1. What is a Stock Market?

The stock market is a centralized platform where shares of publicly traded companies are issued,
bought, and sold. It allows companies to raise funds by offering equity to investors. In return,
investors receive part ownership and can earn through dividends or capital gains. The market
operates through exchanges and functions under the supervision of regulatory authorities.

The stock market plays a critical role in:

 Capital formation: Helping businesses raise funds for expansion.

 Liquidity: Investors can easily buy or sell shares.
 Wealth generation: Long-term investments often yield high returns.
 Economic indicator: Reflects the country’s economic trends and sentiments.

Amendments: Post-2020, the Indian stock markets have witnessed a digital transformation, with
record demat account openings, increased use of mobile trading apps, and broader participation
from Tier-2 and Tier-3 cities. The T+1 rolling settlement system was introduced to improve liquidity
and reduce counterparty risks.

2. Regulators in the Indian Market

India's financial market is regulated by multiple authorities to ensure fair practices, transparency,
and investor protection:

Securities and Exchange Board of India (SEBI):

 Regulates stock markets, brokers, merchant bankers, and mutual funds.

 Ensures transparency and fairness in trading.
 Implements measures to protect investor interests.

Reserve Bank of India (RBI):

 Regulates money supply, interest rates, and inflation.

 Manages banking sector and forex reserves.
 Controls monetary policy and foreign exchange under FEMA.

Ministry of Finance:

 Frames financial policies and budgetary allocations.

 Oversees taxation, fiscal management, and economic reforms.
 Insurance Regulatory and Development Authority of India (IRDAI):

 Regulates insurance companies and agents.

Pension Fund Regulatory and Development Authority (PFRDA):

 Governs pension schemes like NPS.

Amendments: SEBI has enhanced regulations for algorithmic trading, ESG (Environmental, Social,
and Governance) reporting, and cybersecurity in market infrastructure institutions.

3. Role of Depositories and Depository Participants (DPs)

Depositories enable electronic holding of securities, eliminating paper certificates. The two key
depositories in India are:

 NSDL (National Securities Depository Limited): Established in 1996, it was the first
depository in India.
 CDSL (Central Depository Services Limited): Commenced in 1999, affiliated with BSE.

Functions of Depositories:

 Dematerialization and rematerialization of shares.

 Transfer of ownership during trade settlement.
 Facilitating pledge/hypothecation.
 Corporate action benefits (dividends, bonus).

Depository Participants (DPs):

 These are intermediaries between depositories and investors. Banks, brokers, and financial
institutions act as DPs.

Amendments: The integration of Aadhaar-based eKYC, digital account opening via video KYC, and
OTP-based verification have significantly simplified the onboarding process.

4. Stock Exchange

A stock exchange is an organized marketplace for buying, selling, and listing securities. It provides a
transparent and regulated environment.
 Major Indian Exchanges:

BSE (Bombay Stock Exchange):

 Oldest in Asia, founded in 1875.

 Has over 5,000 listed companies.
 Benchmark index: Sensex (30 large-cap companies).

NSE (National Stock Exchange):

 Launched in 1992 with electronic trading.

 Highly liquid and technology-driven.
 Benchmark index: Nifty 50.

Other Exchanges:

 India International Exchange (INX)

 MCX (for commodities)
 NSE IFSC (GIFT City)

Amendments: Introduction of the Social Stock Exchange (SSE) to facilitate fundraising for social
enterprises and non-profit organizations.

5. Financial Intermediaries

These are institutions that bridge investors and capital markets, ensuring efficient fund allocation.

Types of Financial Intermediaries:

 Stock Brokers: Execute trades on behalf of clients.

 Investment Banks: Underwrite securities, facilitate IPOs.
 Mutual Funds: Pool funds from investors to invest in diversified portfolios.
 Portfolio Managers: Offer customized investment strategies.
 Underwriters: Assure capital raising during IPO/FPO.
 Credit Rating Agencies: Evaluate creditworthiness of securities.

