A stock exchange is an organised and well-regulated financial market place where generally shares, ETFs and bonds of different companies are bought and sold at prices governed by the market forces of demand and supply. It is a secondary market where shares are traded on premium between buyers (investors) and sellers through SEBI registered stockbrokers. They provide online trading which is directly linked with exchange thus reducing the risk of maintaining liquidity or price. Stock exchanges impose stringent rules, listing requirement, and other statutory requirements for listing of a company and same is backed with regulatories like Securities and Exchange Board of India (SEBI).
There are 19 stock exchanges in the world having market capitalization of over US$ 1 trillion, popularly called “$1 Trillion Club”. These exchanges accounted for 87 percent of global market capitalisation in 2015. Indian stock exchanges: Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are at the 10th and 11th position in terms of market capitalisation throughout the world and are part of the “$1 Trillion Club”. The New York Stock Exchange is constantly on No.1 in terms of market capitalisation.
Stock exchange plays an important role in economic development of a country and makes funds available for doing business. Many people tell that the stock market is like a gambling platform but it is not true at all. So when someone invests in the stock market he/she not only earns an income in the form of a dividend or grows his wealth. He also contributes to the growth of the economy as well as the company he invests in. It is channelising the savings of the people and making them available for investment purpose and creating investment opportunities for small investors. As a stock exchange is a barometer of the economy. It allows investors to maintain liquidity for their investment. When a stock is listed on a major exchange, it allows any shareholder to sell his or her shares almost instantly, which is available fully online in today’s world. In most cases, immediate small sales are available at or very near the quoted price per share. Stock exchanges also serve as a form of monitoring agency. While it’s certainly not a guarantee of the stock’s future performance, it does lend the company some credibility. It is an investor who should choose shares for investment too smartly with proper knowledge like company fundamentals, earnings, industry, quality of management, constant growth of basic business activity. So an investor should be aware of the basics and volatility of the stock market, which is driven by so many factors. Irrespective of quality shares, over short period of time they may also incur losses. But ultimately it depends on growth of a company and has nothing to do with the exchange or stockbrokers.
As predicted by most of the international capital analysts like Goldman Sachs, The Global Investment Bank by 2035 India would be the world’s third largest economy after the US and China. Presently Indian economy is considered to be the third largest economy in the world in terms of purchasing power in simple words the financial ability to buy products and services. Though that does not mean every share will go up straightway and it all depends upon the basic growth of every individual company. But overall the future the Indian shares seems bright due to the growth the economy.
Conclusion:
So the simple role of an exchange is to bring companies and investors together. It facilitates trading in shares after the IPO (initial public offering), buying and selling of securities between investors, organises fair and efficient market system. Growth of shares depends upon the fundamentals or constant growth of a company’s business. It is the work of every individual investor screening properly before investing hard earned money as exchange has no rule on profits or growth of a company.
The author is the founder of MI Securities and business partner of Sharekhan in Srinagar
drm757@gmail.com