Bombay Stock Exchange (BSE): Meaning, advantages

Recognised as Asia’s oldest and largest stock exchange, it wouldn’t be amiss to call the Bombay Stock Exchange (BSE) the pulse of the Indian economy. Over the decades, the BSE has contributed immensely to the growth and development of the country. Therefore, it becomes all the more essential for investors to understand the Bombay Stock Exchange before they make suitable investment decisions.

This article simplifies what the Bombay Stock Exchange is, how it functions, its significance, the differences between BSE and NSE, and its role in the Indian economy.

• Table of contents

1. What is Bombay Stock Exchange (BSE)?
2. How does Bombay Stock Exchange work?
3. Significance of the Bombay Stock Exchange
4. Background of BSE
5. Functions and operations
6. Major indices at Bombay Stock Exchange
7. Advantages of listing on BSE
8. What is BSE Sensex?
9. How does BSE differ from NSE?
10. Role of BSE in the Indian Economy

What is Bombay Stock Exchange (BSE)?

Located in Mumbai, the Bombay Stock Exchange (BSE) is the first and one of the largest stock exchanges in the whole of Asia. It caters to over 6,000 companies for listing their stocks and enables investors to trade in the stock market. The BSE facilitates these transactions smoothly and securely – the transparency, efficiency and innovation shown by the BSE over the past many decades have made it an integral component of the Indian financial system.

How does Bombay Stock Exchange work?

• Listing process: Companies must meet certain criteria to list their shares on the BSE. Once listed, their shares become available for trading.
• Trading mechanism: The exchange uses an electronic trading platform called BOLT (BSE Online Trading) to execute transactions seamlessly.
• Price discovery: The BSE ensures fair pricing of securities based on demand and supply.
• Clearing and settlement: It ensures that transactions are completed on time, usually within a T+1 settlement cycle, with a few stocks benefiting from a T+0 settlement cycle.

Significance of the Bombay Stock Exchange

• Providing companies with access to capital for growth and expansion.
• Offering investors a platform to invest and grow their wealth.
• Enhancing liquidity in the financial markets.
• Supporting economic growth by fostering a culture of investment.

Background of BSE

BSE has a fascinating history. Back in the 19th century, a group of traders, led by businessman Premchand Roychand, used to gather under a Banyan tree on what is now Dalal Street. They called themselves the Native Share and Stockbrokers Association, and their main activity was buying and selling stocks. Over time, this group grew and became the Bombay Stock Exchange (BSE).

In its early days, BSE used a floor trading system. Licensed brokers would stand in a ring, announcing stock prices, while investors had to rely on newspapers to learn about these prices. This made it challenging for everyone to access real-time information.

Then came the National Stock Exchange (NSE), which introduced a digital trading system that allowed stock prices to be accessible to all investors in real-time. This innovation made NSE a preferred choice for many.

To keep up, BSE also decided to go digital. In 1995, with the help of CMC Ltd, BSE switched to an online trading system. Today, this digital platform is known as BSE Online Trading.

Functions and operations

• Facilitating trading: Providing a secure and transparent platform for trading in various securities.
• Regulating market practices: Ensuring compliance with regulatory frameworks to maintain fair practices.
• Price discovery: Enabling the determination of securities’ prices based on market dynamics.
• Providing market data: Offering real-time data and analysis to investors and stakeholders.
• Clearing and settlement: Ensuring efficient and timely completion of trades.

Major indices at Bombay Stock Exchange

• BSE sensex: This is the most well-known index, featuring 30 of the top-traded stocks in India. It is widely followed by analysts, the media, and investors to understand the health of the Indian economy.
• BSE 500: This index includes 500 companies from different sectors, giving a broad picture of the Indian stock market. It is useful for tracking overall market performance.
• BSE midcap: It focuses on mid-sized companies that are ranked from 101 to 250 by market capitalisation, helping investors explore opportunities in this segment.
• BSE smallcap: This index tracks smaller companies ranked 251 and beyond by market capitalisation, suitable for those looking to invest in smaller businesses.
• BSE bankex: It includes banking and financial services companies and is used to track how the banking sector is performing.
• BSE healthcare: This index covers healthcare and pharmaceutical companies, giving insight into the performance of the healthcare sector.

Advantages of listing on BSE

• Easy capital generation: Listed companies gain investor trust, enabling effective fundraising through equity or debt.
• Liquidity: Securities can be readily traded, meeting liquidity needs for both businesses and investors.
• Legal oversight: SEBI regulations ensure transparency and reduce fraud risks for investors.
• Timely disclosures: Companies must publish financial details annually, including dividends and investments.
• Fair pricing: Demand-supply dynamics determine share prices, reflecting true market value.
• Collateral support: Listed securities can be used as collateral for loans.

What is BSE Sensex?

The BSE Sensex, short for the Sensitive Index, is the flagship index of the Bombay Stock Exchange. It comprises 30 companies representing various sectors of the Indian economy. The Sensex serves as a barometer for the market’s overall performance. For example: if the Sensex rises, it indicates a positive sentiment in the market. On the other hand, a decline suggests a bearish outlook. The Sensex is widely used by investors and analysts to assess market trends and make informed investment decisions.

How does BSE differ from NSE?

While the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are both key players in India’s financial markets, they have distinct differences:

• Establishment: BSE was founded in 1875, while NSE was established in 1992.
• Indices: BSE’s main index is the Sensex, whereas NSE’s primary index is the Nifty 50.
• Trading Volume: NSE generally has higher trading volumes compared to BSE.
• Technology: NSE’s technological infrastructure is often considered more advanced.
• Geographical Reach: Both exchanges have a nationwide reach, but their investor bases may differ.

Role of BSE in the Indian Economy

• Promoting Investment: Encouraging both domestic and foreign investment.
• Supporting start-ups: Providing a platform for smaller companies through the SME segment.
• Creating jobs: Facilitating employment opportunities in the financial and allied sectors.
• Driving innovation: Introducing new financial instruments and services.

Conclusion

The Bombay Stock Exchange remains an integral part of India’s financial ecosystem. From its rich history to its modern-day operations, the BSE continues to play a critical role in shaping the country’s economic future. Whether you are an investor, a company, or a policymaker, understanding the Bombay Stock Exchange’s meaning and functions is essential for navigating India’s dynamic financial landscape.

FAQs

What is meant by BSE?

The Bombay Stock Exchange (BSE) is a leading stock exchange in India, providing a platform for trading in securities such as stocks, derivatives, and mutual funds.

What does BSE company do?

The BSE facilitates trading, ensures transparency, provides market data, and offers listing services to companies.

Which is better NSE or BSE?

Both have unique strengths. NSE is preferred for high trading volumes, while BSE has historical significance and diverse listing options.

What is the difference in NSE and BSE?

Key differences include their primary indices (Sensex for BSE, Nifty for NSE), trading volumes, and establishment years.

Which body regulates the BSE?

The Securities and Exchange Board of India (SEBI) regulates the Bombay Stock Exchange, ensuring compliance with financial laws and practices.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.