essay on stock market in india

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The BSE and NSE

Trading and settlement, market indexes, market regulation.

Investing in India's Markets

The Bottom Line

International Markets

Indian Stock Market: Exchanges and Indexes

With its massive population and bustling economy, India is an engine of growth. On Jan. 22, 2024, its stock market capitalization surpassed Hong Kong’s for the first time. According to data compiled by Bloomberg, the value of shares listed on Indian exchanges reached $4.33 trillion, compared to $4.29 trillion for Hong Kong.

Key Takeaways

India has two primary stock markets, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The BSE is India's oldest stock exchange.
India's exchanges are regulated by the Securities Exchange Board of India (SEBI).
The two prominent Indian market indexes are Sensex and Nifty.

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE was established in 1875. The NSE was founded in 1992 and started trading in 1994. Both exchanges follow the same trading mechanism, trading hours, and settlement process.

As of Jan. 30, 2024, the BSE had 5,315 listed firms, whereas the rival NSE had 2,266 as of Dec. 31, 2023. Almost all the significant firms of India are listed on both exchanges. The BSE is the older stock market, and the NSE is the largest in volume.

Trading on both exchanges is through an open electronic limit order book where order matching is done by the trading computer. There are no market makers , and the entire process is order-driven by investors matched with the best limit orders. Buyers and sellers remain anonymous.

An order-driven market brings more transparency by displaying all buy and sell orders in the trading system . Institutional investors can use the direct market access (DMA) option, using trading terminals provided by brokers for placing orders directly into the stock market trading system.

Equity spot markets follow a T+1 rolling settlement , with any trade on Monday getting settled by Tuesday. All trading is conducted between 9:15 a.m. and 3:30 p.m., Indian Standard Time (+ 5.5 hours GMT), Monday through Friday. Delivery of shares must be made in dematerialized form. Each exchange has its own clearing house, which assumes all settlement risk by serving as a central counterparty.

The two prominent Indian market indexes are Sensex and Nifty. Sensex is the oldest market index for equities; it includes shares of 30 firms listed on the BSE. It was created in 1986 and provides time series data from 1979 as the base year.

The Standard and Poor's CNX Nifty includes 50 shares listed on the NSE. It was created in 1996.

The development, regulation, and supervision of India's stock market rests with the Securities and Exchange Board of India (SEBI), formed in 1992 as an independent authority. Since then, SEBI has consistently tried to lay down market rules in line with the best market practices. It enjoys vast powers of imposing penalties on market participants in case of a breach.

Investing in India's Markets

India permitted outside investments in the 1990s. Foreign investments are classified into two categories: foreign direct investment (FDI) and foreign portfolio investment (FPI). All investments in which an investor takes part in the day-to-day management and operations of the company are treated as FDI, whereas investments in shares without any control over management and operations are treated as FPI.

To make portfolio investments in India, one must be a foreign institutional investor (FII) or one of the sub-accounts of one of the registered FIIs. Both registrations are granted by the market regulator, SEBI. Foreign institutional investors mainly consist of mutual funds, pension funds, endowments, sovereign wealth funds, insurance companies, banks, and asset management companies. FIIs can also invest in unlisted securities outside stock exchanges, subject to the approval of the price by the Reserve Bank of India .

India has the fifth-largest economy in the world by GDP, with a 2023 GDP of $3.7 trillion.

Restrictions and Investment Ceilings

The government of India prescribes the FDI limit, and different ceilings have been prescribed for different sectors. The maximum limit for portfolio investment in a particular listed firm is decided by the FDI limit prescribed for the sector to which the firm belongs. However, there are two additional restrictions on portfolio investment.

According to SEBI, an FII can invest up to 10% of the equity of any one company, subject to the 24% limit on overall investments. The 24% limit may be raised to 30% for individual companies that have received shareholder approval to do so. FIIs are allowed to invest 100% of their portfolios in debt securities.

Investments for Foreign Entities

Foreign entities and individuals can gain exposure to Indian stocks through institutional investors. Investments can be made through some of the offshore instruments, like participatory notes (PNs), depositary receipts, such as American depositary receipts (ADRs) and global depositary receipts (GDRs), exchange-traded funds (ETFs), and exchange-traded notes (ETNs).

Participatory notes representing underlying Indian stocks can be issued offshore by FIIs, only to regulated entities, but small investors can invest in American depositary receipts representing the underlying stocks of some of the well-known Indian firms, listed on the New York Stock Exchange and Nasdaq. ADRs are denominated in dollars and subject to the regulations of the U.S. Securities and Exchange Commission (SEC).

Retail investors can invest in ETFs and ETNs , based on Indian stocks. India-focused ETFs mostly make investments in indexes made up of Indian stocks. Most of the equities included in the index are listed on the NYSE and Nasdaq. Two ETFs based on Indian stocks include the iShares MSCI India ETF ( INDA ) and the Wisdom-Tree India Earnings Fund ( EPI ).

What Is the Main Stock Market in India?

The main stock market in India is the Bombay Stock Exchange (BSE) which has 5,315 listed firms.

What Is the Largest Company on the Indian Stock Market?

The largest company on the Bombay Stock Exchange (BSE) is Reliance Industries with a market cap of over $229 billion as of Jan. 30, 2024.

Can Americans Invest in the Indian Stock Market?

Yes, Americans can invest in the Indian stock market. There are a few ways of doing so, such as investing in exchange-traded funds (ETFs) or purchasing American depository receipts (ADRs) of the company.

Most of the trading in the Indian stock market takes place in the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). As of 2024, India ranked as the fourth largest market in the world. The two dominant Indian market indexes are Sensex and Nifty.

Bloomberg. " India Tops Hong Kong as World’s Fourth-Largest Stock Market ."

BSE. " History and Milestones ."

NSE. " History & Milestones ."

BSE. " All India Market Capitalization ."

NSE. " All Companies Based on Market Capitalisation ."

NSE. " Trading System ."

NSE. " Settlement Cycle ."

BSE. " Compulsory Rolling Settlement ."

BSE. " Session Timings ."

NSE. " Exchange Communications. Market Timings ."

Pib.gov.in. " BSE Sensex Is Now 25 ."

NSE. " Nifty50 ."

Securities and Exchange Board of India. " About SEBI ."

International Monetary Fund. " UNCTAD Press Release: FDI Flows to India Expanded in the 1990s ."

Securities and Exchange Board of India. " Foreign Institutional Investment ."

World Population Review. " Countries By GDP ."

Companiesmarketcap.com. " Reliance Industries ."

BSE. " Top 100 Companies by Market Capitalization ."

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Stocks Soar in India, Luring Investors at Home and Abroad

The second-most populous country is enjoying some of the world’s strongest stock market returns. Pro-growth policies and gnawing questions about China have helped.

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By Matt Phillips and Emily Schmall

Until the pandemic, India’s stock market was like another world that Dilip Kumar never had a reason to visit. But like so many other people around the world who were stuck at home, he began to see it as the place to be.

Mr. Kumar, a proposal administrator at an engineering company in New Delhi, set up a free stock trading account through Zerodha, India’s largest online brokerage firm, and plowed some of his savings into Indian Railways as well as a clothing retailer and a cinema chain.

“I invested in all the things I was using daily,” he said. Since then, he’s gotten “a big return in quick time” — more than doubling his money in a little over a year.

Plenty of others want in on the action.

India’s booming stock market is drawing both local novices and global investors to shares of the financial, industrial and technology companies that dominate its listings. The MSCI India index is up about 30 percent this year — nearly twice the return of the global index — while India’s benchmark 30-share S&P BSE Sensex is up roughly 25 percent. Both have notched a seemingly relentless string of record highs, soaring on factors including simple demographics, governmental and fiscal policy and geopolitical changes.

The enthusiasm is clear from the initial public offering this week for the parent company of the digital payments platform Paytm. The company hit its target of raising $2.5 billion — making the offering the biggest in the country’s history and valuing the company at more than $20 billion. The offering underscored the momentum of the financial and tech sectors in a country with a predominantly young population embracing digital start-ups.

At the same time, the government of Prime Minister Narendra Modi is trying to make India more self-reliant, a boon to domestic businesses offering everyday goods and services, while trying to bring more citizens — and their money — into the formal economy. And this spring, the Indian central bank embarked on a bond-buying program that’s a smaller version of the sort that has lifted stocks around the world.

Combine those factors and it’s a recipe for a retail investor boom: According to the Securities and Exchange Board of India, new securities-holding accounts have risen to an all-time high.

“There is pent-up demand among the upper middle class, who have been rushing to the market,” said Jiban Mukhopadhyay, a corporate economics professor emeritus at the S.P. Jain Institute of Management and Research.

Their confidence has been buoyed by the huge stakes that institutional investors overseas are taking in companies that have gone public this year. Abu Dhabi’s sovereign wealth fund, the Texas teachers’ pension fund and the University of Cambridge have invested a total of more than $1 billion in Paytm.

One reason: Foreign investors have lately soured on China, long the destination for those seeking high-flying returns, as growth there slows and a powerful central government cracks down on big tech companies.

“India really stands out this year, with China decelerating,” said Todd McClone, a portfolio manager at William Blair’s Emerging Markets Growth Fund. His fund sharply cut its allocation to China, moving much of that money into Indian stocks including the conglomerate Reliance Industries, the paint manufacturer Asian Paints and the specialty chemical company SRF.

“With accelerating growth, lots of good companies and all the demographics that stand behind it, I think it gave people a lot of confidence to come back to that market,” he said.

It remains to be seen how sustainable the rally will be. Emerging markets like India can often be at the mercy of decisions made by investors on the other side of the globe. Oil prices are surging, which is a particular challenge for India, a major importer.

Economists also point to an uneven recovery from the pandemic that has pushed many Indians back into poverty. The economy plunged 21 percent during India’s first lockdown, the small and midsize businesses that employ most of India’s work force continue to falter, and the government is spending billions of dollars to mop up banks’ growing number of bad loans.

But investors remain optimistic: Wall Street analysts expect Indian companies to increase their earnings more than 22 percent over the next 12 months — calculated in dollars — a faster pace of growth than benchmark indexes in either China or the United States.

“Stock prices follow earnings, and Indian corporates have the strongest fundamental momentum ,” said Brian Freiwald, an emerging-market portfolio manager at Putnam Investments in Boston.

