Stock Market

 What is Stock Market?

It is a place where shares of pubic listed companies are traded. The primary market is where companies float shares to the general public in an initial public offering (IPO) to raise capital.

Once new securities have been sold in the primary market, they are traded in the secondary market—where one investor buys shares from another investor at the prevailing market price or at whatever price both the buyer and seller agree upon. The secondary market or the stock exchanges are regulated by the regulatory authority. In India, the secondary and primary markets are governed by the Security and Exchange Board of India (SEBI).

Ways of buying and selling shares/stocks/equity

• Through a stockbroker: They arrange the transfer of stock from a seller to a buyer. Both the buyer and the seller of the share pay a commission known as brokerage to the broker.
• Directly from company: 

1. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relation department.
2. A direct public offering is an initial public offering(IPO) in which the stock is purchased directly from the company, usually without the aid of brokers.

Stock Market Index/Indices:

The right guide to understanding a stock market index is to first know what a stock exchange is. The stock exchange is a place where all the tradable securities like shares, bonds, derivatives, commodities are listed.

To be able to trade(buy and sell) these securities, they need to be listed on the stock exchanges first and the Securities and Exchange Board of India (Sebi), our market regulator, oversees such activities.

We have two major stock exchanges in India:

1. Bombay Stock Exchange (BSE)
2. National Stock Exchange (NSE)

Bombay stock exchange (BSE)

BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange located on Dalal Street in Mumbai (Bombay). Established in 1875, it is the oldest stock exchange in South Asia, and also the tenth oldest in the world. The BSE is the 9th largest stock exchange with an overall market capitalization of more than ₹2,18,730 billion, as of May 2021

National Stock Exchange (NSE)

National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located in the Mumbai (Bombay) city of Maharashtra state. It is under the ownership of some leading financial institutions, banks, and insurance companies. NSE was established in 1992 as the first dematerialized electronic exchange in the country. NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system that offered easy trading facilities to investors spread across the length and breadth of the country.  Vikram Limaye is Managing Director & Chief Executive Officer of NSE. National Stock Exchange has a total market capitalization of more than US$3 trillion, making it the world's 10th-largest stock exchange as of May 2021.

COVID-19 Impact on Stock Market

COVID-19 is not only a global health emergency but also a significant global economic downturn too. As many countries adopt strict quarantine policies to fight the unseen pandemic, their economic activities are suddenly shut down. Most importantly, consumers and firms have prevented their usual consumption patterns due to the creation of panic among them and created market abnormality. Uncertainty and risk created due to this pandemic, causing significant economic impact all over the globe affecting both advanced and emerging economies such as the United States, Spain, Italy, Brazil, and India.

In many countries, businesses are highly indebted, weak companies are further destabilized, and corporate debt stands at a very high level. Investors are suffering sufficient losses due to fear and uncertainty. For example, due to the impact of this pandemic, the global stock market has struck out about US$6 trillion in 1 week from 24 to 28 February (Ozili & Arun, 2020). The market value of standard & poor (S&P) 500 indexes declined to 30% since the COVID‐19 outbreak.

The effect of COVID‐19 on the performance of BSE and NSE; the two stock markets of India. GJH GARCH model is used to test the volatility in the stock market by taking the two time periods, before and after the first positive COVID‐19 cases in India. These two periods are taken as the dependent variable and per day closing price of BSE and NSE indices are considered as the independent variable. The result shows that the stock market especially the BSE Sensex become volatile during the pandemic period. In case of another stock index, NSE Nifty, it is found that there is no such significant impact of the COVID‐19 period on the volatility of NSE stock prices. The mean return in pre‐COVID‐19 and during the COVID‐19 period is calculated separately. The result revealed that with negative mean returns, the stock market faces losses during the pandemic, whereas return is shown positive in the pre‐COVID‐19 phase. By comparing the SD, it is noticed that the deviation is large during the COVID‐19 era than the pre‐COVID‐19 time. Similarly, the price of the stock indices also shows a significant change. In the pre‐COVID‐19 period, the price was high but during the COVID‐19 period it shows a declining trend up to the first lockdown period, that is, to the end of March but after this, it again takes an upward movement gradually. It is on account of the relaxation added to the lockdown policy by the Indian government. The unprecedented pandemic has already brought challenges to almost all countries. Not a single sector is left unaffected because of COVID‐19.

In brief, the results conclude that the Coronavirus outbreak has affected the stock price and increased the volatility in the Indian stock markets, and affect the financial system.