Stock exchanges in India and their importance

There are 22 stock exchanges in India. A stock exchange has many functions and offers valuable services to the investors, companies and community as a whole. I have listed some of the stock exchanges of India along with their functions.

What is a stock exchange?

A stock exchange is a highly organized financial market where various securities such as shares, debentures and bonds can be bought or sold.Its main function is to create a link between the buyers and sellers of these securities so that investments can change hands in the quickest and best possible way.

Features of a stock exchange

  • An organization in the form of a company.

  • A governing board to supervise and regulate activities.

  • A framework of rules and regulations.

  • A common meeting place for buyers and sellers.

    Functions of stock exchange

    1)Ready market

    A stock exchange provides a ready and regular market where investors can buy and sell securities. It provides a common meeting place where people can convert their money into securities and vice-versa. Thus, the people are saved from the trouble of going to different places as different companies have their headquarters at different places.

    2)Price determination

    A stock exchange helps in determining the prices for various securities. Regular dealings reduce wide fluctuations in prices. The prices at which dealings take place are published as quotations in the newspapers on a daily basis.

    3)Protection of the investors

    A stock exchange functions strictly according to the rules and regulations. The rules and regulations provide a check on the over trading in securities and manipulation in the prices. Thus, the investors can buy and sell securities with confidence without the fear of being exploited.

    4)Capital formation

    A stock exchange induces the people to save and invest in securities holding out prospects for increased earnings. There is regular publicity of its operations which encourages savings and investments. Thus, it mobilizes the savings of the people and results in capital formation for the country.

    5)Channel for investment

    A stock exchange channelized the funds in more productive industries. A company with better performance and future prospects has no difficulty in raising its capital. A stock exchange informs the investors in which direction the investment wind is blowing. Thus, by directing the flow of capital into worthwhile projects, it gives an impetus to the economic development of the country.

    6)Economic barometer

    It reflects changes taking place in the economy. Prices on a stock exchange tend to reflect trade cycles- boom, recession, depression, recovery etc.

    7)Regulation of the company management

    Stock exchanges frame their rules and regulations. Any company which wants its securities to be listed on the exchange has to submit to these rules. Thus, stock exchange exercises a heavy and healthy influence on the working of the companies.

    8)Clearing house of information

    : A stock exchange is a medium of useful business information. Many stock exchanges publishes directories which provide data on the corporate sector.

    Services of a stock exchange

    Services to the corporate sector

  • Wider market: A stock exchange serves as the sales counter for the new securities. A new company finds it easier to sell its securities if they are listed on a stock exchange. Thus, it can raise a large amount of capital.

  • Prestige: Investors knows that a stock exchange makes a close scrutiny of the companies before listing its securities. Therefore, they have a greater faith in such companies. Listing thus adds to the goodwill and credit-standing of a company.

  • High share prices: Listed securities enjoy greater demand as it draws buyers form all over the country. This is profitable for a company engaged in bargains concerning amalgamation, absorption, merging etc.

    Services to the investors

  • Liquidity of investment :Stock exchanges in India provides a ready market fro the securities where the people can easily sell their securities for money and vice-versa.

    Safety: A stock exchange ensures safe and fair dealings in the securities.This is because the management of the board exercises supervision and control over the activities of the dealers in the securities.

  • Loan facility: The securities dealt on a stock exchange are negotiable. They can be used as a collateral security for raising loans.

  • Publicity: Price quotations are published in newspapers on a daily basis. An investor can find out the market value of his securities form the quotations. From price trends, he can make a rational choice among securities.

  • Investment guide: On a stock exchange, people buy and sell securities through professionals. With the help of these, even a lay man can make rational decisions in investments.

    Services to the community

  • Capital formation: As said earlier, stock exchanges in India foster the habit of savings among the lay people and mobilizes these into productive channels resulting in capital formation.

  • Public finance:In a developing country like India, the government requires a large amount of money for developmental projects as well as for social welfare programs. Government agencies can easily sell their bonds through these exchanges and raise the required amount.

  • Economic mirror: Stock exchanges reflect the economical, social and political conditions of the country. This is because every change in the economy has an affect on the share prices. That is why the stock exchange in India is called the pulse of the company .

    Major stock exchanges in India

    The stock exchange in India is a development of the 19th century. In India, the first organized stock exchange was set up in Bombay in 1887 under the name of Native share and Stock Broker's Association.
    At present, there are 22 stock exchanges at Kolkata, Mumbai, Delhi, Chennai, Ahmedabad, Patna and other major cities of India.
    Names of some of the stock exchanges are:

    • Bombay stock exchange(Mumbai)

    • National stock exchange(Mumbai)

    • Delhi stock exchange(New Delhi)

    • Ahmedabad stock exchange(Ahmedabad)

    • Bangalore stock exchange(Bengaluru)

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