NSE: National Stock Exchange- Version 1

The National Stock Exchange of India (NSE) serves as a crucial component of India’s financial infrastructure. If we were to map history of stock exchange in India and that of NSE, established in 1992, it has developed into a highly sophisticated and internationally recognised trading platform. This blog explores the NSE’s roles, features, and investment opportunities, providing a comprehensive overview of this essential institution.

What is NSE?

The National Stock Exchange of India (NSE), established in 1994, was created to modernise and enhance India’s capital markets. Driven by leading financial institutions and founded on the recommendations of the Ph​​erwani Committee, the NSE aimed to improve transparency and efficiency in online trading. By introducing electronic trading, it revolutionised the market, uniting investors across the country on a single, accessible platform.

As of April 11, 2023, the NSE boasts a market capitalisation of around USD 3.26 trillion, ranking it as the ninth-largest stock exchange worldwide. Despite its considerable size, the NSE’s trading activities account for only 12-14% of India’s GDP, a smaller share compared to major markets such as the USA.

Objectives and Functions of National Stock Exchange

The NSE’s objectives and functions are varied:

• Nationwide Trading Platform: The NSE aims to provide a comprehensive facility for equities, debt, and hybrid instruments. Its advanced infrastructure and network ensure that investors across India can engage in the financial markets through its trading platform.
• Equitable Access: By employing cutting-edge communication technologies, the NSE ensures that all investors, regardless of location, have equal access to trading opportunities. This accessibility is vital in a diverse country like India.
• Transparency and Efficiency: The NSE uses electronic trading systems to ensure a transparent and efficient trading environment. These systems reduce manual errors and delays, fostering fairness and reliability in transactions.
• Modern Settlement Processes: In line with global standards, the NSE supports faster settlement cycles and book-entry settlement systems, ensuring trades are processed promptly and accurately.

Features of National Stock Exchange

The NSE runs an order-driven market, which contrasts with quote-driven markets. This structure employs an automated, screen-based trading system called the National Exchange for Automated Trading (NEAT). Here’s a breakdown of its functionality:

• Order Matching: Each order submitted to the NSE is assigned a distinct identification number. Orders are matched based on a price-time priority system, ensuring that orders with the best prices are executed first. If an immediate match is not possible, the order is added to an order book and matched later according to its priority.
• Transparency: The NSE’s order-driven market ensures that all buy and sell orders are visible to market participants. This level of transparency enables investors to make well-informed decisions and bolsters the integrity of the market.
• Automated Trading: The NSE’s trading operations are fully automated, which reduces the likelihood of human error. Orders can be submitted through various platforms, including a trading online app. Institutional investors benefit from direct market access, allowing them to place orders directly into the trading system.

Market Segments of NSE

The NSE encompasses multiple market segments designed to meet a range of trading requirements:

• Wholesale Debt Market (WDM): This segment deals with fixed-income securities, including bonds, certificates of deposit, commercial papers, and treasury bills. It offers a platform for trading various debt instruments, which is crucial for investors aiming for steady returns.
• Capital Market (CM): The Capital Market segment facilitates trading in equity shares, debentures, exchange-traded funds (ETFs), preference shares, and retail government securities. It serves as an essential arena for investors interested in trading stocks and other equity-related assets.

How Does NSE Stock Exchange Work?

Trading on the NSE is facilitated through an electronic limit order book. Here’s a closer look at how the NSE operates:

• Order Entry: Investors place their orders through stockbrokers or via a trade app such as HDFC Sky by HDFC Securities. The trading system automatically matches market or limit orders.
• Order Matching Process: The system matches buy and sell orders based on the best available prices. Orders are processed in a manner that prioritizes the best prices and the oldest orders in case of equal pricing.
• Transparency and Anonymity: The NSE offers a transparent trading environment where all orders are visible. This transparency ensures fair trading practices. Additionally, the order-driven market structure allows buyers and sellers to remain anonymous, protecting their privacy.

• The NSE operates from Monday to Friday, excluding public holidays, with trading hours running from 9:15 AM to 3:30 PM. Pre-market trading begins at 9:00 AM. Investors can engage in the market using online trading apps like the HDFC Sky app by HDFC Securities, which offers a smooth and efficient trading experience.

Investment Segments

The NSE features a variety of investment segments:

• Equity: This segment covers stocks, mutual funds, indices, ETFs, and other equity instruments. Investors can leverage a reliable app for traders to trade equities and enhance their portfolios.
• Equity Derivatives: Since 2002, NSE has offered equity derivatives trading, including index futures and options. The segment has grown to encompass global indices like the Dow Jones and S&P 500.
• Debt Instruments: In 2013, the NSE introduced its debt trading platform, creating a transparent and liquid market for trading debt-related products such as bonds and corporate securities.

Major Indices of NSE

Indices play a vital role in monitoring market performance. Notable NSE indices include:

• Nifty 50 Index: Representing approximately 63% of the total market capitalization on the NSE, this index spans 12 economic sectors and serves as a key benchmark for the Indian stock market.
• Nifty 100 Index: This index tracks the performance of the top 100 large-cap stocks listed on the NSE.
• Nifty Next 50 Index: This index includes the 50 largest stocks not part of the Nifty 50, which are often viewed as potential future large-cap leaders.
• Nifty Midcap 50 Index: Focuses on the top 50 mid-cap stocks, providing insight into mid-sized companies.
• Nifty Smallcap 250 Index: Monitors the performance of the top 250 small-cap stocks, highlighting smaller, emerging firms.
• India VIX Index: This index measures market expectations of volatility over the next 30 days and is commonly known as the “fear gauge” for Indian markets.

Conclusion

The National Stock Exchange (NSE) is a cornerstone of India’s financial market, offering a wide range of trading opportunities and investment options. With its advanced technology, transparency, and diverse market segments, the NSE remains a leading platform for investors and traders. By using the best trading app like the HDFC Sky app by HDFC Securities, investors can access the NSE’s comprehensive trading features with ease. Open free demat account online with HDFC Sky today and start your investment journey.