Investing in the Indian Stock Markets

Today, India and China are two countries very much in the news as two of the world's fastest-growing economies. The Indian stock market is booming and has attracted the attention of fund managers all over the world.

Investing in the stock market by Indians has, over the past few years, become popular. Stock brokers are now common all over India. Many middle-class families — after hearing and reading "get rich" stories associated with the stock market — want a piece of the action and have started to invest. Most new issues of stocks, even of new companies just going public, are often oversubscribed.

India's first stock exchange was established in 1875 in Bombay. The Bombay Stock Exchange is now called the Mumbai Stock Exchange. As Mumbai is considered the financial capital of India, the Mumbai Stock Exchange is the most popular stock exchange in the country.

India's flourishing economy

Many think India's economy is booming today because of outsourcing and call centres — but manufacturing and research sectors are also adding to India's economic well-being.

Western economies vs India

Present-day India is also in a slowdown due to the trickle-down effect of western economies and depression-like environment and media hype across North America. Economists worldwide don't expect much improvement in several western countries.

Europe, as we move into 2012, is facing economic problems. For the United States, 2012 is an election year — while there is a slight movement and a speck of hope that the economy might get better in the future, things are still slow and job losses continue to occur in many fields. I doubt the US economy will show much improvement during this year. Manufacturing is the engine that is necessary to create jobs, and this has not been happening in the United States for quite some time.

Why investment is flowing into India

Investment is flowing into India because of liberal rules from the Government of India. India being a democracy is a plus point for many investors. If India had opened its market to foreign investment earlier, quite a bit of the foreign investment that ended up in China would perhaps have been invested in India.

The Indian government has also finally taken note of the poor state of infrastructure. Some progress is now being made in highway improvements, the power sector, and telecommunications. Improved infrastructure will certainly add to India's economic growth and well-being in the years to come.

Investing in India's stock market

Laws have now changed in India to allow foreigners to invest in the Indian stock market. In some specific industries, foreigners can even hold up to 100% of shares. Many Non-Resident Indians (NRIs) are today investing, or contemplating investing, in Indian stocks. Many Indian companies have been posting record profits, and some pay out high dividends.

Is the Indian stock market a good market to invest in?

News reports of enormous profits made by people are quite common in India — but so are news reports of stock market manipulation. The Indian stock market's regulatory agency is the Securities and Exchange Board of India (SEBI), headquartered in Mumbai. Over the last few years, SEBI has taken to task several companies and groups and charged them with stock manipulation offenses.

Stock purchases in the Indian stock market can be quite rewarding if made after proper research and sound advice from reputed stock advisors or business consultants. There are some excellent companies in India that have generated immense profits for their shareholders. As with any other stock market worldwide, careful research is required before buying stocks in India.

Stay away from penny stocks

When investing in the Indian stock market, I would stay away from what are known as penny stocks. Unless a company has built a reputation, I would not buy their stock — especially new companies that do not have enough information available for the public. Research a company before investing in it.

Demat Account for Non-Residents (NRIs)

The first step to invest in the Indian markets is to open a demat account. NRIs do not require permission from the Reserve Bank of India (RBI) to open a demat account.

NRIs who wish to buy shares from the secondary market are required to open a PIS account with a bank of their choice. PIS refers to the Portfolio Investment Scheme, which allows NRIs to invest in shares of Indian companies.

PAN card requirement

NRIs who wish to invest in the Indian stock markets will need — in addition to a demat account — a PAN card. Information on getting a PAN card online from abroad is available in our PAN card guide.