When discussing the stock market, the first or only thing that comes to our minds is stocks or shares of companies being traded in a marketplace. But like an actual marketplace with different segments or dedicated places like vegetable stalls, clothing shops, furniture shops, and more, the stock market also houses different securities under different segments.
This article will clarify how one of the major stock exchanges, NSE (National Stock Exchange), simultaneously houses all its market segments and how each segment functions.
What is NSE?
The National Stock Exchange was established in 1994 primarily to bring transparency and efficiency to India’s capital market. It was established by leading financial institutions under the guidance of the Indian government and the Pherwani Committee and was the first stock exchange in India to introduce electronic trading. This move unified investors across the country into a single, seamless trading platform.
As of April 2023, NSE boasts a market capitalization of around Rs.273.55 lakh crore (USD 3.26 trillion), making it the 9th largest stock exchange globally. However, despite its impressive scale, stock exchange trading accounts for just around 4% of the country’s GDP, with about 4000 of the 7800 listed companies actively trading on Indian stock exchanges.
To help gauge the market’s overall performance, NSE uses several key indices, each representing a specific market segment. Some of the important ones include:
- Nifty 50 Index: Tracks the performance of the top 50 companies listed on the NSE.
- Nifty 100 Index: Broader market index covering the top 100 companies.
- Nifty Midcap 50 Index: Represents the mid-cap segment of the market.
- Nifty Smallcap 250 Index: Covers small-cap companies, offering insights into this segment.
- India Vix Index: Measures market volatility, often called the “fear gauge.”
Functions of NSE
So, what exactly does NSE do for an investor? It was established to perform several crucial functions that ensure you have access to a transparent and efficient market:
- It creates a nationwide trading platform for equities, debt, and hybrid instruments.
- It provides equitable access to you through a robust communication network regardless of location.
- It offers a fair, efficient, and transparent securities market via electronic trading systems.
- It ensures faster settlement cycles and meets international norms for securities markets.
NSE’s Market Segments
Now that you know what NSE is, it’s essential to understand the different market segments it hosts. Each segment caters to different types of securities and investors, offering a range of opportunities depending on your investment goals.
Capital Market Segment:
In the Capital Market segment, you can trade equity shares, preference shares, debentures, exchange-traded funds (ETFs), and retail government securities. Launched in November 1995, this segment provides a transparent and efficient platform for trading these instruments. The trading system in this segment is known as the National Exchange for Automated Trading – Capital Market (NEAT-CM), ensuring that your trades are fair and transparent.
Wholesale Debt Market Segment:
This segment lets you trade in fixed-income securities like state development loans, bonds, corporate debentures, commercial paper, and mutual funds. NSE began its Whole Sale Debt Market operations in June 1994, pioneering the first entirely computer-based system for trading in debt.
This market involves two parties: trading members (recognized NSE brokers) and participants (buyers and sellers). Members place orders on behalf of sellers, and these orders are matched with buyers. An order stays in the system until it’s matched.
Futures and Options (F&O) Segment:
The Futures and Options segment allows you to trade derivative instruments like futures and options. Derivatives are financial contracts that derive their value from the underlying assets like bonds, stocks, or commodities. Whether you’re looking to hedge against risks or speculate on price movements, the F&O segment offers the tools to diversify your portfolio and manage your financial risks effectively.
Currency Futures Trading:
Currency Futures Trading allows you to trade one currency for another at market rates if you’re keen on exploring the foreign exchange market. This segment provides a platform for trading currency pairs like USD/INR, EUR/INR, and more. Currency futures can be particularly appealing if you’re looking to hedge against currency fluctuations or capitalize on international market trends.
Interest Rate Derivatives Segment:
The Interest Rate Derivatives segment allows you to trade financial instruments linked to interest rates. This segment allows you to hedge against interest rate risks, which can be particularly useful for managing a large portfolio or corporate treasury. By trading in this segment, you can better manage your exposure to fluctuating interest rates.
In Summary:
Whether you’re dealing in equities, debt instruments, or derivatives, knowing the ins and outs of each market segment on the NSE can help you tailor your investment strategy to your financial objectives. From ‘What is NSE’ to ‘What is IPO?’ grasping these basics empowers you to make smarter decisions in the ever-evolving world of investments.
FAQs:
- What is the timing for a trading session on the NSE?
NSE trading in equities happens all week, excluding Saturdays, Sundays, and other holidays. Here’s the schedule:
- Order entry starts at 9:00 AM
- Order entry ends at 9:08 AM
- The market opens at 9:15 AM
- The market closes at 3:30 PMWhat are the investment segments of NSE?
NSE offers several investment and trading options:
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Equity
Equity includes assets like mutual funds, stocks, indices, ETFs, and IPOs. It’s known for its potential to deliver high returns but can be volatile.
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Equity Derivatives
This segment features derivatives based on global indices, commodities, currencies, and interest rates. NSE began trading derivatives in 2002 and added contracts for the Dow Jones and S&P 500 in 2011.
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Debt
Debt investments involve mutual funds, ETFs, bonds, and other fixed-income products. NSE introduced India’s first debt platform in May 2013, offering a transparent trading environment.