Part of the reason for the Indian market’s rapid ascent can be traced to 2016 and a policy of demonetization. Meant to tamp down money laundering, the policy banned the most widely circulated currency notes and wiped out the savings of families and small businesses overnight. But it also bolstered companies like Paytm, a sector that benefited further as the pandemic disrupted face-to-face transactions.

Adding to the momentum are market-friendly measures delivered by Indian policymakers. In February, Mr. Modi’s government proposed a budget that called for more spending on health care and infrastructure. Then, two months later, the Reserve Bank of India began the same kind of quantitative easing programs that the Federal Reserve and other central banks instituted to support their domestic economies. Though it started its bond-buying program more than a year after the Fed’s began, India enjoyed a similar stock-market response: Shares took off.

For global investors, it was a stark contrast to what was happening in China, which had already enjoyed a rapid recovery from its pandemic shutdowns. Chinese policymakers began withdrawing some of their support for the economy early this year. Growth began to slow — it was down to just 4.9 percent in the third quarter — putting pressure on debt-laden firms that rely on continuously fast growth to pay their creditors. At the same time, the Chinese government, under the increasingly centralized power of President Xi Jinping, has begun to rein in some of the country’s most prominent tech companies.

It has been an unappealing backdrop for investors, and Chinese markets have posted some of the worst returns in the world this year.

“ India tends to do well when there’s an issue in China,” said Divya Mathur, an emerging-market portfolio manager at the money management firm Martin Currie in Edinburgh.

As rapid as the Indian market’s gains have been, they remain fragile, experts said.

Emerging markets like India can whipsaw as global investors who poured in money can pull it out quickly, particularly when central banks raise interest rates and attract investor capital. India was slammed by such a situation in 2013: When the Federal Reserve began to step back from low-interest rate policies after the 2008 financial crisis, investors pulled their money from India. Its currency, the rupee, plunged to a new low against the dollar and pushed the country to the brink of a financial crisis.

There are also fundamental demographic challenges ahead. The young people who have helped speed the country’s embrace of new technologies will put pressure on the government to keep up the rapid economic expansion. Over a quarter of India’s population — more than 360 million people — are under the age of 15, according to the World Bank.

“As this young population comes of age, can India provide enough job opportunities?” asked Ajay Krishnan, a portfolio manager who specializes in emerging markets at Wasatch Global Investors in Salt Lake City.

The pandemic also remains a threat: Roughly a quarter of India’s population is fully vaccinated, leaving it vulnerable to another surge in cases that could cause more economic damage and push more citizens into poverty.

Mr. Mukhopadhyay, the economics professor, said those dynamics are a sign that market returns aren’t an indicator of broader prosperity.

“The Indian stock market behaves like a pampered kid,” he said. “It has hardly any relationship with the movement of the economy.”

Sameer Yasir contributed reporting.

Matt Phillips covers financial markets. Before joining The New York Times in 2018, he was editor in chief at Vice Money and a founding staffer at Quartz, a business and economics website. He also spent seven years at The Wall Street Journal, where he covered stock and bond markets. More about Matt Phillips

Emily Schmall is a South Asia correspondent based in New Delhi. More about Emily Schmall

Essay on Stock Exchange

In this essay we will discuss about Stock Exchange in India. After reading this essay you will learn about: 1. Meaning of Stock Exchange 2. Features of Stock Exchange 3. Functions 4. History 5. Major Problems in Trading 6. Measures Suggested.

Essay on the Measures Suggested for the Reform of the Stock Exchange

1. Essay on the Meaning of Stock Exchange :

Industrial securities market can be broadly divided into two parts, i.e., namely, primary markets or new issues market (NIM) and secondary markets or stock markets. Thus the primary market or NIM deals with new securities, i.e., with those securities which were not available earlier and are made available before the investing public for the first time.

On the other hand, the stock market is a potential market for those old securities which are already issued and also granted stock exchange quotation. Thus the stock exchanges usually provide a systematic regular and continuous market for both buying and selling of old securities.

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The main differences between NIM and stock exchanges are mostly related to:

(a) Types of securities dealt,

(b) Nature of financing and

By the term stock exchange, we mean a market where stocks, shares and other kind of securities are bought and sold. In this market owners can dispose of their securities as per their likings. The present large scale production system favours formation of joint stock company or corporate form of organisation which is quite suitable for securing large amounts of capital from those people who possess surplus funds and are willing to take risk and invest them profitably as per their own convenience and temperament.

The buyer of stocks and securities can realise their invested capital by selling those stocks and shares to others ready to buy the same at the prevailing price in the stock exchanges. Thus the stock exchange or market is a designated place where shares, stocks and other securities arc bought and sold. Stock market or exchange is, therefore, an important institution for running the corporate type of firm in a smooth manner.

2. Essay on the Features of Stock Exchange :

It would be better to identify some of important features of stock exchange.

Following are some of these features:

(i) Voluntary Association:

Stock exchange can be termed as voluntary association where various individuals join together and thereby form a private or public limited company so as to initiate the activities of stock exchange.

(ii) Recognition and Registration:

The stock market must be recognised by the government under the Securities Contract (Regulation) Act, 1956. Moreover, the stock exchange may or may not be registered under the Act.

(iii) Membership:

Membership of stock exchange is open as per Rule 8 of the Securities Contract (Regulation) Act, 1956. The stock exchange has framed by-laws to settle disputes etc. which the members have to follow.

(iv) Conduct of Business:

The stock exchange does not involve itself in the business of buying and selling of securities rather it provides facilities for buying and selling of securities for its members.

(v) Management of Stock Exchange:

The management of stock exchange is entrusted to its governing body whose composition differs from one another. The body functions as per the constitutional provisions and by-laws of stock exchange.

3. Essay on the Functions of Stock Exchange in India:

The stock market or stock exchanges are usually discharging some important functions for the orderly and systematic growth of capital market.

The following are some of these important functions:

(i) Nexus between Savings and Investment:

Stock markets establish nexus between savings and investments of the community. The community savings are rightly mobilised and channelized by the stock exchanges of the country for its investment into those sectors and companies which the community at large feels secure especially on the basis of its past performance, good return, capital appreciation etc.

The preference of investors for a particular industry or for a particular individual unit is reflected in the share price, which again determine the mode of investment.

Stack exchanges render valuable services for the preliminary distribution of new issues of capital and also arrange offers for sale of existing securities, in a most systematic and orderly fashion. Members of stock exchange also help in floatation of new issues as brokers and underwriters throughout the country.

(ii) Market Place:

Another important function of stock markets or exchanges is to provide a market place for the purchase and sale of securities to the original subscriber and a huge number of buyers for attaining its free transferability. As the purchase and sale of securities are centralised in that market so the purchaser usually get a ready seller and the seller usually get a ready purchaser at a competitive price for making necessary transaction on their securities.

(iii) Continuous Price Formation:

Establishing a process of continuous price formation is another important function of stock exchanges or markets. As a large number of buyers and sellers are operating in such market, the collective judgement of such a large number of people brings changes in the level of prices of securities in small graduations in an unending process.

Accordingly, stock markets can act as a barometer of the state of health of the economy of a nation through its continuous price formation which helps an investor to take a right decision at appropriate time.

(iv) Market Making:

The stock markets establish a system of market makers at par with all leading stock exchanges of the world. In this system, the market makers usually take the responsibility of making of market of specific shares, i.e., for buying and selling a specific share at definite prices.

This system also protects the investors from its exploitation by the stock brokers and ensure transaction of shares at best possible market rates and also ensure prompt execution of transaction and liquidity. Thus this system offers protection to investors and also liquidity to all shares.

(v) Uniform System of Settlement:

Another important function of stock exchanges is to unify all stock exchanges on a national basis for introducing a uniform system of one-week settlement. This system reduces the risk of price movements in share and also checks the tendency towards over-speculation and over concentration of trading activity in a few shares.

(vi) Management Information System:

The stock markets usually introduce a well designated management information system (MIS) so as to feed the stock exchanges with sufficient information relating to trading volume and prices, trading concentration in certain securities, speculation etc. Such information are very much helpful for the authorities to restrict and regulate the stock market properly.

(vii) Evaluation of Securities:

The stock markets usually provide a correct mechanism through which price of various securities offered by different business undertakings are determined through proper evaluation of its present future income yielding capacity.

(viii) Protecting investor’s interest:

It is mandatory for all stock exchange to frame rules, regulations and bye-laws for ensuring reasonable degree of security and safety to the investors to make all transactions fair and secure.

(ix) Capital formation:

Stock exchanges provides the services to the investors by collecting their savings and by channelizing these savings into investment in securities of various business firms and companies and thereby paves the path for capital formation and also for proper investment of capital.

4. Essay on the History of Stock Exchanges in India: Nature of Transaction and Speculation :

The history of stock exchange in India can be traced back at Bombay where the first organised stock exchange in India started to work and when the Native Share Stock Brokers’ Association, popularly known as Bombay Stock Exchange was formed to serve its purpose by the brokers of Bombay.

After that the Ahmedabad Stock Exchange was started in 1894 in order to facilitate the dealings of shares of textile mills established there. Again, in 1908, the Calcutta Stock Exchange was started to arrange a ready market for shares of jute mills and plantation industries.

There was spurt in speculative activity in India during the Second World War and thereby the number of stock exchanges has increased from 7 in 1939 to 21 in 1945. Over and above these organised exchanges, some unorganised exchanges, known as Kerb markets, were also functioning in the country as per usages and conventions.

As per the Securities Contract (Regulation) Act of 1956, the Government of India has recognised 15 stock exchanges. Among all these stock exchanges, Bombay Stock Exchange is the premier exchange in the country, which transacts nearly 70 per cent of total transactions made in all the stock exchanges of the country.

Thus stock exchanges provide an organised market for transactions in shares and other securities. There are 22 stock exchanges in the country, out of which 20 SEs are regional ones with allocated areas. Two other SEs set up in the post-reform era, viz., National Stock Exchange (NSE) and the Over the Counter Exchange of India (OTCEI) are mandated to have nationwide trading.

The NSE and OTCEI have adopted screen based trading system (SBTS). The NSE and OTCEI have started nationwide SBTS, which provided completely transparent trading mechanism. This has been followed by regional stock exchanges. As on 31st March 1997, 9,890 companies were listed in stock exchanges.

The NSDL was set up in October 1996 under the Depository Act, 1996 with the objective of ensuring free transferability of securities with speed, accuracy and security. This Act has made the securities of public limited companies freely transferable and also provides for maintenance of ownership records in the book entry form. Thus the stock exchanges of India has been progressing at a satisfactory rate with the support of the Government and are also meeting the requirements of public limited companies in its security related affairs.

