UNIT 1

Introduction to Stock Market

Stock Exchange in India

A stock exchange serves as a platform that helps companies raise
capital by issuing stocks to retain /institutional investors. Stock that is
issued keeps trading handset the exchange even after the companies
listed the price of the is determined by the demand, supply and market
demographics at a particular time , and keeps changing by the minute.

Functions of Stock Market

1. Providing liquidity and marketability to existing securities:

Stock exchange is a market place where previously issued
securities are traded various types of securities are traded here
on regular basis.
Whenever required, an investor can invest the money through
this market into securities and can reconvert these investments
into cash. Availability of ready market for sale and purchase of
securities increase their marketability and enhance liquidity.
2. Pricing of securities: A stock exchange provides platform to
deal in securities. The forces of demand and supply work freely
in the stock exchange. In this way, prices of securities are
determined.
3. Safety of Transactions: Stock exchanges are organized
markets. They fully protect the interest of investor. Each stock
exchange as is own laws and bye-laws. Each member of stock
exchange as to follow them if any member found violating
them, his membership is cancelled. For instance ,if any broker
working in stock exchange charges more commission than from
any investor or misleads him in any other way, then the
management committee of the stock exchange can fine the
broker and even his membership can be cancelled.
4. Contributes to economic growth: A stock exchange provides
liquidity to securities. This gives the investor double benefit -
first, the benefit of the change in the market price of securities
can be taken advantage of, and secondly, in case of need for
money they can be sold at the existing market price anytime.
This advantages provides by the share market encourage the
people to invest their money their securities. In this way
people’s money gets invested in industries and economic
development becomes possible.
5. Spreading equity culture: share market collects every type of
information [more particularly about their economic condition]
in respect of the listed companies. Generally, this information is
published or incase of need anybody can get it from the stock
exchange free of any cost .In this way, the stock exchange
guides the investor by providing various types of information.
Consequently, the number of share holders in companies is
increase continuously. Thus the stock exchange is playing a vital
role in ensuring wider share ownership.
6. Providing scope for speculation: When securities are
purchased with a view to getting profit as a result of change in
their market price ,it is called speculation .It is allowed are
permitted under the provision of the relevant Act. It is accepted
that in order to provide liquidity to securities, some scope foe
speculation must be allowed. The share market provides this
facilities
7. Continuous market for securities: stock exchange provides a
ready market for securities. The securities once listed continue
to be traded at the exchange irrespective of the fact that owners
go on changing. The exchanges provide a regular market for
trading in securities.
8. Mobilizing surplus trading: The stock exchanges provide a
ready market for ready market for various securities. The
investors do not have any difficulty in investing the saving by
 purchasing share ,bonds etc from the exchanges .If this facilities
is not their then many persons who want to invest the savings
will not find avenues to do so .
In this way stock exchanges play an important role in mopping
up surplus funds of investor.
9. Listing of securities: Only listed securities can be purchased
at stock exchanges. Every company desirous of listing its
securities will apply to the exchange authority. The listing is
allowed only after a critical examination of capital structure ,
management and prospects of the company .8The listing of
securities gives privilege to the company The investor can form
their own views about the securities because listing a securities
doesn’t guarantee the financial stability if the company
10. Clearing house of the business information : The
companies listing securities with exchanges have to provide
financial statements, annual reports and other reports to ensure
maximum publicity of corporation’s and working .The
economic and other information provided at stock exchanges
help companies to decide their policies .

MAIN FEATURES OF STOCK EXCHANGE ARE AS

FOLOWS:
[1]. Organized Market: Stock exchange is an organized market.
Every stock exchange has a management committee, which has all the
rights related to management and control of exchange. All the
transactions taking place in the stock exchange are done as per the
prescribed procedure under the guidance of the management
committee
[2]. Dealing in securities issued by various concern: Only those
securities are traded in the stock exchange which is listed there. After
fulfilling certain terms and conditions, securities gets listed on the
stock exchanges
[3]. dealing only through authorized members: investors can sell
and purchase securities in stock exchange only through the authorized
members. Stock exchange is a specified market place where only the
authorized members can go. Investor has to take their help to sell and
purchase.
[4]. Necessary to obey the Rules and By-laws: While transacting in
stock exchange. It is necessary to obey the rules and bye-laws
determined by the stock exchange.
 NATIONAL STOCK EXCHANGE (NSE)

• NSE is a step to overcome the deficiencies of the existing stock

market and to bring Indian financial markets in line with
international markets.
• NSE was incorporated in November 1992 with an equity capital
of 25cr and promoted by IDBI, ICICI, LIC, GIC and its
subsidiaries.
BOMBAY STOCK EXCHANGE (BSE)

• The Bombay Stock Exchange (BSE) is the first and

largest securities market in India and was established in 1875 as
the Native Share and Stockbrokers' Association. Based in
Mumbai, India, the BSE lists close to 6,000 companies and is
one of the largest exchanges in the world, along with the New
York Stock Exchange (NYSE), Nasdaq, London Stock
Exchange Group, Japan Exchange Group, and Shanghai Stock
Exchange.
• The BSE has helped develop India's capital markets, including
the retail debt market, and has helped grow the Indian corporate
sector. The BSE is Asia's first stock exchange and includes an
equities trading platform for small-and-medium enterprises
(SME). BSE has diversified into providing other capital market
services including clearing, settlement, and risk management.
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Stock Indices
• Sensex and Nifty are the two most important stock market
Indices in India. They are the benchmark indices meaning, the
important ones, and a standard point of reference for the entire
stock market of India.
Constituents Of indices
• A constituent is a company whose shares are the part of the
index and are used to calculate the index value. The weight that
 each constituent has on the overall index is based on market
capitalization. Index weight represents the share percentage of
constituents in the index. Contribution change measures the
contribution of each constituent towards the movements in the
index value.
• Show in charts all stocks falling under nifty and sensex