As an investor, you should be aware of stocks, markets, indices and exchanges.
Stocks – A stock is generally issued by the company to raise money. A stock is a part of the whole part of the company, so if you buy a share of the company, you become a part-owner of the company.
Stock Exchange – A stock exchange is a regulated market for trading. If a company wishes to sell its shares, it should be registered in the stock exchange. Once registered, it can list its shares and sell them at a price to the investor. Investors and traders can connect to exchanges via brokers, who place buy or sell orders on the exchange. Traders can buy and share sells of different companies. The stock exchange offers high liquidity, as the process is transparent and fast. A dividend is paid to investors based on the company’s growth if the company earns profit, the dividend increases. If the company is growing, it attracts more investors, and the company issues more shares. As the demand of shares increases, the price of share also increases. A stock exchange also evaluates the price of the share. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the two primary stock exchanges in India. We’ll read more on NSE and BSE meaning later in this article.
Index – A stock shows the overall condition of the market. The list of stocks is extensive and can be confusing; an index helps ease stock picking by classifying companies and shares based on size, sector, and industry type. Nifty is the index for NSE, and Sensex is the index for BSE. It is a set of 50 stocks of NSE (30 of BSE) based on the company’s reputation, market capital and significance. The index value is calculated as ‘Weighted Average Market Capitalisation’. If the stock prices go up, so do the Nifty and Sensex, if the stock prices decline, Nifty and Sensex index falls. The index represents the trend and performance of stocks.
Let’s have a look at BSE and NSE meaning:
BSE (Bombay Stock Exchange): BSE is the oldest and the fastest stock exchange. It was Asia’s first stock exchange. BSE is an ideal choice for beginners or investors who are looking for steady, low-risk investments.
NSE (National Stock Exchange): NSE is the leading stock exchange and was the first stock exchange that offered a screen-based system for trading. It brought transparency to Indian market trading with a fully integrated business model that provides high-quality data and services. NSE has a high trading volume than other stock exchanges. NSE is a good option for investors who take high risks.
NSE and BSE provide a safe market for both investors and companies. Both offer high liquidity, high reach and high transaction speeds. The Securities and Exchange Board of India (SEBI) is the regulatory body for stock exchanges that promotes trading and safeguards investor interests.
Bombay Stock Exchange
Established in 1875, it is India’s oldest stock exchange and holds the reputation of being the 11th largest market capitalisation value globally. It was founded by Premchand Roychand as the Native Shares and Stock Brokers’ Association and is now managed by Sethurathnam Ravi. Based in Mumbai, the Bombay Stock Exchange has close to 6,000 companies listed on it and is comparable to stock exchanges in New York, London, Tokyo, and Shanghai.
BSE revamped the country’s financial infrastructure and has given a much-needed boost to India’s capital markets. BSE has also provided a platform for SMEs to engage in equity trading. Over time, it has extended its offerings to include clearing, risk management, and settlement services.
National Stock Exchange
NSE was incorporated in 1992 and recognised as a stock exchange by SEBI in April 1993. It commenced operations by launching the wholesale debt market in 1994 followed by the launching of the cash market segment. In 1996, it commenced the index NIFTY 50. In 2010-11, it started trading of index futures and options on global indices like S&P 500 and Dow Jones Industrial Average.
How does the Bombay Stock Exchange Work?
Till 1995, the Bombay Stock Exchange worked on an open floor system. Subsequently, it shifted to an electronic trading system that is vastly popular worldwide used by the New York Stock Exchange and Nasdaq. Some benefits of the electronic trading system are fewer errors, faster execution, and better efficiency.
The electronic trading system has eliminated the need for external specialists by enabling direct market access. This move has shifted the focus from individual buyers and sellers to the total number of transactions in a day.
Though direct investment access is granted to certain investors engaging in large volumes of transactions, trading in BSE online is executed through depository participants and brokerage houses for a stipulated charge.
All the transactions are processed within two days by way of the T+2 rolling settlement. SEBI ensures the smooth operation of this stock exchange by continually updating the rules and ensuring thorough implementation.
Securities listed on the BSE include –
– Stocks, stock futures, and stock options
– Index futures and index options
– Weekly options
Sensex measures the overall performance of BSE since 1986. It is a free-floating market-weighted benchmark index that encompasses thirty of the BSE’s most traded stocks across 12 sectors and is known as BSE 30. Its inclusiveness makes it a fantastic representative of the Indian market as a whole.
The Sensex essentially reflects the investor’s confidence in the market, based on the performance of thirty well-established and financially sound companies in India.
Some other sectoral indices provided by Bombay Stock Exchange are –
– S & P BSE Auto
– S & P BSE Bankex
– S&P BSE Capital Goods
– S & P BSE Consumer Durables
– S & P BSE FMCG
There are several benefits of listing in the BSE and NSE:
1. Easy capital generation
Companies that are listed enjoy the trust of the investors. Given the platform’s transparency, individuals can analyse publicly available data points on the companies’ performance and invest accordingly. This trust is beneficial for companies looking to raise capital from ready investors. The securities of companies listed have a ready market of buyers. And, the role of the BSE and NSE in infusing liquidity into the economy cannot be overlooked.
The electronic trading system of BSE and NSE makes the entire process effortless. Thus, giving the investors the ability and confidence to encash their investment as and when they need it.
2. Legal supervision
SEBI has stringent mandates for the companies listed, which are updated from time to time. Thus, a strict check is kept on the companies to ensure the rules laid out are implemented, reducing the chances of fraudulent companies making their way to the exchange. This supervision dramatically reduces the risk of loss to investors resulting from the misrepresentation of businesses.
3. Publishing adequate information
The information published by the companies listed regularly includes:–
– Total revenue generation
– Reinvestment pattern
– Total dividend disbursed
– Bonus and transfer issues
– Book-to-closure facilities and many more
This periodic information disclosure enhances transparency in the process and helps the investors in making more informed decisions.
4. Reflection of the real value of shares
There are efficient pricing rules for securities trading on BSE and NSE. The prices are determined based on demand and supply patterns, reflecting the real value of a share at any given time.
5. Collateral guarantee
Most of the financial institutions accept the securities listed in the BSE and NSE as collaterals against loans. Investments in such stocks are invaluable as aside from offering great returns, they also help traders access capital by mortgaging these share certificates to invest in their business.
Bombay Stock Exchange is making great strides in its journey towards realising its vision of emerging as the premier Indian stock exchange with best-in-class global practices in technology, product innovation, and customer service. BSE also plays a crucial role in regulating the country’s financial markets, while Sensex provides insight into market sentiments and performance.