Through centuries, India has, and continues to be a hotbed of entrepreneurial spirit, with many economically viable ideas experiencing tremendous business success across diversified fields, supporting the trade and industrial activity of India. These businesses need to grow continuously and to fuel that growth, the initial investors of that company need money, also referred to as capital. Normally, capital can be raised as either debt or equity or a mix of both. Markets which support the raising of such forms of capital are called Capital Markets.
Debt as a capital is raised from banks or financial institutions, either as loan or line of credit, at a mutually agreed interest rate, payable over a period of time. The debt is raised either as short term capital or long term capital to support either the working capital requirements or to expand the business through organic/inorganic growth. Irrespective of the business growth, the company has a committed responsibility to repay the principal along with interest.
Equity as a capital is raised by offering portions of the company, in the form of shares to other interested buyers of that business. While the initial investors (also called promoters) offer these shares to other investors highlighting the future prospects of the company, there is no obligation for the promoters to return the capital to the new buyers, incase the business doesn’t perform well. Returns are expected in the form of increase in the share price (capital gains) and dividends, if any, declared by the company.
Stock market is the term used for the buying and selling of the shares of many such companies and the platform that provides these transactional processes is called the Stock Exchange. In India, there are two main stock exchanges: The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), both based out of Mumbai.
BSE, the oldest stock exchange in India as well as in Asia, was established in the late 1800’s but formalized in 1875 (source), to become the largest stock exchange with more than 7000 listed companies. With a current speed of 6 micro seconds (2017), BSE provides an efficient and transparent market for trading in equity, currencies, debt instruments, derivatives, mutual funds. It also has a platform for trading in equities of small-and-medium enterprises (SME). BSE's popular equity index - the S&P BSE SENSEX - is India's most widely tracked stock market benchmark index.
In comparison, NSE (source) is a newly established stock exchange with over 2000 listed companies, and the fourth largest in the world by equity trading volume in 2015, according to World Federation of Exchanges (WFE). It began operations in 1994 and is ranked as the largest stock exchange in India in terms of total and average daily turnover for equity shares every year since 1995.
As is the case with banks and RBI in India, the stock markets do need a regulator to protect the interests of investors and to promote & regulate the development of the securities market. Hence, the Securities and Exchange Board of India (SEBI) was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992 (source). One of the main roles of the SEBI is to continuously monitor the business in the stock exchanges, to prohibit fraudulent and unfair trade practices relating to securities markets.
Till now, we have understood the role of stocks, investors, stock exchanges. But, we need to put the final participant in place – The Stock Broker – who is a member of the stock exchange, and helps complete the transactions between the buyer and seller. A listed dealer/broker has a fiduciary duty to protect the interests of his clients and therefore, cannot engage in transactions or offer financial advice, that provides financial benefits to him. Hence, he provides his services for a fee, which is called the Brokerage.
All of the market participants – companies, brokers and investors - have to be registered with the stock exchange and SEBI to conduct transactions.
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