Nature of Transaction:

The nature of transaction in all stock exchanges is not similar as it is guided by procedures adopted and the settlement of transactions done in various stock exchanges.

However, in an Indian stock exchange, any typical investment business transaction has to pass through the following four stages:

(i) Placing an order through a member broker with a broker in the form of either “fixed order” (order executed at the price indicated by the client) or “Limit Order” (fixing limits of price by the clients beyond which broker cannot go) in a very precise, clear and unambiguously either orally or by phone and to be confirmed immediately in writing.

(ii) Executing of the order by the broker through bargain and listing the bargain in the official daily list of stock exchange.

(iii) Reporting the deal to the client by the broker after the deal is transacted and recorded in the books of the brokers by sending a contract note, giving details of the security purchased or sold and the price, the broker’s commission, date of settlement etc.

(iv) Settling transactions either through ready delivery transaction method (where payment has to be made immediately on the transfer of securities or within a period of one to seven days) or through clearing house or by hand delivery i.e., cash or through forward delivery transaction method (where settlement is done on a fixed day, i.e., either fortnightly or weekly) and the forward contracts are cleared through clearing house.

Speculation and Stock Exchange :

The idea of speculation in a stock exchange indicates purchase and sale of a security or share at a particular point of time with the sole object of making windfall profit by its sale or purchase at another point of lime. In India, stock exchanges are very much subjected to speculation. In stock market, two types of transactions are held normally, viz., investment transactions and speculative transactions.

By investment transaction, we mean purchase or sale of securities which are done with the long term prospect relating to their yield and price. But in a speculative transaction actual buying or selling of securities are not done normally and thereby the delivery of securities or the payment made as per ruling price are also very rare; rather only the difference in prices between buying and selling are paid.

Now-a-days, there are predominance of speculative transactions over the investment transactions in the stock exchanges in India as the former requires smaller amount of money and the latter requires larger volume of money for making full payment against purchase of securities.

5. Essay on the Major Problems in Trading in Indian Stock Exchange:

Indian stock exchanges are subjected to certain serious problems or defects. These are:

(i) Lack of Integration:

In India, there are a number of stock exchanges which are scattered throughout the country. But there is lack of proper integration among these stock exchanges. Although Bombay Stock Exchange (BSE) dominates over all the stock exchanges as it conducts more than 70 per cent of the total transactions of all exchanges but due to lack of proper integration between the stock exchanges, the prices of shares and stocks vary considerably between different markets at the same point of time.

(ii) Weak Management of SE:

Indian stock exchanges are suffering from weak and deficient management and also certain flaws in their structure. The stock exchange is usually managed by the member-brokers for their own benefits. The Governing Body of a stock exchange is not having any concern or willingness for introducing any reforms in trading.

It does not give much care to investor’s complaints. The Executive Director (ED) of a stock exchange has also failed to perform its regulatory functions freely as it is very much responsible to Governing Body.

(iii) Arbitrary Classification of Specified and Non specified Shares:

In India, most of the major stock exchanges have been following an arbitrary practice of classifying listed shares into “specified” group and “unspecified” group. Specified shares are getting certain special facilities such as settlement period, carry forward and clearing which promotes speculation.

This type of categorization favours granting of artificial encouragement to a few large companies which has economic justification in it.

(iv) Discriminatory Margins:

Indian stock exchanges (SEs) are levying margins on all speculative transactions which are highly discriminatory in character, as the margins are varying extensively from share to share and also from day to day, ranging between 0 to 40 per cent.

Again, the system of imposition of margins has also failed to control excessive speculation in stock exchanges. Moreover, the margin system has also failed to provide reasonable guarantee to the financial integrity of the market.

(v) Adoption of the Settlement System and Carry Forward System (Badla):

In India, various stock exchanges are adopting different settlement system which is responsible for high price fluctuations and high risk exposure. This leads to over-speculation in the market. Moreover, the carry forward system in India is introduced with the objective to promote speculation in a specified group of shares and also to promote spurious kind of share trading. In a carry forward system it is possible to postpone forward premium or charge, popularly known as “Badla” in India.

The “badla” is a free market rate which may now be as high as 36 per cent. In India, the badla financing is becoming very much attractive and as per Dr. L.C. Gupta’s estimates, about Rs 300 to 400 crore may be involved in such type of badla financing. The carry forward system along with badla financing is highly beneficial to the stock brokers as it adds to their income both directly or indirectly.

But at the same time, this system promotes speculation and in certain cases over speculation in certain market. Thus, on an average, the carry forward system is unjustifiable and unhealthy which ultimately leads to spurious speculation and this goes against the interest of the speculators.

(vi) Ignoring Investors’ Interest:

Indian stock exchanges are so designed that it provides much benefit to the brokers and ignores the genuine interests of the investors. The confidence of the investors on such market is very weak as the brokers are always cheating the investors on price of shares and they are also not getting a fair deal in their transactions of shares. Complain from the investors remain uncared and unattended.

6. Essay on the Measures Suggested for the Reform of the Stock Exchange:

Following are some of the important measures suggested by Dr. L.C. Gupta for making necessary changes in the current trade practices in Indian stock exchanges in his “Export study of Trading in shares in stock Exchanges”:

(i) Uniform System of One-Week Settlement:

In order to unify all stock exchanges in India on a national basis, all the SE should introduce a uniform system of one-week settlement. This uniform system will reduce the risk missing out of price movements in shares and also check the strong tendency towards over speculation and over-concentration of trading activity in a few shares.

The uniform system will remove the complaint of long delay on the part of investors and also reduce the cost and delay. This system will also pave the way for easier inter-market transactions.

(ii) Market Making:

The system market makers should be introduced in stock exchanges in India at par with the all leading stock exchanges of London and New York. In this system the market makers usually take the responsibility of market making for specific shares, i.e., for buying and selling a specific share at definite prices.

Being an integral part of trading mechanism and all other arrangements, he protects the investors from its exploitation by the stock brokers and ensures the transactions of shares at best possible market rates and also ensure prompt execution of transactions and liquidity. This system will provide protection to investors and also liquidity to all shares.

(iii) Margin Trading and Marking to the Market System:

As the margin trading system adopted by Indian SEs is defective and has failed to prevent the problem of default and over-speculation, Dr. Gupta suggested two alternatives against this system. The first one suggests to adopt the margin trading system of USA in which commercial banks provide financial support to the extent of 50 per cent to the buyer in the stock market trading after necessary pledging of shares with a bank. But this system may not be acceptable to the Government at present as the country has experienced a huge problem of securities scam in the recent past.

The second alternative i.e., the marking to the market system on a daily basis is a complete system to check bankruptcy and will provide guarantee towards financial integrity of the market at all times. In this system, if there is any change in price of stocks at the close of trading, one side will get a debit for a loss and the other side will get a credit for a gain. If there is a continuous debit to a member’s account regularly then it will reflect a negative balance in its account at a point of time.

Once such negative balance, is reflected, then and there the member is stopped from making any further business. In the existing system, even a bankrupt member may continue to trade in securities. But to introduce this marking to the market system, it requires total computerisation of trade data.

(iv) Abolishing the System of Carry Forward:

The present practice of the system of carry forward adopted by the Indian SEs has led to over-speculation in the stock market. With the abolition of this system, the stock exchanges will be free from many problems.

(v) Formation of Governing Body (GB) and Management of Stock Exchange:

The formation of GB should be done in a rational way. The Executive Director of a Stock Exchange must either be appointed by the Government or by SEBI as per the advice from the panel of independent experts, so that he can have independent control over stock brokers.

The composition of GB of stock exchanges should also be changed between the broker-directors and non-broker directors in ratio of 50: 50 to make it more objective, direct and strong.

(vi) Introducing Management Information System:

The stock exchanges in the country should introduce a well designed management information system (MIS) so as to feed the SEs with sufficient information relating to trading volume and prices, trading concentration in certain securities, trading concentration by some SE members, speculation etc. Such information will also help the authorities to restrict and regulate the stock markets properly.

Stock Exchange and Share Prices | Economics
Difference between Spot Market and Forward Market
Essay on Exchange Rates | Foreign Exchange | International Economics
Securities and Exchange Board of India (SEBI) and Capital Market Reforms

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Decoding Finance

Understanding the Indian Stock Market: A Beginner’s Guide

May 5, 2023

Table of Contents

Introduction

The Indian stock market is a rapidly growing financial market that has attracted the attention of many investors looking to diversify their portfolios and make a profit. However, for beginners, investing in the stock market can be a difficult task. With a vast array of investment options, complex terminologies, and a constantly changing market, it can be challenging to navigate the Indian stock market.

That’s why this beginner’s guide has been created to provide an overview of the Indian stock market and the key concepts that every investor should understand. We’ll cover the basics of what the Indian stock market is, how it works, the types of investment options available, and the factors that affect the market. By the end of this guide, you’ll have a basic understanding of the Indian stock market and be better equipped to make informed investment decisions. So, let’s get started on understanding the Indian stock market: a beginner’s guide.

What is the Indian Stock Market?

The Indian stock market is a marketplace where publicly traded companies sell shares of their stock to investors. This market is regulated by the Securities and Exchange Board of India (SEBI) and operates with the goal of ensuring that the market functions efficiently and transparently while protecting investors from fraudulent activities.

There are two primary exchanges in Indian Stock Market: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These exchanges provide a platform for companies to raise capital by selling shares and for investors to buy shares of these companies. The stock market works on the basis of supply and demand, where the price of a stock is determined by the forces of the market.

To participate in the Indian stock market, investors must open a demat account and a trading account with a registered stockbroker. The demat account holds the shares purchased by the investor, while the trading account allows the investor to buy and sell shares through the stockbroker.

The Indian stock market provides investors with a variety of investment options. Investors can choose to invest directly in individual stocks, where they purchase shares of a specific company listed on the stock exchange. Alternatively, they can opt for indirect investment through mutual funds or exchange-traded funds (ETFs), where a portfolio of stocks is managed by professional fund managers.

In summary, the Indian stock market provides a platform for companies to raise capital and for investors to buy and sell shares of these companies. With the help of a registered stockbroker and the availability of a variety of investment options, investors can participate in the Indian stock market and potentially earn a return on their investment.

How Does the Indian Stock Market Work?

The Indian stock market is a complex system that is influenced by a range of factors. In this section, we’ll take a closer look at how the Indian stock market works and the key factors that influence its performance.