Amendments: Regulatory tightening by SEBI on mis-selling, mandatory registration for influencers

offering financial advice, and enhanced disclosures for intermediaries.

6. IPO Market
An Initial Public Offering (IPO) marks a company’s transition from private to public ownership.

Key IPO Processes:

 Filing of DRHP (Draft Red Herring Prospectus)

 Regulatory review by SEBI
 Book Building Process: Determines demand and price.
 Allotment and Listing: Shares are allotted and listed on exchanges.

Investor Categories:

 Qualified Institutional Buyers (QIBs)

 Non-Institutional Investors (NIIs)
 Retail Individual Investors (RIIs)

Amendments:

UPI-based payment system is now mandatory for retail investors. Fast-track IPO norms for
companies with consistent track record. Reduced listing timeline from 6 days to 3 days.

7. The Indian Stock Market and Top Indices

Stock indices are barometers that track performance of specific sets of stocks.

Major Indices:

 Sensex (BSE): Top 30 stocks from BSE.

 Nifty 50 (NSE): Top 50 stocks across 13 sectors.
 Bank Nifty: 12 most liquid and large capitalized banking stocks.
 Nifty IT, Nifty FMCG, Nifty Midcap 100: Sector and cap-specific indices.

Purpose of Indices:

 Benchmark for portfolio performance.

 Market sentiment indicator.
 Used for ETFs and derivatives.

Amendments: Launch of new indices like Nifty EV & Nifty ESG reflecting emerging themes.

8. Key Events that Influence the Share Markets

Stock prices are influenced by both macro and microeconomic events:

 Domestic Events: Budget, RBI monetary policy, inflation, elections.

 Global Events: Fed interest rate changes, oil prices, geopolitical tensions.
 Company-Specific News: Earnings, mergers, scandals, leadership change.
 Investor Sentiment: Fear, optimism, or herd behavior.

Amendments: Higher correlation with global markets post-2020, increased impact of social media
and investor forums on short-term trends.

9. Trading Mechanism

India follows an order-driven, screen-based trading system.

Types of Orders:

 Market Order: Executed at best available price.

 Limit Order: Executed at a specific price or better.
 Stop Loss Order: Limits investor’s losses.

Trading Cycle:

Order placement → Matching → Trade confirmation → Settlement

Amendments: SEBI has mandated tighter circuit filters and enhanced AI-based surveillance to
detect manipulations.

10. Settlement and Trading Hours

Market Timings:

 Pre-Open Session: 9:00 AM – 9:15 AM

 Trading Session: 9:15 AM – 3:30 PM
 Post-Close Session: 3:40 PM – 4:00 PM

Settlement:

Previously on T+2 basis, now shifted to T+1 for faster turnover.

Amendments: NSE and BSE are testing extended hours for equity derivatives to align with global
standards.

11. Who Can Invest in India?

India permits investment from:

 Resident Indians: Individuals, HUFs, domestic institutions.

 NRIs and PIOs: Under Portfolio Investment Scheme (PIS).
 Foreign Portfolio Investors (FPIs): Regulated by SEBI and RBI.
 Domestic Mutual Funds, Banks, Insurance Firms

Amendments: Launch of RBI Retail Direct Scheme allowing retail investors to directly invest in G-
Secs.

12. Restrictions and Investment Ceilings

FPI investment capped at 24% per company (can be raised to sector limit).

Sector-specific ceilings:

 Insurance – 74%
 Defence – 74% (49% under automatic route)
 Telecom – 100%

Amendments: Automatic route limits enhanced, reforms in manufacturing and digital economy
sectors to attract FDI.

13. Investments for Foreign Entities

Foreign investments are allowed through:

 FDI (Foreign Direct Investment): Long-term ownership and control.

 FPI: Portfolio-based investments in equity and debt.
 FVCIs (Foreign Venture Capital Investors): In startups and SMEs.
 AIFs (Alternative Investment Funds): Through SEBI-registered platforms.

