What is Stock Market?

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Source Credit : Portfolio Prints

What is Stock Market:

The stock market is the collective network of exchanges and venues where shares of publicly traded companies are issued and traded. In a primary market, companies sell new shares to raise capital (for expansion, R&D, etc.), while in the secondary market investors buy and sell existing shares. Stock markets serve multiple purposes: they enable companies to raise funds, provide liquidity and price discovery for shares, and allow investors to share in corporate profits (through dividends and stock appreciation). In this way, stock markets link savers and businesses, channeling capital into productive uses and helping allocate resources efficiently in the economy. For investors, the market offers opportunities to build wealth and diversify portfolios, with returns coming from share- price gains and dividends.

Indian Stock Exchanges: BSE and NSE

India has two main stock exchanges:

Bombay Stock Exchange (BSE) – Founded in 1875 by Premchand Roychand, BSE is Asia’s oldest stock exchange and the world’s 6th largest by market capitalization. Located on Mumbai’s Dalal Street, BSE is a publicly listed company (BSE Ltd.) and was demutualized in 2007. It lists over 5,600 companies (as of 2024) and its flagship index is the Sensex (30 companies). The BSE has modernized over time: in 2016 it launched India’s first international exchange (India INX) and offers equities, derivatives, and commodity contracts.

National Stock Exchange (NSE) – Incorporated in 1992 and operational from 1994, NSE was established to introduce transparent, electronic trading in India. Backed by major financial institutions, NSE pioneered electronic order matching and rapidly surpassed BSE in turnover. Today NSE is the world’s 5th-largest stock exchange by market cap (over US$5.1 trillion as of end-2024) It lists about 2,700 companies (Dec 2024) on its main and SME boards, and its main index is the Nifty 50 (50 companies). NSE also operates India’s biggest derivatives platform (largest globally by contracts traded) and has introduced currency and debt trading platforms.

Both BSE and NSE operate as formal, regulated exchanges providing trading platforms, clearing and settlement, and price dissemination. Their roles include facilitating IPOs and follow-on offerings (primary market), and providing an orderly marketplace for buying and selling shares (secondary market). Brokers and trading members connect investors to these exchanges, ensuring liquidity. (Regular trading hours on both BSE and NSE are 9:15 AM to 3:30 PM IST, Monday–Friday.) In effect, the two exchanges compete and complement each other: BSE retains a broad listing base, while NSE handles the bulk of trading volume.
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Global Stock Exchanges: NYSE and NASDAQ

The largest global exchanges offer useful points of comparison:

New York Stock Exchange (NYSE) – Established in 1792 via the Buttonwood Agreement, NYSE (Wall Street, NYC) is the oldest and largest exchange by market capitalization. It is owned by Intercontinental Exchange (ICE) and lists many blue-chip companies. NYSE’s total market cap exceeds US$25 trillion (July 2024). It operates a hybrid trading model (electronic and floor auction) and sets rigorous listing standards. NYSE’s major index is the Dow Jones Industrial Average (30 large U.S. firms) and it also has indices like the NYSE Composite. Trading hours are 9:30 AM–4:00 PM Eastern Time.

NASDAQ – Founded in 1971 by the NASD (the precursor of FINRA) as the world’s first electronic stock market, NASDAQ is known for technology and growth companies. It lists over 3,800 companies (Feb 2025) with a combined market cap around US$30.1 trillion (Nov 2024). NASDAQ is ranked second globally by market cap and is highly liquid; its flagship index is the NASDAQ Composite (covers all NASDAQ stocks) and it also has the tech-heavy NASDAQ-100. Like NYSE, NASDAQ’s regular session runs 9:30 AM–4:00 PM ET, followed by pre- and post- market sessions.

Comparisons: The Indian exchanges are among the world’s top ten by size – NSE is 5th largest and BSE is 6th largest by market cap – but they remain much smaller than the NYSE/NASDAQ. For example, the combined market cap of NSE-listed firms is ~US$5.1 trillion versus ~$25–30 trillion for the NYSE/NASDAQ. Indian markets trade fewer stocks (a few thousand) compared to several thousand on NYSE/NASDAQ. However, structure-wise Indian exchanges have rapidly adopted electronic trading (like NASDAQ), whereas BSE historically began with outcry trading (like NYSE). Indian indices (Sensex, Nifty) serve as barometers similar to the Dow or S&P 500, reflecting domestic economic sectors.

Stock Market Indices: Nifty 50 and Sensex

Stock indices track the performance of representative baskets of stocks:

Sensex (BSE Sensitive Index) - Launched in 1986 (base 1978–79), Sensex is a free-float–market- capitalization-weighted index of 30 large, well-established companies on BSE. These 30 firms span major sectors (banks, IT, energy, etc.) and are among India’s most actively traded stocks. Sensex was set to 1000 on Apr 1, 1979, and today movements in the Sensex are often cited as a “pulse” of India’s economy. For example, when companies grow in value, Sensex rises, signaling overall market sentiment.

Nifty 50 - The NSE’s flagship index, launched in April 1996 (base Nov 3, 1995 = 1000), Nifty 50 covers 50 of the largest Indian companies listed on NSE. It is float-weighted, meaning larger companies have more influence. Nifty 50 represents all major sectors (financials, IT, energy, consumer goods, etc.) and roughly half of the market’s free-float capitalization. Like Sensex, it provides a broad measure of market performance. (Other indices include the BSE 500, NSE’s Nifty Next 50, and sectoral indices.)

