Investing in the Indian Stock Market

 

Investing in the Indian Stock Market

For anyone looking to invest overseas, you don’t have to be an expert in foreign investment to know that the Indian stock market is well worth keeping an eye on. In fact, many investors are doing much more than keeping an eye on the world’s second fast growing economy. Only behind China, in terms of the in terms of recent economic growth make it a very attractive proposition to some investors and could explain why investors from all corners of the globe are choosing to do business in the planet’s largest democracy.

Growing investment opportunities for foreign retail investors

With a population pushing close to 1.2 billion, India is an ever changing hot bed of vibrant cultures, themes and business opportunities. The lifestyles of many Indian people, for example, have altered radically over recent years. With its growing middle classes (just over 200 million people), many of whom are reveling in new found wealth, India boasts one of the world’s youngest populations, with about half being aged 26 or younger. This again makes India an attractive proposition to outside foreign investors, which has also been boosted by the fact Indian government’s decision to allow foreign retailers to open stores in the country, for the first time. A move of this kind not only benefits the Indian economy but also that of the investing company who will no doubt look to take benefit from India’s meteoric economic growth. There was once a time when some investors would look no further than FTSE 100 investing opportunities when entering the stock market. However, such is the presence of India as an emerging market, the stock market there is hard to ignore. Investors now realize growth at an absolute bargain price is available from a number of emerging Indian companies.

India’s main stock markets

India has two central exchanges upon which the vast majority of India’s trading takes place – The Bombay Stock Exchange and the National Stock Exchange. The BSE was founded in 1875, yet the NSE has only been in existence since 1992 and only started trading properly in 1994. It is worth noting that these rival exchanges follow the same mechanisms for trading, including the same settle processes and trading hours. There are approximately 4700 companies listed with the BSE, where as the NSE has just over 1200. One thing that investors might find interesting with regards to the BSE is that over 90% of its market backing comes from only about 500 companies.

Nearly all the major companies in India are listed on both of these exchanges. Where spot trading is concerned, it’s the NSE which has the dominant share, with more than 70% of the market. As for derivatives trading, the NSE almost has monopoly with 98% of the market.

Trading on the India’s stock exchanges

Trading on both the BSE and NSE is takes place electronically, on a trading computer using a limit order book. Buyers and sellers on the BSE and NSE remain anonymous as the process of trading is order driven; therefore there are no specialists or market makers. The advantage of using this kind of trading system is that there is much more transparency as all orders to buy and sell are accurately displayed within the system. However, the consequence of not using specialists is that there is a risk that not all orders will be carried out. All orders on both trading exchanges need to be placed through stock brokers. Many stock brokers can now offer their clients bespoke online trading facilities. The same is also true for institutional investors who can take advantage of on a direct market access trading option. This enables the investor to place orders directly onto the markets trading system.

India’s market indexes

Sensex and Nifty are the two most prominent indexes used on the Indian markets. Created in 1986, Sensex, is used for equities, is the oldest market index and includes around 30 companies which are listed on the BSE. The S&P CNX Nifty is India’s other index, which actually represents about 65% of its free-float market share. It includes just over 50 companies listed on the NSE and was created in 1996. Sensex and Nifty hold time series data onward from April 1979 and July 1990, respectively.

Engines of growth

The bottom line on investing in the Indian stock market is that emerging markets, such as this one are fast becoming the engines of future economic growth. Although, currently only a small percentage of Indian household savings are invested in the country’s stock market, a growing GDP could mean that is about to change as the market becomes more financially stable. With this in mind, maybe it’s about time that more outside investors jump on board the Indian stock market bandwagon.