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NSE and BSE provide a safe market for both investors and companies, offering 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 an orderly and fair market and safeguards investor interests. This article will help you understand the meaning of NSE and BSE in detail, the benefits, and more.
Key Takeaways
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BSE and NSE are the two primary stock exchanges in India, where stocks of companies, and other securities are traded by investors, institutions, and brokers.
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These exchanges are regulated by the SEBI, offering safe and quick transactions for the investors.
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NSE is the largest stock exchange by trading volume and liquidity, and BSE is the oldest stock exchange in Asia.
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The benchmark indices for BSE and NSE are Sensex (top 30 companies on BSE) and Nifty 50 (top 50 companies on NSE)
Understanding Stocks, Stock Exchange, and Indices
Before diving into the meaning of BSE and NSE, you should be aware of stocks, indices and exchanges.
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Stocks – A stock is generally issued by the company to raise money. It is a part of the whole company, so if you buy it, you get partial ownership of the company. A dividend is a portion of profit paid to investors as decided by the company's board of directors; it is not guaranteed to increase just because profits do. If a company is growing, it attracts more investors, and demand for its stock increases, which generally causes its price to go up.
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Stock Exchange – A stock exchange is a regulated market for trading. If a company wishes to sell its shares, it should be registered (listed) on 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 sell shares of different companies. The stock exchange offers high liquidity, as the process is transparent and fast. A stock exchange also facilitates the price discovery of the share. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the two primary stock exchanges in India.
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Index – An index represents the trend and performance of stocks and helps with 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. Nifty 50 is a set of 50 top stocks of NSE and Sensex 30 includes the 30 top stocks of BSE based on the company’s reputation, free-float market capital, and significance. The index value is calculated as ‘Weighted Average Free-Float Market Capitalisation’. If the stock prices go up, so do the Nifty and Sensex; if the stock prices decline, the Nifty and Sensex indices fall.
BSE and NSE Meaning
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Definition of BSE (Bombay Stock Exchange): BSE is the oldest and fastest stock exchange. It was Asia’s first stock exchange. The risk profile of investments depends on individual stocks and strategy, not the exchange itself.
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Definition of 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 the Indian market, trading with a fully integrated business model that provides high-quality data and services. NSE has a higher trading volume than other stock exchanges. Like the BSE, the NSE accommodates all investor profiles; the level of risk is determined by the specific investments an individual makes.
Bombay Stock Exchange
Established in 1875, it is India’s oldest stock exchange. It is ranked among the world's largest by market capitalisation, often placing within the top 10 globally in recent years (though its exact rank fluctuates with market conditions). It was founded by Premchand Roychand as the Native Shares and Stock Brokers’ Association and is now headed by Sundararaman Ramamurthy, the current CEO. Based in Mumbai, the Bombay Stock Exchange has over 5,000 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.
Also Read, What is Market Capitalisation? - Meaning, Formula & Importance here.
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 launch of the cash market segment. In 1996, it commenced the index NIFTY 50. The exchange launched index futures in 2000 and index options in 2001. Trading in index futures and options on global indices like the S&P 500 and the Dow Jones Industrial Average began on August 29, 2011.
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 widely used by modern global stock exchanges like the NYSE and Nasdaq. Some benefits of the electronic trading system are fewer errors, faster execution, and better efficiency.
The electronic trading system (known as the BOLT 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+1 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, launched in 1986, measures the overall performance of the BSE since 1979. 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 the 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 the Bombay Stock Exchange are –
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S&P BSE Auto
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S&P BSE Bankex
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S&P BSE Capital Goods
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S&P BSE Consumer Durables
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S&P BSE FMCG
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 investors make 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 on the BSE and NSE as collateral 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.
BSE vs NSE: Difference
The two largest stock markets in India, NSE and BSE, are involved in equity trading, derivatives, and other financial tools. Even though they have similar functions, they have different scales, liquidity, and indices. Below is a quick comparison between NSE and BSE:
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Basis of Comparison |
BSE (Bombay Stock Exchange) |
NSE (National Stock Exchange) |
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Establishment |
Founded in 1875, Asia’s oldest stock exchange |
Established in 1992, India’s largest exchange by volume |
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Benchmark Index |
S&P BSE Sensex |
Nifty 50 |
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Listed Companies |
Over 5,000 companies |
Over 2,500 companies |
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Trading Volume |
Lower liquidity compared to the NSE |
Higher trading volume and liquidity |
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Technology Platform |
BOLT (BSE Online Trading) |
NEAT (National Exchange for Automated Trading) |
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Market Preference |
Favoured by long-term investors |
Preferred by traders for short-term trades |
Also Read, Difference between NSE and BSE
In Which Exchange Should Investors Transact?
The answer to NSE vs BSE all depends on the trading objectives and preferences. NSE suits investors who want liquidity, narrower spreads and quicker trading, benefiting day traders and institutional investors. It has a larger derivatives market, which is suitable for short-term and higher-frequency trading.
The BSE, however, better fits long-term investors who like stability and a greater variety of listed stocks, particularly the mid- and small-cap stocks. Its historical significance and transparent operations attract conservative investors.
Both markets are regulated by SEBI, which safeguards investors, ensures smooth settlement of trading and technological advancement. The majority of top stocks are dual-listed, so the price differences are insignificant. Hence, you can make your choice of NSE vs BSE based on liquidity preference, brokerage platform or convenience of access.
Conclusion
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.