Amendments: Launch of unified FPI registration process, integration of international financial

services through GIFT City, and simplified compliance norms for Category-I FPIs.

 Conclusion
 The Indian stock market is dynamic, well-regulated, and globally integrated. With digital
innovations, regulatory support, and rising financial awareness, India offers immense
opportunities for investors across segments. A strong legal and institutional framework
ensures transparency, while reforms continue to enhance market depth and resilience.

14. Evolution of Settlement and Clearance in India

Early Era: Manual and Paper-Based System

Before the 1990s, stock trading and settlement in India were manual and paper-intensive.
Transactions involved physical share certificates and transfer deeds, which were vulnerable to theft,
forgery, and delays. Settlement took weeks, and errors were frequent due to the manual
reconciliation of trades. Investors had to rely on physical delivery and courier services, creating
systemic inefficiencies.

Challenges in Pre-Demat Era:

 High incidence of fake/duplicate certificates

 Long settlement cycles (up to T+14)
 Bad deliveries due to signature mismatches
 High cost of safekeeping and record maintenance


Dematerialization and NSDL Era (1996 Onwards)

The introduction of dematerialized securities marked a turning point. In 1996, the establishment
of the National Securities Depository Limited (NSDL) allowed electronic holding of shares,
eliminating the need for physical certificates.

Benefits Introduced:

 Reduced fraud risk

 Faster settlement
 Cost savings for issuers and investors
 Seamless transfer of ownership

In 1999, CDSL (Central Depository Services Limited) was launched, bringing healthy competition
and more efficient services to investors.

Rolling Settlement System (2001)

 The settlement system evolved further with the introduction of rolling settlement by SEBI
in 2001. Initially, India adopted a T+5 settlement , meaning trades were settled five days
after the trade date.
 This replaced the account period settlement system, where trades between two fixed dates
were settled together, which led to speculation and operational inefficiencies.

Progression of Settlement Timelines:

 T+5 (2001)
 T+3 (2002)
 T+2 (2003)
 T+1 (2022-23)

Modern Settlement Infrastructure

Modern settlement in India is managed by clearing corporations that guarantee the completion
of trades:

 NSCCL (NSE Clearing Ltd)

 ICC (Indian Clearing Corporation, BSE)
 MCXCCL (Commodity markets)

Clearing corporations handle risk management, margin collection, trade novation, and guarantee
final settlement.

Core Infrastructure Involved:

 Clearing Members (CMs): Interface with exchanges

 Custodians: Manage institutional settlements
 Depositories (NSDL/CDSL): Credit/deduct securities
 Banks: Handle funds transfer

Introduction of T+1 Settlement (2022–2023)

India became the first large market in the world to move to T+1 settlement on a phased basis,
starting from January 2022 and fully implemented by January 2023.

Impact of T+1:

 Quicker liquidity for investors

 Lower risk of counterparty defaults
 Increased investor confidence
 Alignment with global best practices

This transition required major upgrades in IT infrastructure across brokers, exchanges, banks, and
custodians.

Use of Technology and Automation

Today, the Indian market operates with real-time gross settlement (RTGS), automated clearing, and
straight-through processing (STP). Technologies like Application Programming Interfaces (APIs) ,
blockchain pilots , and AI-based reconciliation tools are being adopted to further improve
settlement efficiency.

Future Directions:

 Possible move toward instant settlement (T+0)

 Integration with central bank digital currencies (CBDCs)
 Enhanced cross-border interoperability via GIFT City IFSC

Conclusion on Settlement Evolution

 India’s settlement and clearance mechanisms have transformed from a slow, paper-based
model to one of the most advanced systems globally. With each leap—from
dematerialization to T+1—the Indian market has improved speed, transparency, and
investor trust. As global markets evolve, India is positioning itself as a technology-driven
leader in settlement infrastructure.