The Indian stock market operates on the principle of supply and demand. When a company sells shares of its stock to the public, it does so with the aim of raising capital. Investors purchase these shares with the hope of earning a return on their investment, either through capital gains or dividends.

The price of a stock is determined by the rule of supply and demand. If there is high demand for a particular stock, the price will increase, and vice versa. The market price of a stock is constantly changing as investors buy and sell shares based on their expectations of the company’s performance and other market factors.

The performance of the Indian stock market is influenced by a range of factors, including economic indicators, corporate earnings, global events, and investor sentiment. Economic indicators such as GDP growth, inflation rates, and interest rates can have a significant impact on the market’s performance. Corporate earnings reports also play a crucial role in determining the market’s direction, as investors are constantly monitoring the financial performance of companies to make informed investment decisions.

Global events such as changes in trade policies, geopolitical tensions, and natural disasters can also have an impact on the Indian stock market. These events can cause fluctuations in the market as investors respond to new information and adjust their investment strategies accordingly.

Finally, investor sentiment can have a significant impact on the Indian stock market. If investors are optimistic about the market’s direction, they may be more willing to invest, which can drive up prices. Conversely, if investors are pessimistic, they may sell their shares, which can cause prices to decline.

In summary, the Indian stock market works on the principle of supply and demand, and its performance is influenced by a range of factors, including economic indicators, corporate earnings, global events, and investor sentiment. Understanding these factors is crucial for investors looking to make informed investment decisions in the Indian stock market.

Types of Investment in the Indian Stock Market

The Indian stock market provides investors with a range of investment options, each with its own level of risk and potential return. In this section, we’ll take a closer look at the different types of investment available in the Indian stock market.

Stocks : Stocks are the most basic form of investment in the Indian stock market. When an investor purchases a stock, they are buying a share of ownership in a company. The price of the stock is determined by the forces of supply and demand in the market, and investors can earn a return on their investment through capital gains or dividends.

Mutual Funds : Mutual funds are professionally managed basket of portfolios of stocks and bonds. Investors pool their money together and hire a professional fund manager to invest the money in a diversified portfolio of assets. Mutual funds provide investors with exposure to a range of stocks, making them a good option for investors looking to diversify their portfolio.

Exchange-Traded Funds (ETFs) : ETFs are similar to mutual funds but are traded on stock exchanges like individual stocks. ETFs are also managed by professional fund managers and provide investors with exposure to a range of stocks. However, unlike mutual funds, ETFs can be bought and sold throughout the trading day, making them a more flexible investment option.

Initial Public Offerings (IPOs) : An IPO is the first time a company’s stock is offered for sale to the public. Investors can purchase shares of the company during the IPO and potentially earn a return on their investment if the company’s stock price increases.

Futures and Options : Futures and options are derivative instruments that allow investors to speculate on the future direction of the market. Futures are contracts that obligate the buyer to purchase or sell an underlying asset at a specific price on a specific date, while options provide the buyer with the right, but not the obligation, to buy or sell an underlying asset at a specific price on a specific date.

In summary, the Indian stock market offers a range of investment options, including stocks, mutual funds, ETFs, IPOs, and futures and options. Each investment option has its own level of risk and potential return, and it’s important for investors to understand their investment objectives and risk tolerance before choosing an investment option.

Factors Affecting the Indian Stock Market

The Indian stock market is a dynamic and complex system that is influenced by a variety of factors. In this section, we’ll take a closer look at some of the key factors that can affect the performance of the Indian stock market.

Economic Indicators : Economic indicators such as GDP growth, inflation rates, and interest rates can have a significant impact on the Indian stock market. For example, a strong GDP growth rate can boost investor confidence and lead to increased investments in the stock market, while high inflation rates and interest rates can have a negative impact on the market by increasing the cost of borrowing and decreasing consumer spending.

Global Events : Global events such as changes in trade policies, geopolitical tensions, and natural disasters can also have an impact on the Indian stock market. These events can cause fluctuations in the market as investors respond to new information and adjust their investment strategies accordingly.

Corporate Earnings : Corporate earnings reports are an important factor that can affect the performance of the Indian stock market. If a company reports strong earnings, investors may be more willing to invest in the stock, leading to an increase in its price. Conversely, if a company reports weak earnings, investors may sell their shares, causing the stock price to decline.

Investor Sentiment : Investor sentiment is another important factor that can influence the Indian stock market. If investors are optimistic about the market’s direction, they may be more willing to invest, which can drive up prices. Conversely, if investors are pessimistic, they may sell their shares, which can cause prices to decline.

Government Policies : Government policies can also have an impact on the Indian stock market. For example, changes in tax policies, subsidies, and regulations can influence the performance of specific sectors and companies, which can in turn affect the overall performance of the stock market.

In summary, the Indian stock market is affected by a variety of factors, including economic indicators, global events, corporate earnings, investor sentiment, and government policies. Understanding these factors and their potential impact on the market is crucial for investors looking to make informed investment decisions in the Indian stock market.

In conclusion, the Indian stock market offers a range of investment opportunities for investors looking to grow their wealth over time. By understanding the basics of the stock market, including how it works, the different types of investments available, and the factors that can affect its performance, investors can make informed decisions and potentially earn a significant return on their investment.

However, investing in the stock market comes with risks, and it’s important for investors to do their own research and consult with financial experts before making any investment decisions. Investors should also consider their own investment objectives and risk tolerance before choosing an investment option. The Indian stock market has a rich history and has seen significant growth over the years. While there are ups and downs in the market, many investors have been able to achieve significant returns by investing in quality companies and making smart investment decisions.

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Market Indices

There are two major indices in the stock exchange of India – Sensex and Nifty. Sensex comprises of the weighted average of the market capitalization of stock of 30 well established and financially sound companies across different key sectors in India. Nifty comprises of top 50 companies in 12 sectors of the Indian economy in one portfolio. It reflects the health of the Indian economy from a broader perspective.

SENSEX is an indicator of Bombay Stock Exchange and NIFTY is an indicator of National Stock Exchange of India.

Trading Hours and Settlement on Stock Exchange of India

Trading in the stock market in India takes place in between 9:55 AM to 3:30 PM Indian Standard Time, Monday to Friday.

Settlement of securities takes places in T+2 period. It means if the transaction has happened on Tuesday, it will be settled on Thursday.

Source: freepik.com

Functions of Stock Exchange in India

Stock exchange in India ensures –

Stability of prices of securities.
Convenient and transparent place to trade in securities.
Help companies to raise their funds.
Promote the habit of saving and investment
Provide forecasting service.

How to Deal in Stock Exchanges in India

In order to deal in stock exchange in India, one must have a Demat A/c. It is just like a bank account. Various banks in India provide this facility. Through Demat A/c, an investor can buy or sell securities in trading hours.

Regulation of Stock Exchange in India

Entire stock exchange of India is regulated by the Securities and Exchange Board of India (SEBI) which was established in 1992 as an independent authority. SEBI has the power to impose fines and penalties in case of violation of rules and regulations. It plays a pivotal role and protects the interest of investors in the stock exchange of India. SEBI promotes education and training of intermediaries of the stock market.

Bull Market and Bear Market

A bull market is a market where buyers are aggressively buying the shares in an expectation that shares price will rise and will sell at later date. A bear market is a market where prices are falling.

Strong economic conditions, high employment levels, the favorable government are few factors which lead to a bull market whereas poor economic conditions, natural adversity, unemployment or sudden unfavorable political changes lead to bear market.

Future of Stock Exchange in India

In a growing economy like India, the future of stock exchange is bright and the volume of transactions will grow substantially in the coming years.

Out of 1.2 billion people, there are only 20 million demat accounts as of now. Government’s initiative to bring retail customers in mutual funds and foreign investments in India will help the stock exchange of India.

Practice Question for Stock Exchange in India

Which of the following body regulates the Stock exchanges in India?

Reserve Bank of India (RBI)
Securities and Exchange Board of India (SEBI)
Government of India
Association of Mutual Funds (AMET)

Ans. Securities and Exchange Board of India (SEBI)

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Home » Economy » Indian financial system-II: Money and capital market in India » Stock exchanges in India » Historical evolution of stock market in India

Corporate shares started being traded in the 1830s in Bombay with the stock of Bank and Cotton presses
The simple and informal beginnings of stock exchanges in India take one back to the 1850s when 22 stockbrokers began trading opposite the Town Hall of Bombay under a banyan tree
The shift continued taking place as the number of brokers increased, finally settling in 1874 at what is known as Dalal Street
This as yet informal group known as the Native Share and Stockbrokers Association organized themselves as the Bombay Stock Exchange (BSE) in 1875
The BSE was followed by the Ahmedabad Stock Exchange in 1894 which focused on trading in shares of textile mills
The Calcutta Stock Exchange began operations in 1908 and began trading shares of plantations and jute mills
The Madras Stock Exchange followed, being set up in 1920
It was at this time, the Securities and Exchange Board of India(SEBI) was born in 1988 as a non-statutory body, which was further given statutory status in 1992
The need for another stock exchange large enough to compete with BSE and need for transparency in stock market, gave birth to the National Stock Exchange(NSE)
After the country gained independence, 23 stock exchanges were added apart from the BSE
Calcutta Stock Exchange Ltd.
Magadh Stock Exchange Ltd
Metropolitan Stock Exchange of India Ltd
India International Exchange (India INX)
NSE IFSC Ltd

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Home / Samples / Economics / Essay Example: Major Participants in the Indian Stock Market

Essay Example: Major Participants in the Indian Stock Market

Major Participants in the Indian Stock Market

Introduction

The Indian stock market is a dynamic and integral component of the country’s financial system. It plays a crucial role in mobilizing funds for businesses and provides opportunities for investors to participate in the economic growth of the nation. Understanding the major participants in the Indian stock market is essential for anyone looking to comprehend its functioning and significance. This essay delves into the key players that contribute to the vibrancy and complexity of the Indian stock market.

1. Stock Exchanges

1.1 National Stock Exchange (NSE)

The National Stock Exchange (NSE) is one of the premier stock exchanges in India. Established in 1992, it has become a vital platform for equity and derivative trading. NSE is known for its advanced electronic trading system, providing a transparent and efficient marketplace for investors. It lists a plethora of companies, ranging from large-cap to small-cap, making it a diverse and inclusive exchange.

