What Is Stock Market?

 From previous articles on investment planning and where to invest, we conclude that Equities as an asset has the potential to generate high returns, hence it is prudent to include equities in the investment portfolio. Having said that, how do we go about investing in equities?

Before we dwell further into this topic, it is extremely important to understand the ecosystem in which equities function.

Just like the way we go to the neighborhood supermarket to shop for our daily needs, we go to the stock market to shop for equity investments. Transact in simple terms means buying and selling. The main purpose of the stock market is to help you facilitate equity transactions. So if you are a buyer of a share, the stock market helps you meet the seller and vice versa.

Now unlike a supermarket, the stock market does not exist in a physical form. It exists in electronic form. You access the market electronically from your computer and carry out your transactions.

There are two main stock exchanges in India - the Bombay Stock Exchange (BSE) and The National Stock Exchange (NSE).

Who are Market Participants?

Anyone who transacts in the stock market is called a ‘Market Participant’. Market Participants can be individuals or corporates or corporates. They can be classified into various categories such as -

•  Domestic Retail Participants - These are people like you and me transacting in markets

• NRI’s and OCI - These are people of Indian origin but based outside India

• Domestic Institutions - These are large corporate entities based in India. LIC of India is the classic example.

• Asset Management Companies(AMC) - These are mutual fund companies such as SBI Mutual Fund, DSP, HDFC AMC, etc.

• Foreign Institutional Investors - Non-Indian corporate entities. These could be foreign asset management companies, hedge funds, and other investors

Now, irrespective of the category of market participant the agenda for everyone is the same - to make profitable transactions.

Why Market Need Regulate?

Where money is involved, human emotions in the form of greed and fear run high. One can easily fall prey to these emotions and get involved in unfair practices. India has its fair share of such twisted practices, thanks to Harshad Mehta and the like.

Given this, the stock markets need someone who can set the rules of the game and force market participants to stick to these rules, thus making the stock markets level playing field for everyone involved? These rules are set by the regulators of the industry and the rules are called the ‘Regulation’.

SEBI

In India the stock market regulator is called The Securities and exchange board of India often referred to as SEBI. The objective of SEBI is to promote the development of stock exchanges, Protect the interest of retail investors, and regulate the activities of market participants and financial intermediaries. In general, SEBI ensures…

• The stock exchanges conduct its business fairly

• Stockbrokers and sub-brokers conduct their business fairly

• Participants don’t get involved in unfair practices

• Corporate’s don’t use the markets to unduly benefit themselves

• Large investors with huge cash should not manipulate the markets

• The overall development of markets

Given the above objectives, it becomes imperative for SEBI to enforce regulation across all the entities involved in the markets. We will cover how the stock market works in the Next article.