Market participants in stock market, frequently known as players of stock markets in India, are an important part of the stock market’s ecosystem. Market participants in securities markets comprise a variety of buyers, sellers, and intermediaries in between the buyers and sellers dealing in different securities.

In this blog, we are going to read about various market participants, their functionality, and their significant role in the stock markets in India. 

If you are new to the stock market and willing to learn more about its origin and development in India, it is advisable to first read “Brief History of Stock Markets In India.”

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Complete list of Market Participants in Stock Market in India

Investors or Shareholders (Market participants in stock market)

Investors or stockholders or shareholders, you can call them by any name. These are some of the core market participants in the financial markets of India. Investors execute various buying and selling orders of securities of publicly listed companies. 

In stock markets, Investors get privileges like part-ownership of the company, voting rights, dividends, and fair and square treatment. 

Investors are classified into three categories as mentioned below: 

Retail Investors

These are people like you and me who invest in companies either solely with their knowledge or by taking help from some professional people. These are individual investors who invest up to a certain reasonable amount of capital. 

High Net-Worth Investors 

Unlike individual investors, high net-worth individuals invest a big sum of capital in the market. Investors in this category are highly professional and possess a good understanding of the stock market. They initiate a variety of tools and techniques such as technical analysis, fundamental analysis, company analysis, sector analysis, etc. before placing an order. 

Institutional Investors

Institutional investors are further divided into two parts: 

• Foreign Institutional Investors (FII): These are companies outside India. Companies like Canada Pension Fund, Government Companies, Mutual Funds, or Asset Management Companies all come under this category. Foreign companies investing in Indian stock markets known as foreign Institutional Investors. 
• Domestic Institutional Investors (DII): Companies like Life Insurance Corporations of India (LIC) come under this category ‘DII’.

Stock Brokers (Market participants in stock market)

Stock Brokers are the licensed individuals transacting in different shares of companies on behalf of their clients. These are some of the most prominent market participants in Indian Stock Markets. 

Stockbrokers are like retailers who connect consumers and manufacturers. And charge a little amount as profit for doing that. Stockbrokers do the same, charge a little commission, for meeting demand and supply raised by the individual investors or traders. 

Stockbrokers get certification from the Securities Exchange Council (SEC) that provides them a significant presence in the financial markets. They execute orders in the market to the optimal benefit of their clients, by placing an order at the lowest reasonable price and releasing securities at the highest bid price.

 

For a newbie, stockbrokers are the gateway to stock exchanges in India. First, you need to open a trading account (we will talk about Trading and Dematerialised or Demat account in the latter part of this chapter) with your favorite stockbrokers.

You cannot directly go to the National Stock Exchange to open a trading account. Here come stockbrokers into the pictures.

In India, you can find stockbrokers viz. Zerodha, ICICI Securities Limited, Angel Broking Limited, UpStox, Sharekhan, IIFL Securities (Formerly India Infoline), etc. 

Depository (Market participants in stock market)

Let’s understand this with an example, suppose that you buy a house in your hometown and as formalities, you receive registry documents of that house. Now, you must preserve those documents safely in your locker for future references, and to claim your ownership of that house. 

At the time of buying shares in the stock market, one needs to have some sort of locker to keep those shares or share certificates safely. This way one can claim his part of ownership in companies whose shares he has purchased.

Depository is like a locker where you virtually place your share till the time a new order to sell is not place.

We have two renowned depositories in India viz. National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). 

Depository Participants (Market participants in stock market)

Just like you cannot go directly to Stock Exchanges to open a trading account, you cannot walk into depositories like NSDL and CDSL to open a Demat account.

To open a Demat account, you need to approach a depository participant (DP). Depository participants act as agents to the depository. These depositories comes under the authoritative Body; Security Exchange Board of India (SEBI). 

Banks (Market participants in stock market)

Banks play an important role in establishing the foundational ecosystem for stock markets in India. These are individually responsible for funding the markets and maintaining a reasonable amount of liquidity in the market. 