1.2 Bombay Stock Exchange (BSE)

Founded in 1875, the Bombay Stock Exchange (BSE) holds historical significance in the Indian stock market. It is the oldest stock exchange in Asia and plays a pivotal role in the capital market. BSE’s benchmark index, the Sensex, is a barometer of the Indian stock market’s performance. The exchange facilitates trading in equities, commodities, and debt instruments, contributing to the overall liquidity and depth of the market.

2. Regulators and Regulatory Bodies

2.1 Securities and Exchange Board of India (SEBI)

SEBI is the primary regulatory body overseeing the Indian securities market. Established in 1988, SEBI works towards maintaining a fair and transparent market, protecting the interests of investors, and promoting the development of the securities market. It formulates regulations and guidelines, monitors market activities, and ensures compliance by market participants.

2.2 Reserve Bank of India (RBI)

While SEBI regulates securities markets, the Reserve Bank of India (RBI) oversees the overall financial system, including the money market and banking institutions. RBI’s policies and interventions significantly impact the stock market, especially in areas like interest rates and liquidity management. The coordination between SEBI and RBI is crucial for the stability and integrity of the financial system.

3. Market Intermediaries

3.1 Brokers and Brokerage Firms

Brokers act as intermediaries between buyers and sellers in the stock market. They execute trades on behalf of investors and provide valuable insights and research. Brokerage firms, ranging from full-service to discount brokers, offer various services, catering to the diverse needs of market participants. The competitive landscape among brokerage firms enhances market efficiency.

3.2 Depository Participants (DPs)

Depository Participants play a vital role in the dematerialization of securities. They facilitate electronic holding and transfer of securities, eliminating the need for physical certificates. The two major depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), work through a network of DPs, simplifying the settlement process and reducing risks associated with physical certificates.

4. Institutional Investors

4.1 Mutual Funds

Mutual funds pool funds from various investors to invest in a diversified portfolio of stocks and other financial instruments. They are crucial institutional investors, contributing to market liquidity and stability. The variety of mutual fund schemes, including equity funds, debt funds, and hybrid funds, provide investors with different risk-return profiles.

4.2 Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs)

FIIs and FPIs play a significant role in the Indian stock market, bringing in foreign capital and contributing to market depth. SEBI regulates their participation, ensuring compliance with investment limits and guidelines. The inflow and outflow of foreign funds impact market sentiments and are closely monitored for their influence on exchange rates and economic stability.

5. Retail Investors

5.1 Individual Investors

Individual investors, often referred to as retail investors, form a substantial part of the Indian stock market. With the advent of online trading platforms, retail participation has increased significantly. These investors contribute to market liquidity and diversity. Financial literacy and investor education are crucial for empowering retail investors to make informed decisions.

5.2 High Net Worth Individuals (HNIs)

High Net Worth Individuals, due to their significant financial capacity, have a substantial impact on the stock market. They often engage in direct equity investments, private placements, and participate in initial public offerings (IPOs). Their investment strategies and decisions are closely watched, as they can influence market trends and sentiments.

6. Listed Companies

6.1 Large-Cap, Mid-Cap, and Small-Cap Companies

Listed companies are at the core of the stock market. They raise capital by issuing shares to the public and are subject to stringent disclosure norms. Large-cap companies, with substantial market capitalization, often dominate indices and influence market movements. Mid-cap and small-cap companies, while riskier, provide opportunities for growth and diversification.

6.2 Promoters and Management

Promoters and management of listed companies play a crucial role in shaping the market perception of their organizations. Their strategic decisions, corporate governance practices, and financial performance directly impact the company’s stock valuation. Transparent communication and adherence to ethical business practices are essential for building investor confidence.

In conclusion, the Indian stock market is a multifaceted ecosystem with diverse participants, each playing a unique role in shaping its dynamics. From stock exchanges and regulatory bodies to institutional and retail investors, the market’s complexity underscores its significance in driving economic growth. Understanding the interplay between these major participants is essential for navigating the stock market successfully and contributing to the broader financial landscape of India.

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Testing the market efficiency in Indian stock market: evidence from Bombay Stock Exchange broad market indices

Journal of Economics, Finance and Administrative Science

ISSN : 2218-0648

Article publication date: 5 April 2022

Issue publication date: 13 December 2022

Despite volumes of research on the efficient market hypothesis (EMH) over the last six decades, the results are inconclusive as some studies supported the hypothesis, and some studies rejected it. The study aims to examine the market efficiency of the Indian stock market.

Design/methodology/approach

For analysis, nine Bombay Stock Exchange (BSE) broad market indices were selected covering the study period from 01 January 2011 to 31 December 2020. The data collected for this study are daily open, high, low and closing prices of selected indices. The tools used in this study are: (1) unit root test to check the stationarity of time series, (2) descriptive statistics, (3) autocorrelation and (4) runs test.

The empirical findings of the study reveal that BSE broad market indices do not follow a random walk and Indian stock market is as weak-form inefficient.

Research limitations/implications

The findings from this study provide several avenues for future research. One of the research implications is that anomalies in the statistical results by different academicians in the finance area need to be explained by future researchers.

Practical implications

Investment companies need to understand that extraordinary skills are required to beat the market to make abnormal returns. In an inefficient market where securities do not reflect the complete available information, it is challenging for the investment brokers to convince the customers about the portfolios they recommend to the public that the rate of return would be more than expected.

Social implications

As economic growth is related to the growth in the financial sector, developing countries like India depend on the accuracy of the information. In the presence of asymmetric information, the fluctuations in the stock market would have serious harmful consequences on the economy.

Originality/value

Amid several controversies surrounding the EMH testing, this study is a modest attempt to provide evidence that the Indian stock market is in weak-form inefficient. However, it is essential to link investors' behaviour and trends observed in the financial sector to fully understand the implications of EMH.

Efficient market hypothesis
Autocorrelation
Indian stock market

Elangovan, R. , Irudayasamy, F.G. and Parayitam, S. (2022), "Testing the market efficiency in Indian stock market: evidence from Bombay Stock Exchange broad market indices", Journal of Economics, Finance and Administrative Science , Vol. 27 No. 54, pp. 313-327. https://doi.org/10.1108/JEFAS-04-2021-0040

Emerald Publishing Limited

Published in Journal of Economics, Finance and Administrative Science . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

The efficient market hypothesis (EMH) postulates that an efficient market represents that all marketable securities and assets reflect newly released information immediately so that it is impossible to beat the market by using information and making extraordinary profits. The basic tenet of EMH is that stock returns are random in an efficient market. Second, investors cannot earn excess profits in an efficient market.

There has been a plethora of research on testing the EMH for over eight decades ( Brown, 2020 ; Chan et al. , 1997 ; Degutis and Novickytė, 2014 ; Fama, 1970 ; Jain et al. , 2020 ; Kelikume et al. , 2020 ; Patel et al. , 2018 ; Samsa, 2021 ; Shiller, 2003 ; Vidya, 2018 ). In addition, extensive academic research on EMH documented consensus that no one can make money by trading securities when the markets are efficient. However, the EMH assumes that capital markets come to equilibrium because the market is dominated by “informed and rational agents,” which may not be accurate. Therefore, there are many situations where EMH fails. That is the reason why several scholars time and again attempt to test EMH and see whether the market is efficient in weak, semi-strong and strong forms. Our study also takes the same path and attempt to test the EMH.

We are interested in studying EMH in the context of India because of the following reasons. First, extant research documented that the results were inconclusive, as some studies supported, and most studies did not support random walk theory. In this study, we attempt to examine the market efficiency in the Indian market during the decade 2010–2020, a period characterized by remarkable growth in the Indian economy because of increasing privatization and technological advancements. With the technology change, it is assumed that information is readily available to the investors to accurately predict the stock prices based on the available information immediately. It is also believed that stock prices reflect such information. So, the rationale for this study stems from the changing financial market, changing investors' behaviour, technological developments and the incredible rate of economic growth in India.

The second reason for this study is, in the world of availability of complete information, there is no reason why EMH should fail because the present-day prices reflect all the available information. So then, what are the reasons why EMH fails? Scholars in behavioural finance (e.g. Malkiel, 2003 ) argue that security prices reflect the behavioural intentions of investors. The third reason why we want to test EMH in India is that during the decade of 2010–2020, several economic reforms took place, and the Indian economy was characterized by phenomenon growth, though recession occurred for a brief period (around 2008–2009 because of the crash of real estate bubble in Western countries). Finally, we selected the Bombay Stock Exchange (BSE) in our study because of several reasons. First, BSE was established in 1875 and is the oldest stock exchange in Asia. Second, located in Dalal Street of Mumbai, BSE represents the financial capital of India. Third, BSE is the fastest, with a speed of around six microseconds, in the world accounting for speedy transactions. So, with these novel ideas, this study is conducted. In this paper, in the literature review, we explain the evolution of EMH and present the modern approach of EMH, followed by testing the EMH in the context of the Indian Stock market.

2. Literature review

After the formal introduction of EMH in the 1970s, Grossman (1976) has outlined the market efficiency paradox because of inconclusive results. The basic argument in the paradox is that the greater the belief in market efficiency by investors, the lesser the market efficiency. The intuitive logic behind this inefficiency is that if the investors believe that market is efficient, they will become lazy to collect information, which leads to market inefficiency. Though EMH has remained one of the most controversial research areas in finance and economics, some researchers argue that theory can be considered “half-true” ( Shiller, 2003 ), while the line of argument is that today's stock prices cannot determine the stock prices tomorrow because of volatility and information asymmetry. Therefore, contemporary researchers focus on analysing the stock prices in the presence of (vs absence) of information and adjusting for the announcements (such as mergers, amalgamations, stock splits) ( Jain et al. , 2020 ; Parthasarathy, 2016 ). In one of the studies, Fama and French (1988) argued that risk taken depends less on the company size and market return. Recently, some researchers focused on the “value effect” and documented that return was not necessarily associated with the amount of risk taken. Amid arguments in favour of EMH and contradictions against EMH, we test the hypothesis in the context of the Indian stock market in this study. As explained before, three forms of market efficiency were weak, semi-strong and strong. A market is said to be efficient when investors can predict future market values of individual securities based on the information available freely to all rational participants. The weak form represents a random walk where one cannot make profits by investing in the stocks where prices reflect perfect information. In the semi-strong form, the prices of financial assets reflect the available information in the market; but, in addition, prices change rapidly without any bias to new public information. The operational implication is that in semi-strong form, the investor cannot split the stock to obtain profitability significantly higher than they can achieve in a randomized portfolio of assets ( Samsa, 2021 ).