Globally, similar indices include the Dow Jones Industrial Average (30 large US firms) and the S&P 500 (500 large US firms) on NYSE/NASDAQ, and the FTSE 100 in London. These indices provide benchmarks for investors and are used in index funds and derivatives.

Importance to the Economy and Investors

Stock markets are central to economic growth and financial stability. They allow companies to raise capital (through IPOs/bonds), which can be used for expansion and innovation. By trading shares, markets also allocate capital efficiently: successful companies attract investment while weaker firms may find funding harder, guiding resources to their best uses . The stock market’s performance often reflects investor confidence and business outlook; sustained market gains can buoy consumer/business sentiment, while declines may signal economic stress.

For investors, stock markets offer potential for higher long-term returns compared to traditional savings. Investors may earn dividends (profit sharing) and capital gains (selling stocks at higher prices) . Markets provide liquidity, meaning investors can buy or sell quickly, and enable diversification: by holding a portfolio of many stocks or mutual funds/ETFs, one can reduce risk from any single company. Over time, broad market investments have historically outpaced inflation, contributing to wealth accumulation. However, markets also carry risks (volatility, losses), so investors often balance stocks with bonds and other assets.

Market Participants and Stock Types

The stock market involves many types of participants:

Institutional investors: These include mutual funds, pension funds, insurance companies, hedge funds, and sovereign wealth funds. They manage large pools of money and often trade in high volumes. Their actions can significantly move markets.

Retail investors: Individual investors who trade for their personal accounts. Thanks to online brokerages, retail participation in India has grown rapidly in recent years. Retail investors range from novice to experienced traders.

High-net-worth and accredited investors: Wealthy individuals and family offices that may access more complex investments (like private equity or hedge funds) under regulatory criteria.

Brokers and market makers: Brokerage firms execute trades for clients and may also provide liquidity by matching buy/sell orders. Market makers (in some markets) quote buy and sell prices continuously to facilitate trading.

Traders vs. Investors: Some participants trade actively (day traders, algorithmic traders) seeking short-term profits from market swings, while others invest for the long run based on company fundamentals.

Regarding types of stocks and instruments: The basic stock is common stock, giving shareholders voting rights and a residual claim on profits. There are also preferred stocks, which pay a fixed dividend and have priority over common stock in bankruptcy claims. Companies are classified by size (large-cap, mid-cap, small-cap). In India, many companies are classified by market-cap segments (e.g. Nifty 50 are large-caps). Aside from stocks, the market offers related instruments like exchange- traded funds (ETFs) and index funds (which pool stocks), bonds (debt securities), and derivatives (futures/options) that are often traded on stock exchanges. Real Estate Investment Trusts (REITs) are also traded as stocks and must distribute most profits as dividends.

Regulatory Bodies: SEBI and SEC

Stock markets are tightly regulated to ensure fairness and protect investors. In India, the key regulator is the Securities and Exchange Board of India (SEBI). Established as a statutory body in 1992, SEBI’s mandate is to regulate and develop India’s securities market and ensure investor protection. SEBI sets listing rules for exchanges, oversees trading practices, inspects brokerages, enforces disclosure and anti-fraud regulations, and can suspend trading to curb excessive volatility. For example, SEBI mandates timely financial disclosures by companies and can penalize insider trading or market manipulation. Its actions (such as establishing an Investor Protection Fund) aim to bolster public confidence in the markets.

In the United States, the analogous agency is the U.S. Securities and Exchange Commission (SEC). Created by the 1934 Securities Exchange Act (in the wake of the 1929 crash), the SEC’s mission is “protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation”. The SEC enforces federal securities laws, requiring public companies to publish audited financial reports and disclosure statements. It oversees the major exchanges, broker-dealers, and investment advisors in the U.S., aiming to prevent fraud (like insider trading and accounting fraud).

Both SEBI and SEC play crucial roles in ensuring transparency and integrity. They impose listing and reporting requirements, monitor trading, and can take enforcement action. A well-regulated stock market helps maintain investor trust and market stability, which in turn encourages participation and capital formation

Comparison of Major Stock Exchanges

Exchange	Founded	Market Cap (≈, US$)	Listed Companies	Trading Hours (local)
NSE (India)	1992 (operations 1994)	~$5.1 trillion (Dec 2024)	~2,671	9:15 AM–3:30 PM IST (Mon–Fri)
BSE (India)	1875	~$5.3 trillion (May 2025)	~5,630	9:15 AM–3:30 PM IST (Mon–Fri)
NYSE (USA)	1792	~$25 trillion (July 2024)	~2,100 (end 2023)	9:30 AM–4:00 PM ET (Mon–Fri)
NASDAQ (USA)	1971	~$30.1 trillion (Nov 2024)	~3,900 (Feb 2025)	9:30 AM–4:00 PM ET (Mon–Fri)

Data By Portfolio Prints
Key Points: NSE and BSE were founded much later than NYSE, but both are now among the largest exchanges globally. All four exchanges offer similar trading hours on weekdays (adjusted for time zone). The NYSE and NASDAQ command far larger total market value and list fewer but larger companies, whereas BSE has many small-cap listings and NSE occupies a middle ground. Despite these differences, all serve the same core functions of raising capital and enabling stock trading under regulatory oversight.