There are a total of 21 stock exchanges in India, with the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) being the largest. Both offer stocks with volume and opportunity as India and the exchanges continue to grow and attract foreign investment. Before investing on these exchanges, traders should know the regulations, size of the market, the indexes, liquidity, as well domestic ways to invest in India, such as ETFs and American Depositary Receipts (ADRs).
Size and Liquidity
According to the Securities and Exchange Board of India there are 21 stock exchanges in operation in India. The BSE and NSE are the largest Indian exchanges, satisfying the needs of nearly all foreign investors.
The BSE is slightly larger, with a market cap of US $1.076 trillion and the NSE with US$1.051 trillion, as of January 2014. For comparison, the NSE and BSE are similar in size to the Australian Stock Exchange ($1.298 trillion), although significantly smaller than the major U.S. exchanges [see also 50 Blogs Every Serious Trader Should Read].
The Nasdaq has a market capitalization of $5.998 trillion and the NYSE $17 trillion.
There are two main Indian indexes that traders use to track stocks: the CNX Nifty 50 (NSE) and the S&P BSE Sensex, which are composed of 50 and 30 well-established and diversified stocks, respectively.
There are a large number of very liquid and large market capitalization stocks, both on the BSE and NSE. Highly liquid and active stocks are listed each day on the exchange home pages: NSEIndia.com and BSEIndia.com.
When looking for high volume stocks, the number system used in India may be confusing at first, as the comma use in numbers is different than in North America.
A very active stock on the NSE is Unitech (NSE: UNITECH) typically trading more than 30M shares per day. On the exchange, volume is listed as 7,34,77,483. Remove the decimals and group the numbers in threes starting from the right. The volume becomes 73,477,483.
Figure 1 shows a number of stocks that are heavily traded on the NSE. “LTP” stands for Last Traded Price. The Traded Value is listed in Lakhs; to get the value in Indian rupee, multiply the number provided by 100,000. Current exchange rates are listed on the NSE home page for converting prices and Traded Value into U.S. dollars or other currencies.
A number of stocks are listed on both the NSE and BSE, and are actively traded on both.
Some investors are more interested in market capitalization and stability than volume. Figure 3 shows the largest companies according to market capitalization on the NSE. The list is the same for the BSE.
Figure 3 (and many Indian stock sites) shows the company values in “Rs. cr” This stands for Indian core. Multiply the number by 10M to get the value in Indian rupee. The 434,073.71 Rs. cr value of TCS becomes Rs. 4,340.74B (roughly US$72B).
Several of these companies are mostly owned by the Indian government(s). Governments own 89.65% of Coal India, 75% of NTPC, 68.94% of ONGC, 58.6% of SBI. For a complete list of Indian stocks partially owned by government, see the Institutional Holdings – Central Government/State Government.
The state ownership doesn’t affect traders much. Volume in these stocks is lower than the Most Actives listed prior, but several hundred thousand shares still change hands each day.
Risks and Regulations
The NSE and BSE have slightly different market hours and processes. These are listed below. For those unfamiliar with this process, the Continuation Trading or Normal Market times are when prices are most transparent and trading is similar to traditional market hours in the U.S. Continuous Trading takes place between approximately 9:10 AM and 5 PM on the BSE, and 9:15 AM to 3:30 PM on the NSE.
Pre-market and post-market trading is available, but prior to the open, and following the close, there is an auction where orders are placed but not immediately filled, and then at a specific time a price is given on all orders based on supply and demand. This can lead to non-transparent pricing, as those placing orders do not know the price they will receive [see also Best Trend Trading Setups With Examples].
The NSE has cut the trading day up into three sections.
A) Pre-open session
Order entry & modification Open : 09:00 hrs
Order entry & modification Close : 09:08 hrs*
*with random closure in last one minute. Pre-open order matching starts immediately after close of pre-open order entry.
B) Regular trading session
Normal Market Open : 09:15 hrs
Normal Market Close : 15:30 hrs
C) The Closing Session is held between 15.40 hrs and 16.00 hrs
The BSE has a similar structure, except at different times.
Once trades are initiated, margins are payable daily based on how much the stock moves. This is a complex calculation utilizing the stock’s standard deviation, and makes sure the holder of the stock has enough equity in their account to withstand typical moves in the stock. For detailed descriptions of the calculation used to calculate margins, see NSE Margins.
The risks associated with Indian stocks are those associated with any stock. India is a large and diverse economy, offering stocks with great potential, but losses also occur. Trading stocks with high volume and large market capitalization provide some stability, although won’t guarantee profitable trades.
Indian stocks are priced in another currency, so not only do investors need to concern themselves with the direction of the stock, but also the currency. A decline in the Indian rupee will have a dampening effect on returns once the stock is sold and the rupees converted back to the U.S. dollars.
Before investing in a foreign market it is important to understand how that market operates. Make small trades at first, until comfortable with the process and regulations. Once experienced, then move on to trading your typical position size.
Domestic Ways to Invest
There are a number of ways to invest in India stocks from within the U.S.
ETFs are traded on U.S. exchanges, priced in U.S. dollars and provide a basket of Indian stocks.
Another way to invest directly in Indian companies is through American Depositary Receipts (ADRs). These are foreign companies listed on U.S. exchanges, so they are easily accessible to investors and priced in U.S. dollars.
The Bottom Line
There are 21 stock exchanges in India, but the NSE and BSE are most prominent. Volume is plentiful in many stocks, and those seeking investment will find many large companies to trade. Market hours and how trading takes place outside of normal hours will require getting used to; trading during normal market hours is recommended until the auction process is fully understood. For those not looking to move funds outside the country, ETFs and ADRs provide a way to invest and trade in Indian stocks on U.S. exchanges and in U.S. dollars.
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