There are several studies conducted in the Indian context. For want of space, we mention only a few for reference. In the latest study by Jain et al. (2020) conducted on the efficiency of the stock market in India, from April 2010 to March 2019, based on BSE and National Stock Exchange, it was revealed that the Indian stock market is weak-form inefficient and therefore can be outperformed. In another study by Vidya (2018) , it was found that changes in stock market prices are random, and the market is efficient in the weak form. By performing runs test, Patel et al. (2018) found that from April 2015 to March 2018, the three-year daily closing points reveal that market is not efficient to adjust rapidly to the news, thus allowing the investors to outperform, especially when they keep in touch with the changes.

The objective of the study is to demonstrate whether the Indian stock market is weak-form efficient empirically. We determine this by examining whether the return series is stationary or not and identifying whether markets follow a normal distribution and by the descriptive statistics for BSE broad market indices for the return series. In this study, we have the following hypotheses.

The return series of BSE broad market indices are normally distributed.

There is no stationarity in the return series of BSE broad market indices.

The BSE broad market indices follow a random walk.

3.1 Research design

To examine the weak-form market efficiency in the Indian stock market, we have chosen the BSE broad market indices. As of 25 March 2021, BSE has 19 broad market indices and out of which nine indices were selected in this study covering the study period from 01 January 2011 to 31 December 2020. The selected indices are Standard and Poor Bombay Stock Exchange Sensitivity Index (S&P BSE SENSEX), Standard and Poor Bombay Stock Exchange All Capitalization (S&P BSE AllCap), S&P BSE 100, S&P BSE 200, S&P BSE 500, Standard and Poor Bombay Stock Exchange Large Market Capitalization (S&P BSE LargeCap), Standard and Poor Bombay Stock Exchange Mid-Capitalization (S&P BSE MidCap), S&P BSE SENSEX Next 50 and S&P BSE SmallCap. We selected nine indices because only these nine indices are available, and the information about the other ten indices is not available.

3.2 Data collection

The data collected for this empirical study are daily open, high, low and closing prices of BSE broad market indices. Instead of using the closing price itself, the researcher used the average of these four prices. The logic behind the average values of these four prices is that volatility in changes in prices is controlled to some extent. While prior researchers have used only closing prices, assuming trading is done at the closing price, Lodha and Sora (2015) recommend using the average of the four prices to nullify the fluctuations, and volatility is controlled at least partially. All the data have been collected from the official website of the BSE.

3.3 Analytical procedure

The tools used in this study are: (1) unit root test [The Augmented Dickey–Fuller [(ADF)] test to check the stationarity of time series, (2) descriptive statistics (average monthly returns, maximum, minimum, standard deviation, skewness, kurtosis and Jarque–Bera Test), (3) autocorrelation (measuring the linear relationship between lagged values of a time series) and (4) runs test (to check whether observations vary around a constant mean, have constant variance and are probabilistically independent). To calculate the daily returns, we used the formula [(LN (Today closing price/yesterday closing price) × 100]. These tools have been used by several researchers in the past ( Degutis and Novickytė, 2014 ; Harshita et al. , 2018 ; Titan, 2015 ). The procedures and techniques used in this study are consistent with the earlier research in the literature.

The ADF statistics used in the test should be a negative number, and the more the negative number, the stronger the rejection of the null hypothesis that there is a unit root. The runs test, a non-parametric test, is concerned with the price changes rather than the magnitude of price changes. It just considers whether the series consists of increasing values or decreasing values. The null hypothesis of the runs test is that the data set is from a random process.

First, we examined the descriptive statistics. Table 1 captures the results of descriptive statistics for BSE broad market indices. For the time-series data, it is essential to check the normality of the data which can be found by observing the descriptive statistics. Therefore, we did a preliminary analysis of the descriptive statistics, namely, mean, standard deviation, variance, minimum, maximum, skewness and kurtosis. The mean of BSE SENSEX and BSE 200 shows the maximum mean return of (0.0340). In order that the distribution is normal, the condition is that both skewness and kurtosis must be equal to 0 and 3, respectively. As can be seen from Table 1 , the value of skewness of the returns was found to be negative for all indices and therefore the distribution of the daily returns was asymmetrical. The value of Kurtosis is greater than 3 (which represents Leptokurtic distribution) for all the indices. Based on these descriptive statistics, we reject H01 and conclude that the distribution of returns is not normal.

To test the stationarity in the BSE broad market indices, an ADF test was conducted. Table 2 displays the results of the ADF test. The ADF test statistic values of intercept are less than critical values at a 1% significance level. Hence, H02 was rejected and concluded that there is no stationarity in the return series of BSE broad market indices. These results show that data has exhibited stationarity.

4.1 Autocorrelation

There are 16 lag periods associated with autocorrelation for all the indices (in Tables 3–11 ).

The results of autocorrelation for S&P BSE SENSEX are presented in Table 3 .

The first lag depicts an autocorrelation of 0.262 ( Q -statistic = 170.33, p < 0.05), suggesting that the stock market in India does not follow a random walk. It is also interesting to note that the autocorrelation values for the lags 6, 10, 11, 13, 15 and 16 were negative ( p < 0.05) and these results support that stock returns are not random.

The results of autocorrelation for S&P BSE AllCap are shown in Table 4 .

As shown in Table 4 , the first lag shows an autocorrelation of 0.182 ( Q -statistic = 81.897, p < 0.05) which suggests that stock returns in the Indian stock market do not follow a random walk. Further, the lags 6, 11, 13, 15 and 16 showed negative autocorrelations ( p < 0.05) corroborating that the stock returns are not random.

The results of autocorrelation for S&P BSE 100 are exhibited in Table 5 .

As can be seen in Table 5 , there are 16 lag periods related to the autocorrelation test. The first lag depicts an autocorrelation of 0.286 ( Q -statistic = 203.17, p < 0.05), and the lags 6, 11, 13, 15 and 16 had negative autocorrelations ( p < 0.05). These results suggest that stock returns on the Indian stock market are not random.

Table 6 shows the results of autocorrelation for S&P BSE 200.

As presented in Table 6 , there are 16 lag periods associated with the autocorrelation test. The first lag depicts an autocorrelation of 0.296 ( Q -statistic = 216.61, p < 0.05), and the lags 6, 11, 13, 15 and 16 had negative autocorrelations ( p < 0.05). These results indicate that stock returns in the Indian stock market are not random.

The results of autocorrelation for S&P BSE 500 are presented in Table 7 .

As can be seen in Table 7 , the first lag depicts an autocorrelation of 0.310 ( Q -statistic = 238.73, p < 0.05), and the lags 6,11,13,15 and 16 showed negative autocorrelations ( p < 0.05). These results corroborate that stock returns in the Indian stock market do not follow a random walk.

The results of the autocorrelation test for S&P BSE LargeCap are detailed in Table 8 .

As detailed in Table 8 , the first lag depicts an autocorrelation of 0.146 ( Q -statistic = 52.786, p < 0.05), and the lags 6, 11, 13, 15 and 16 had negative autocorrelations ( p < 0.05). These results indicate that the stock returns of the Indian stock market do not follow a random walk.

The results of the autocorrelation test for S&P BSE MidCap are presented in Table 9 .

As shown in Table 9 , there are 16 lag periods related to the autocorrelation test. The first lag depicts an autocorrelation of 0.299 ( Q -statistic = 221.42, p < 0.05), and the lags 6, 13, 14 and 15 had negative autocorrelations ( p < 0.05), thus documenting that stock returns in the Indian stock market are not random.

The results of the autocorrelation test for S&P BSE SENSEX NEXT50 are presented in Table 10 .

As can be seen in Table 10 , the first lag depicts an autocorrelation of 0.181 ( Q -statistic = 81.107, p < 0.05), and the lags 4, 5, 6, 11, 13, 15 and 16 all showed negative autocorrelations ( p < 0.05). These results reveal that stock returns on the Indian stock market are not random.

Table 11 shows the results of the autocorrelation test for S&P BSE SmallCap.

As Table 11 details, the first lag depicts an autocorrelation of 0.373 ( Q -statistic = 345.56, p < 0.05), and the lags, 13, 14 and 15 showed negative autocorrelations ( p < 0.05). The results document that stock returns on the Indian stock market are not random.

The results of runs test for BSE broad market indices are exhibited in Table 12 .

As shown in Table 12 , the Z value negative for all the BSE broad market indices and found that the critical value of Z for 95% level of confidence is ± 1.96. Hence, the null hypothesis, i.e. BSE broad market indices follow a random walk is rejected at a 5% level of significance. Moreover, the p -value is also 0.000 which is less than the alpha (0.05), and therefore, the null hypothesis is rejected. The runs test of this study indicates that BSE broad market indices do not follow a random walk and it is evident that the Indian stock market is in weak-form inefficient.

5. Discussion

The objective of this study is to test the EMH in the Indian stock market. The rationale for this study stems from the fact that though several studies on EMH were conducted in India, the results were mixed. This prompted us to study the EMH, especially during the last decade (2010–2020), a period characterized by unprecedented economic changes, and the Indian economy has been on the growth track. Our results were consistent with most of the previous studies. Our results are fascinating because even when much information is available because of technological improvements and transparency in the data, the EMH does not hold good.

First, the results indicate that the value of skewness returns distribution was negative for all indices. It is documented that the distribution of the daily returns is asymmetrical nature. The value of Kurtosis is greater than 3, representing Leptokurtic distribution for all the indices. The distribution is, therefore, was not normally distributed ( H01 ). The autocorrelation test reveals that the stock returns of the Indian stock market do not follow a random walk for all the indices. Second, the findings from this study indicated that the ADF test statistic values of intercept are less than critical values at a 1% significance level. Hence, the null hypothesis is rejected, and the results reveal that data has exhibited stationarity in nature ( H02 ). When the data are non-stationary, the time series contains unit root implying that the mean, variance and covariance are not constant over time. The ADF statistic contains significant negative values and corroborates that the series does not contain a unit root. If data contains the unit root, the data follows a random walk. The results from this study indicate that the unit root is not present, and the data showed stationarity. Finally, the runs test of this study indicates that BSE broad market indices do not follow a random walk, and it is evident that the Indian stock market is as weak-form inefficient ( H03 ). To sum, the results from our study do not support EMH as evidenced by critics of the theory. Asymmetrical distribution, Leptokurtic distribution and the runs test result show that BSE broad market indices do not follow a random walk. Therefore, the Indian stock market is weak-form inefficient.

