bombay Stock Exchange (BSE) and
the National Stock Exchange (NSE). The market tracks demand and supply of
stocks and sets its price accordingly.

Difference between stock market and share market.

Even though these terms are used interchangeably, they differ in their modes of
operation. A share market or a stock market is essentially a market where various
kinds of bonds and securities are traded. The price of a company’s stock depends on
the demand and the supply of that stock. A company can issue shares directly, but it
cannot issue stocks in such a manner. When a number of shares are put together, it
is called stocks. Also, keep in mind that shares can have a small value, while stocks
will always have a significant amount of value. These are the major differences
between stock market and share market.

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Now that you know the how the stock market is similar to and different from the
share market, trading is even easier. Click here to open a demat account and start
trading today.

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