Topic 02 of 5 · Chapter 06 · Indian Economy
Capital Market — SEBI, BSE, NSE & Stock Exchanges
SEBI functions, BSE (Sensex) and NSE (Nifty), primary vs secondary market, IPO, and stock market basics.
📋 In This Article
1. What is Capital Market?
The capital market is a market for long-term funds — borrowing and lending for periods more than one year. It includes equity (shares) and debt (bonds, debentures) markets.
⭐ Capital Market = Primary Market + Secondary Market
• Primary Market: New securities issued for the first time (IPO, FPO)
• Secondary Market: Existing securities traded between investors (stock exchanges)
• Primary Market: New securities issued for the first time (IPO, FPO)
• Secondary Market: Existing securities traded between investors (stock exchanges)
2. SEBI — Securities and Exchange Board of India
SEBI was established in 1988 as a non-statutory body and given statutory powers by the SEBI Act, 1992.
- Headquarters: Mumbai
- Functions:
- Regulate stock exchanges and securities market
- Protect interests of investors
- Promote development of securities market
- Regulate mutual funds, FIIs, credit rating agencies
- Prevent insider trading and market manipulation
💡 SEBI’s Powers: SEBI has quasi-judicial, quasi-legislative, and quasi-executive powers. It can make regulations, investigate violations, and impose penalties. SEBI’s orders can be appealed to the Securities Appellate Tribunal (SAT).
3. BSE and NSE
| Feature | BSE (Bombay Stock Exchange) | NSE (National Stock Exchange) |
|---|---|---|
| Established | 1875 (oldest in Asia) | 1992 |
| Location | Mumbai | Mumbai |
| Index | Sensex (30 stocks) | Nifty 50 (50 stocks) |
| Trading system | BOLT (BSE Online Trading) | NEAT (National Exchange for Automated Trading) |
| Listed companies | 5,000+ | 2,000+ |
| Market cap | One of largest in Asia | Largest by trading volume in India |
4. Sensex and Nifty
💡 What is Sensex?
Sensex = Sensitive Index. It tracks the performance of 30 large, well-established companies listed on BSE. Think of it as a “report card” of India’s top 30 companies.
If Sensex goes up → investors are optimistic → economy is doing well
If Sensex goes down → investors are pessimistic → economy may be struggling
Nifty 50 tracks 50 companies on NSE. It is more diversified than Sensex.
5. Primary vs Secondary Market
- Primary Market (New Issue Market): Companies raise fresh capital by issuing new securities. IPO (Initial Public Offering) — company’s first public issue. FPO (Follow-on Public Offering) — subsequent public issue.
- Secondary Market (Stock Exchange): Existing securities are bought and sold between investors. Company doesn’t receive money — only investors trade among themselves.
6. Key Points for Exam
🔑 Must-Remember Facts
- SEBI established: 1988; statutory powers: SEBI Act, 1992
- SEBI headquarters: Mumbai
- BSE established: 1875 (oldest stock exchange in Asia)
- NSE established: 1992
- BSE index: Sensex (30 stocks)
- NSE index: Nifty 50 (50 stocks)
- Primary market = new securities issued (IPO, FPO)
- Secondary market = existing securities traded (stock exchanges)
- SEBI appeals go to: Securities Appellate Tribunal (SAT)
- Insider trading = illegal trading using non-public information