5.1 Theoretical implications

The study has several theoretical implications. First, the results add to the growing body of literature on EMH, and the results are consistent with most of the earlier studies. Second, though some studies in the past have shown different and opposite effects (see Tables 1 and 2 ), our study provides a fresh look at the EMH during a decade of 2010–2020. Most importantly, the results from this study corroborate the findings conducted a decade back that tested the weak form of market efficiency of stock market returns in 14 countries (Pakistan, India, Sri Lanka, China, Korea, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Thailand, Taiwan, Japan and Australia), which documented that stock prices do not follow random walks in all countries of Asian-Pacific region ( Hamid et al. , 2010 ). Therefore, investors in these countries employed strategies of the arbitrage process to enjoy the stream of benefits. Thus, our results are consistent with the previous studies and vouch for the failure of the EMH hypothesis.

Third, from the theoretical standpoint, the results suggest diagnosing the plausible reasons for the failure of EMH in the Indian context, besides all other countries in the Asia–Pacific region. We argue that two fundamental reasons for the failure of EMH in the Indian context: the unpredictability of investors' behaviour and uncertainty about the investment. Many studies in the Western countries and the Middle East have concluded that the market should be seen in only relative terms. There is consensus among academicians that EMH fails to explain the excess volatility in security prices, unexpected bubbles in the stock market, irrational customers and overreactive behaviour. While analysing market efficiency, academicians need to consider the dynamics of changing markets that may tilt the results and vouch for EMH failure.

5.2 Practical implications

The research findings of this study have several implications for the stakeholders, including the stockbrokers and investors. First, the results reported in this study portrayed that the stock market in India exhibited the weak-form inefficient; the investment brokers and investors should exercise caution before selecting their investment portfolios. In India, being a thickly populated developing country, there is a wide variety of investors with varying financial requirements. Some investors seek a long-term return on their investment, whereas some prefer to have secured returns every month. Some investors are risk-takers, whereas some are risk-avoiders. Since people with different portfolio requirements influence the stock market, behavioural finance scholars suggest examining the effect of personality factors on investment behaviour. For example, some researchers documented that the personality characteristics of individuals have a significant impact on investment behaviour ( Isidore and Christie, 2017 ; Sadiq and Khan, 2019 ). Second, financial literacy plays a vital role in investment decisions. Therefore, in addition to the technical analysis of the stock market, the analysts need to consider the level of financial literacy, information access, subjective financial knowledge, risk propensity, etc., that may profoundly impact investor behaviour. As provided in this study, the results from stock market analysis guide the investors in making decisions and not getting lured by false promises of stockbrokers ( Aren and Aydemir, 2015 ; Barber et al. , 2021 ).

The findings from the study help investors to make correct investment decisions. The effectiveness of investment decisions largely depends on market efficiency and the investors' financial knowledge and various investment opportunities with varying degrees of return on investment. Although theoretically, rational decision-making considers identifying multiple available alternatives and choosing suitable options, it is not possible in reality because of information asymmetry and market anomalies ( Sitkin and Weingart, 1995 ), and investors make decisions based on the available information. Therefore, failure to consider the market anomalies may result in flawed decision-making. Moreover, in the present-day technological sophistication where information is readily available from multiple sources, it is expected that investors will have complete information. Despite this, the reasons for the failure of EMH need further investigation. Investors diversify their investments based on their financial knowledge, and available empirical evidence shows that increased financial knowledge influences financial management attitudes, resulting in healthy financial behaviours ( Borden et al. , 2008 ).

5.3 Future research agenda

This study offers several avenues for future research. The results from this research vouch against the EMH and call for further studies to identify the reasons for the rejection of EMH. Though it was documented that in Asian countries, stock markets failed to support EMH, and the researchers explained the possible causes for lack of support for EMH, the information was not adequately explained. During this study period (2011–2020), the market did not exhibit high volatility, and it is suggested to identify the reasons for not supporting the well-established random walk theory. As we omitted 11 indices, future researchers can focus on those indices to see if the results from the study can be replicated. Second, future research can focus on liquidity's role in asset pricing in the stock market ( Miralles-Quirós et al. , 2017 ) and see how liquidity affects the EMH in the Indian stock market. Third, sometimes the investors may make frugal decisions, either lack information or habituate to making fast decisions (called heuristic) that challenge the EMH. The essence is that decisions taken by irrational investors may lead to inefficiencies in the stock market ( Akerlof and Shiller, 2010 ; Lobao et al. , 2017 ). Future researchers can also throw light on the effect of heuristic decisions made by investors on the efficiency of the stock market. Finally, as financial literacy plays an essential role in the investor's behaviour, it would be interesting to put on the agenda of future research to study the impact of financial literacy and financial illiteracy on the effectiveness of the stock market ( Rasool and Ullah, 2020 ).

6. Conclusions

The basic tenet of EMH is that if the stock market is working efficiently, the prices will follow a random walk, and the prices will reflect the intrinsic values, and no one can benefit from trading. However, there is the possibility that investors may be reluctant to agree with this hypothesis. Hence, some investors tend to buy stock, and some others may sell the stock so that the price is not affected significantly ( Latham, 1985 ). Amid several studies that have been conducted in India, this study was a modest attempt to empirically examine whether the stock market in India is weak-form efficient. The data was collected (daily open, high, low and closing prices) on nine BSE broad market indices and analysed using the standard tests (unit root, descriptive statistics, autocorrelation and runs test) covering the period from 1 January 2011 to 31 December 2020. The results did not support random walk theory, thus contributing to supporting the theory against EMH. Therefore, it is concluded that the Indian stock market, based on the results from the study, is a weak-form inefficient.

EMH proposes that security prices reflect all the available information. If this hypothesis is true, the asset managers need to demonstrate extraordinary skills to convince the investors that the recommended stock outperforms other securities ( Brown, 2020 ). Since the rapid growth of technology makes information accessible in no time, prices must reflect all information. EMH must be more valid in the present-day context than when Fama (1970) postulated the hypothesis. While the academicians do not consider the costs involved in acquiring information, the investment analyses do think the cost involved, and hence Fama (1970) argued that prices reflect the information only to the extent the expenses do not outweigh the benefits. One of the implications of EMH, as critics argue, is that there will be equilibrium in capital markets because of the presence of rational and informed agents. However, in real life, not all traders are perfectly rational. So, in the imperfect world, as behavioural financial scholars contend, EMH is valid only in theory (in spirit) but not accurate in practice. Some examples are that the financial crisis around 2008 around the world was a total failure of EMH, as the stock market largely depends on behavioural needs rather than financial arithmetic ( Malkiel, 2003 ). As things stand now, as there is no consensus among financial management scholars and economists about all three forms of EMH, there is a near-consensus that EMH is a theory simple to describe but difficult to put to the empirical test. Despite the onslaught against the EMH over the last two decades, the puzzling set of stock market anomalies could be considered chance events; some supporters argue that it is hard to find profit even if the market is highly volatile ( Roll, 1994 ). Lack of finding support for EMH may be considered as a shortcoming of the basic model. It would not be an exaggeration that the EMH has not lost its charisma and is expected to be on the agenda of financial economists.

Descriptive statistics for BSE broad market indices

Note(s): AllCap, All Capitalization; BSE, Bombay Stock Exchange; LargeCap, Large Market Capitalization; MidCap, Mid-Capitalization; S.D., Standard Deviation; SENSEX, Sensitivity Index

Source(s): Compiled from EViews 10

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Vidya , A. ( 2018 ), “ An empirical study on weak form efficiency of Indian stock market ”, International Journal of Management Studies , Vol. 5 No. 2 , pp. 94 - 98 .

Acknowledgements

The authors are thankful to the Editor-in-Chief, Professor Nestor U. Salcedo, and the anonymous reviewers for their constructive suggestions in the earlier version of the manuscript.

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Essay: Indian stock market

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The market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter markets, is known as the equity market or stock market. The stock market is one of the most important components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a part of ownership in the company. The share market makes possible to its investors to grow their small initial sums of money into large ones, and to become wealthy without taking the risk of starting a business as their own or making the sacrifices that often accompany a high-paying career. A stock exchange is a place or organization for the trade of shares of listed companies. A stock exchange is a form of exchange which provides services for stock brokers and traders to buy or sell stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and “dark pools” have taken much of the trading activity away from traditional stock exchanges. ORIGIN OF INDIAN STOCK MARKET BSE and NSE are the leading stock exchanges in India. Apart from these two stock exchanges there are another 22 stock exchanges are also trading shares in India. But BSE and NSE established themselves as leaders in stock exchanges. There are about 80 percent of equity volume are traded in these two exchanges. BOMBAY STOCK EXCHANGE(BSE) Bombay Stock Exchange is the oldest stock exchange in Asia. It is popularly known as BSE. It was established as ‘The Native Share and Stock Broker’s Association’ in 1875. . It is the world’s 5th most active in terms of number of transactions handled through its electronic trading system. There are over 6000 stocks are listed in BSE having the market capitalization around 968000 crores BSE is the 1st in India and second in the world to obtain an ISO 9001:2000 certifications. It is also the first exchange in the country and second in the world to receive Information Security Management System. BSE’s normal trading session are from 9:15am to 3:30pm on all days of week except Saturdays Sundays and holidays declared by the Exchange in advance. BSE automated its system in1995.

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Home — Essay Samples — Sociology — Globalization — Impact of FDI and FII on Indian Stock Market

Impact of Fdi and Fii on Indian Stock Market

Categories: Globalization Indian Economy Stock Market

About this sample

Words: 2200 |

11 min read

Published: May 19, 2020

Words: 2200 | Pages: 5 | 11 min read

Foreign direct investment, why is fdi better than fii, need for fdi in india, need for fii in india, current scenario of fdi in india.

Market potential and accessibility
Political stability
Market infrastructure
Easy currency conversion.
Developing economy
Low salaried employees
Low wage workers
Abundant human resources
Big private economy India is looking forward to a high growth rate of almost 16% – double that of the current 8%.

