How to Invest in the Indian Stock Market

The Indian stock market has been booming for the past 20 years, attracting potential investors globally to put their funds into trading stocks in the region. The country is considered the seventh-largest economy in the world, but it was in the '90s that foreign investors were allowed to invest in India. At the same time, in 2021, the government openly declared that foreign investors were welcome. Since then, India's market has been evolving.

If you're an investor who is looking into investing in India, then this could be an opportunity to increase your portfolio than relying on a 9-5 job.

India is not only considered a growing market, but its correlation with the U.S. stock market is only +0.29, which is a low positive correlation, making India a good option for diversifying your portfolio.

Before I show you how to invest in the Indian market this year, it's good to know some of India's top stock exchanges. The Bombay Stock Exchange (BSE), considered the first stock exchange in India, was established in 1875, followed by the National Stock Exchange (NSE), established in 1992. So far, the NSE is the biggest stock exchange in terms of volume and reportedly has an index of 50 companies with a market capitalisation of $2.27 trillion. In comparison, the BSE has a market capitalisation of $2.1 trillion with an index of 30 companies. However, they are all regulated by the Securities and Exchange Board of India (SEBI).

Steps to Invest in the Indian Stock Market

Before you move into investing, it's essential to know that buying and selling stocks of a company in India is done electronically through authorised brokers or stock brokerage companies registered with the stock market regulator, the Securities and Exchange Board of India (SEBI). If you're a foreigner who is not computer savvy, you will need a quick guide to help you access your stocks from your comfort zone.

Understanding how to buy and sell stocks in India is critical to investing in the stock market for traders who seek to balance their investment portfolios.

1. Visit a SEBI-registered broker or member of a stock exchange

To buy and sell shares of a company in India, you will need a depository and a trading account. After this, you will meet a broker or sub-broker registered with SEBI. To verify authenticity, the regulator then issues them a registration number that starts with the letters INB (broker), INS (sub-broker), or INF (broker), which is used to verify authenticity.

You can find the broker's registration number on their official website and verify it by checking it on SEBI's website. Once you carefully select a reliable broker, open a demat and trading account online or visit a bank offering depository services.

2. Open a depository account

The broker or sub-broker will open a depository account with whom you sign a "Member Client Agreement" to trade on your behalf. The purpose of a demat account is to store shares or securities in an electronic or dematerialised form.

When you successfully buy and sell shares and other securities, all transactions will be reflected in your digital depository account, which is opened in the name of an investor to hold and transfer shares.

Documents needed to open a depository/trading account

Proof of Identity: Aadhaar card, PAN card, Driving License, Voter ID Card, etc.

Proof of Address: Passport, Voter ID card, Ration card, Driving License, Electricity Bill, Bank Passbook, etc.

Proof of Bank Account: Account Number, Name of Bank, or a Cancelled Cheque.

It's important to know that depository accounts are of two types, which can be classified as repatriable and non-repatriable depository accounts. A repatriable depository account allows traders to take funds abroad, while on a non-repatriable depository account, funds cannot be repatriated.

3. Open a trading account

A trading account is a connection between your depository and bank accounts. A trading account is created when opening a depository account, and the KYC (know your customer) is done with the same documents used when opening a depository account. You can start buying and selling company shares when your trading account is created.

Qualified Foreign Investors

At the start of 2012, the Indian government allowed foreign investors to start investing directly in Indian stock markets, called Qualified Foreign Investors (QFIs). Check the list below to see which countries are allowed to trade in India.

• Australia

• Belgium

• Canada

• Czech Republic

• Finland

• Greece

• Iceland

• Republic of Korea

• Malta

• New Zealand

• Poland

• Russia

• Slovakia

• Spain

• UAE

• Austria

• Brazil

• China

• Denmark

• France

• Hong Kong

• Italy

• Lithuania

• Mexico

• Norway

• Portugal

• Saudi Arabia

• Slovenia

• Sweden

• United Kingdom

• Bahrain

• Bulgaria

• Cyprus

• Estonia

• Germany

• Hungary

• Japan

• Luxembourg

• Netherlands

• Oman

• Romania

• Singapore

• South Africa

• Switzerland

• USA

It is important to note that unless appropriately authorised (or exempt) by the regulations in the relevant jurisdiction, Indian brokers would not be able to provide their services to foreign investors.

Frequently Asked Questions (FAQs)

How to make money in Indian stock market

If you invest in shares, you stand to gain from capital appreciation, which is the increase in value of the initial investment principal as the share price rises.

What time does the Indian stock market close?

The NSE and BSE stock markets' regular opening and closing times are 9.15 AM and 3.30 PM, respectively. A pre-opening session is held from 9:00 a.m. to 9:15 a.m., and a post-closing session begins at 3:30 p.m. and lasts until 4:00 p.m.