Banks facilitate fund management; transferring/receiving funds from/on your trading account.

To start investment activities, you need to add a primary bank account with your trading account to fulfill the financial requirements.

You can add multiple bank accounts with your trading account, a few stock brokering platforms allow you to add only a certain number of bank accounts. 

Now, you know about different market participants along with three essential accounts to start with your investing journey.

• Trading Account, 
• Demat Account, 
• Bank Account

Credit Rating Agencies (Market participants in stock market)

Let’s understand this with one example: Suppose that you are going to buy a smartphone and you have a certain budget. I am giving you two choices; first, you can go directly to a shop and buy the first smartphone that the shopkeeper shows you.

Second, you have decided to do some research about the smartphone you want to buy. You go to various platforms like YouTube, E-Commerce platforms, other discussion forums, etc. Now, tell me which option would you choose; first or second? 

I am assuming that you all will go with the latter option; researching and getting certainty from ratings and reviews. Credit Rating Agencies (CRA) such as CRISIL, ICRA Ltd., etc. do the same when it comes to buying shares in the stock market in India. 

Credit rating agencies provide options that show the creditworthiness of a company. These agencies give you an idea; if to invest in a company or not. These agencies coordinates with the Security Exchange Council (SEC). 

Some of the ratings that a ‘Credit Rating Agency’ provides:

• Triple-A: This credit rating is top “investment Grade” rating. 
• Double-B or Below: Anything below ‘Double-B’ credit rating is c “non-investment grade” or “high-yield” corporate bonds. 

Clearing Corporations (Market participants in stock market)

In India, there are two clearing corporations; National Security Clearing Corporation Ltd (NSCCL) and Indian Clearing Corporations Ltd (ICCL), which are wholly-owned subsidiaries of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). 

Once again, we take an example to understand the functions of clearing corporations in India.

Now, suppose that you are holding 10 shares @50 (suppose) of TCS in your portfolio. Something happens and you want to sell 5 shares at @40.

You are the now a seller. And to execute the sale we need one buyer who is willing to buy 5 shares of TCS @40.

Here come clearing corporations to ensure that there is an arrangement between sellers to buyers or buyers to sellers. 

, we can say that clearing corporation involves functions to; 

1. Ensure the right flow of demand and supply between the buyer and the seller,
2. Restricts orders from ‘defaulters’,
3. Set the right tone for debit and credit of securities.  

Key Takeaways From This Chapter

• Investors get privileges such as part-ownership of the company, voting rights, dividends, and fair and square treatment. 
• There are three types of investors; Retail, high net-worth individuals, and Institutional investors.
• Stock Brokers or dealers are licensed professionals who enter into sales and purchases of securities on behalf of their clients.
• A depository is like a locker in which all your shares reside till the time you don’t make an order to sell.
• Depository participants act as agents to the depository. These are governed by the Security Exchange Board of India (SEBI).
• Banks facilitate fund management and promote liquidity in the market.
• Credit rating agencies provide options that show the creditworthiness of a company.

Frequently Asked Questions

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What is the minimum net worth needed for a depository? 

The least net worth designated by SEBI for a depository is Rs.100 crore. 

How many Depositories are filed with SEBI?

Presently two Depositories i.e., National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are enrolled with SEBI. 

Who is an Issuer?

“Issuer” suggests any entity like a corporate / state or central government House issuing securities that can be kept by depository in computerized form.

What is “Bid”?

“Bid” leads to an application for buying currency/Derivatives/money exchange instruments. 

Who is a broker?

A broker is a member of a verified stock market, who is allowed to do trades on the screen-based trading operation of different stock exchanges. He is registered as a member of the concerned market and is listed with SEBI. 

What is your perception of market participants?

Market participants are those purchasers and sellers negotiating business in the capital market for an equity or debt. The condition of fair market value (FMV) information is supposed to be higher if there are many market associates.