Investments

Flipkart, India's largest e-commerce marketplace has raised US$ 1 billion in a funding round led by Chinese internet giant, Tencent and Microsoft.
Paytm’s e-commerce unit raised US$ 200 million in a funding round led by Chinese e-commerce giant, Alibaba and existing investor, SAIF Partners.
Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second largest pension fund, plans to invest around US$ 155 million to acquire a minority stake in TVS Logistics Services Limited, a privately held subsidiary of the TVS Group.
International Finance Corp (IFC), along with IFC Global Infrastructure Fund, the PE fund of IFC Asset Management Company, has announced investment of US$ 125 million equity in Hero Future Energies.
The World Bank Group has committed to provide US$ 1 billion for India’s solar energy projects and plans to work with other multilateral development banks and financial institutions to develop financing instruments to support future solar energy development in the country.
Goldman Sachs' PE fund plans to invest US$ 200-250 million in Essel Highways, the road infrastructure arm of Essel Group, which could make it one of the biggest PE transactions in the sector.
ReNew Power Ventures Pvt Ltd, a renewable energy producer, has signed a debt financing agreement of US$ 250 million with Overseas Private Investment Corporation (OPIC), the US government's development finance institution, which will be used to construct up to 400 megawatts (MW) of new solar power projects in India across multiple states.
Godrej Fund Management (GFM), the real estate fund management arm of Godrej Properties, has raised US$ 275 million from Netherlands-based APG Asset Management NV, which will be used to invest in residential projects in India.
Global investment banking major Goldman Sachs has invested Rs 441 crore (US$ 65.37 million) to acquire an equity stake in Gurgaon-based hotel development and investment start-up SAMHI Hotels which will help fund SAMHI's expansion plans.
Singapore-based investment firm, Temasek Holding, has acquired 73 per cent stake in Hyderabad-based Care Hospitals, India's fifth largest private healthcare network, for Rs 1,800 crore (US$ 266.83 million).

Government Initiatives

The Government of India plans to work on increasing India’s weight in the MSCI Emerging Markets Index, in order to boost foreign portfolio investors (FPIs) inflow into the economy.
The Government of India and The World Bank have signed a US$ 650 million loan agreement for the Eastern Dedicated Freight Corridor-III (EDFC-III) project, which is expected to enhance railway transport capacity, service quality and freight carriage on the Ludhiana-Khurja section of the EDFC, along with developing institutional capacity of Dedicated Freight Corridor Corporation of India Ltd (DFCCIL).
The RBI has allowed start-ups to borrow up to US$ 3 million per financial year through external commercial borrowings (ECBs).
The Securities and Exchange Board of India (SEBI) has relaxed norms for registered FPIs in India, allowing them to operate through the International Financial Services Centre (IFSC) without any additional documentation or prior approval process.
The Maritime India Summit 2016, which was held in Mumbai between 14th-16th April, has attracted investments worth Rs 82,905 crores (US$ 12.29 billion) across 141 memoranda of understanding (MOU) and business agreements, which were signed by various players in the maritime sector.
The government of India has accepted the recommendation of A.P. Shah Committee to not impose Minimum Alternate Tax (MAT) on overseas portfolio investors retrospectively for the years prior to April 01, 2015, thereby providing significant relief to FPIs.
SEBI has allowed FPIs to invest in units of Real Estate Investment Trusts (REITs), infrastructure investment trusts (InvITs), category III Alternative Investment Funds (AIFs), and also permitted them to acquire corporate bonds under default.
The RBI has also allowed a number of foreign investors to invest, on repatriation basis, in non-convertible/redeemable preference shares or debentures issued by Indian companies listed on established stock exchanges in India. The investment should be within the overall limit of US$ 51 billion allocated for corporate debt. Long-term investors registered with SEBI will also be deemed as eligible investors.
The People’s Bank of China (PBoC) has invested US$ 500 million in Indian bonds for the first time since the Indian government eased restrictions on foreign investors. Road Ahead India is being viewed as a potential opportunity by investors, with the economy having the capacity to grow tremendously. Buoyed by strong support from the government, FII investments have been strong and are expected to continue to improve going forward.
Mr Mark Machin, Chief Executive Officer, Canada Pension Plan Investment Board (CPPIB), has expressed confidence in the Indian equity market and stated that the country is one of the best investment destination based on its demographic growth, increased productivity, and long-term economic growth potential.
"The FII participation has been very consistent as far as India is concerned and we see the trend continuing. We have been overweight India in the context of Asia and emerging markets since November 2013 and that stance very much continues," said Mr Bharat Iyer, MD, Global Research, JP Morgan India.
Impact investments in India are expected to grow at a compound annual growth rate (CAGR) of 20-24 per cent to touch US$ 6-8 billion by 2025, from US$ 1 billion in 2015, according to McKinsey & Co.
A PricewaterhouseCoopers India report based on a survey of 40 PE firm partners has projected that the country has the potential to get PE funding of US$ 40 billion by 2025. Future PE investments would be driven by India’s consumption story, realistic valuations, competitive businesses, growing private entrepreneurship, among other factors, as per the report.

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A growing chorus of experts don't think a rate cut is coming in 2024

Investors are starting to take seriously the idea that the Fed might not cut interest rates in 2024.
Strong job gains and elevated inflation reports could put the Fed in a difficult spot later this year.
At this point, investors are viewing economic strength as ultimately good news for the stock market, if that means a recession is delayed.

From seven, to three, to now potentially zero, projected interest rate cuts in 2024 are quickly going out of style on Wall Street.

Just a few months ago, evidence of fast-falling inflation suggested that the Federal Reserve could get aggressive in normalizing interest rates this year, with initial market projections suggesting the Fed would lower the effective Fed Funds rate to 3.5% by the end of the year from its current level of just above 5.25%.

But a series of strong economic data over the past few months — flanked by solid jobs reports, a pick-up in manufacturing activity, and a strong first-quarter GDP forecast of 2.5% from the Atlanta Fed — suggest that investors will have to wait a bit longer for lower interest rates.

Talk of no 2024 rate cuts growing

That thinking came to a head on Thursday when Minneapolis Fed President Neel Kashkari said there's no reason to cut interest rates when the economy is doing so well.

"If we have a run rate that's very attractive, people have jobs, businesses are doing well, inflation is coming back down, why do anything?" Kashkari asked.

Fed Governor Michelle Bowman echoed similar sentiments on Friday and said said that an additional rate hike, not cut, could be necessary this year if inflation remains above the Fed's long-term target of 2%.

"While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse," Bowman said.

The back-and-forth talk of Fed members this week sparked a sizable sell-off on Thursday following Kashkari's comments, though those losses were largely recovered in Friday's trading session following a strong March jobs report.

Still, according to market veteran Ed Yardeni, investors may be finally waking up to the fact that the interest-rate cuts seen as a slam dunk earlier this year may ultimately be off the table in 2024.

"Investors might be finally discounting the possibility of a no-show rate cut this year," Yardeni said in a note on Thursday, adding that the recent rise in oil prices represents an upside risk to inflation.

Other experts arguing for no rate cuts this year include top economists like Mohamed El-Erian, who said last month that the Fed should wait "a couple years" before cutting interest rates due to sticky inflation, and Torsten Slok, who warned that a frenzy for AI stocks would make it difficult for the Fed to cut interest rates.

"We are absolutely in an AI bubble, and the side effect of that is that when tech stocks go up, it eases financial conditions. That's making the job a lot harder for the Fed," Slok said.

The futures market currently assigns a 51% probability of the first interest rate cut happening in June, and analysts at Bank of America said if the first cut doesn't happen in June, it's unlikely to happen at all in the second half of the year as the 2024 Presidential Election approaches.

"If the Fed tells markets that a rate cut is not justified in June, it will be difficult to justify a cut later this year," Bank of America said earlier this week.

Stock market implications

Falling interest rates are a tailwind for stock prices, as they lower the discount rate that is often used to value stocks, leading to higher valuation multiples. So a delay in interest rate cuts, on paper, would suggest lower stock prices.

But what ultimately drives stock prices in the long term is earnings growth. And better-than-expected first quarter profits have helped put a floor on a stock market that is trading near record highs, even as talks of interest rate cuts fade.

Rosy growth outlooks driven by an economy at full employment and efficiency gains driven by the growing adoption of artificial intelligence suggest that stock prices could continue to rise even if interest rates stay elevated , according to billionaire investor Ken Fisher.

And if the stock market and economy do withstand higher interest rates for longer, it will give the Federal Reserve more ammunition to significantly cut interest rates in a bid to stimulate the economy whenever the next inevitable recession arrives.

Ultimately, good news in the economy appears to be good news in the stock market for as long as a recession is averted.

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The BSE and NSE

The Bottom Line

Indian Stock Market: Exchanges and Indexes

Key Takeaways

Investing in India's Markets

Restrictions and Investment Ceilings

Investments for Foreign Entities

What Is the Main Stock Market in India?

What Is the Largest Company on the Indian Stock Market?

Can Americans Invest in the Indian Stock Market?

Stocks Soar in India, Luring Investors at Home and Abroad

Essay on Stock Exchange

1. Essay on the Meaning of Stock Exchange :

2. Essay on the Features of Stock Exchange :

(i) Voluntary Association:

(ii) Recognition and Registration:

(iii) Membership:

(iv) Conduct of Business:

(v) Management of Stock Exchange:

3. Essay on the Functions of Stock Exchange in India:

(i) Nexus between Savings and Investment:

(ii) Market Place:

(iii) Continuous Price Formation:

(iv) Market Making:

(v) Uniform System of Settlement:

(vi) Management Information System:

(vii) Evaluation of Securities:

(viii) Protecting investor’s interest:

(ix) Capital formation:

4. Essay on the History of Stock Exchanges in India: Nature of Transaction and Speculation :

Nature of Transaction:

Speculation and Stock Exchange :

5. Essay on the Major Problems in Trading in Indian Stock Exchange:

(i) Lack of Integration:

(ii) Weak Management of SE:

(iii) Arbitrary Classification of Specified and Non specified Shares:

(iv) Discriminatory Margins:

(v) Adoption of the Settlement System and Carry Forward System (Badla):

(vi) Ignoring Investors’ Interest:

6. Essay on the Measures Suggested for the Reform of the Stock Exchange:

(i) Uniform System of One-Week Settlement:

(ii) Market Making:

(iii) Margin Trading and Marking to the Market System:

(iv) Abolishing the System of Carry Forward:

(v) Formation of Governing Body (GB) and Management of Stock Exchange:

(vi) Introducing Management Information System:

Understanding the Indian Stock Market: A Beginner’s Guide

Introduction

What is the Indian Stock Market?

How Does the Indian Stock Market Work?

Types of Investment in the Indian Stock Market

Factors Affecting the Indian Stock Market

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