What are NSE and BSE? Best Exchange of India

The financial section of a newspaper often intimidates people with terms like stock exchange, Dalal Street, bulls, and bears. There is an association of discomfort and the feeling of being thrown in the deep end with these words for beginners or the uninitiated. However, these are just words, and the only way to be comfortable with them is to know what they mean. Read on and you’ll be surprised how uncomplicated these things really are.

Before we go into the NSE and BSE differences, let us start by finding out what stock markets and stock exchanges are. The stock market is a secondary market wherein trading in stocks takes place. After an Initial Public Offer (which takes place in the primary market), companies can list their shares on the stock market and people can choose to buy these stocks.

A stock exchange is an organized platform or market, where buyers connect with sellers and trading of stocks, bonds, and other securities take place. It’s a common place where companies make their stocks available for being sold, and investors can buy and trade these stocks between themselves. An important part of using stock exchanges is understanding the relationship between exchanges and companies. Exchanges provide a transparent space for trading in stocks, and there are many such places around the world. In India, two major stock exchanges are NSE and BSE.

What is NSE?

Founded in the year 1992, the National Stock Exchange (NSE) is India’s biggest stock exchange in terms of market capitalization. The NSE was the first ever stock exchange to have brought in the system of electronic and fully automated trading to India. In just a few years, this electronic system of trading has wholly replaced the paper-based share trading system involving physical share certificates.

The stock exchange also has a benchmark index known as NIFTY (National Fifty). The NIFTY index derives its value from 50 of the biggest (in terms of market capitalization) and most frequently traded companies listed on the NSE.

Over the past 20 years, the National Stock Exchange has achieved various milestones and has received the following awards recently: 

• World’s Largest Derivative Exchange in terms of contracts traded.
• Index provider of the year.
• ETF Index provider of the year.

What is BSE?

The Bombay Stock Exchange (BSE) is the older counterpart to the National Stock Exchange. The BSE started its operations in the year 1875 under the name of “The Native Share & Stock Brokers Association.” This makes the BSE the oldest stock exchange in all of Asia. Unlike the NSE, the Bombay Stock Exchange shifted from the open-cry system to fully electronic trading (BOLT) only in 1995.

Similar to NIFTY, the Bombay Stock Exchange also has its own benchmark index known as SENSEX (Sensitive Index). This index was first introduced in the year 1986 and is essentially a weighted average value of the top 30 companies listed on the stock exchange.

Over the past 140 years, BSE has come a long way and provides trading in financial instruments like equity, currencies, debt instruments, derivatives, and mutual funds.

BSE has various subsidiaries like: 

• BSE SME is India’s largest SME Platform with over 250 companies listed on it. 
• BSE StAR MF is India’s largest mutual fund platform with over 2.7 million transactions, and more than 2 lakh new SIPs per month.
• BSE Bond is a market leader in the bond market with 2.09 lakh crores worth of fundraising from 530 issuances in the financial year 2017 – 2018 alone.

Sensex is internationally traded on Eurex and various leading exchanges in Brazil, Russia, China, and South Africa.

Open FREE Demate account now to start your Trading

How do NSE and BSE work?

The trading mechanism of both the NSE as well as BSE is similar. Investors and traders connect to the exchanges via their brokers, and place buys or sells orders on these exchanges. What makes them decide on their trading strategy? You might have often heard the terms ‘Nifty’ and ‘Sensex.’ Both of them are indices – the former representing NSE and the latter BSE. These indexes play an integral part in the working of these exchanges.

• The indices are an indicator of the health of the stocks on these exchanges (and given their scale, an indicator of the Indian economy’s health too).
• A set of 50 stocks in the NSE (and 30 in the BSE) have been selected, on the basis of their company’s reputation, market capitalization, and significance, to be part of a weighted formula that gives us the ‘value’ of the index.
• If anyone of these stock prices rises, the value of the Nifty & Sensex goes up. If the prices decline, so do the Nifty & Sensex.

That’s all well and good, but what is the actual role of these stock exchanges? What do they do?

• Suppose a company wishes to raise money from investors, it first needs to be registered in the stock exchange, which it does with an IPO.
• The company produces shares and sells them at a particular price. The investors who buy the stakes are the shareholders of the company.
• For every share, a fixed amount of dividend (profit, in layman terminology) is paid to the investors. If the company grows, the dividend increases and vice versa.
  If the company keeps growing, it will attract more investors and more shares need to be issued.
  All these transactions are carried out under a regulating authority known as the stock exchange, like NSE and BSE. Companies list their shares in these exchanges and investors buy them.

Difference between NSE and BSE

Reasons why companies get listed on exchanges

It is in the best interest of companies to get listed on exchanges since it boosts their prospects of getting investments and becoming a name known to all the people in the world of trading. There are a few other specific reasons for companies to get listed on exchanges.

• Transparency and Accountability

When all the trading takes place on a central, authentic platform, investors have that security in the back of their minds which makes them comfortable trading in stocks. Companies also know that transparency is the definite outcome of things done in the digital space where transactions can be traced, which also makes it easier for investors to participate in trading since they know that the companies also have to follow listing agreements and provide all the necessary details on the exchanges.

• Better Transaction Speeds

Online trading is something that transgresses any NSE and BSE difference since promptness is always a deal maker when it comes to trading. Prices are volatile, and by getting listed on exchanges, companies give investors a better crack at finding the price which seems attractive to them.

• Better Reach

Much like everything else, the digital space increases the reach of any company which wants to make its stocks available to investors. Online trading platforms can be accessed via any internet-enabled device, and this opens the company and its stocks to a much larger pool of investors.