Introduction to India’s Stock Market
India boasts of a vibrant economy backed by both domestic and international investors across diverse industries. Central to this activity are its two major stock exchanges – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). This article seeks to unravel the functioning and key differences between these significant financial-market entities.
Bombay Stock Exchange (BSE): Asia’s Oldest Stock Exchange
The Bombay Stock Exchange (BSE) is one of Asia’s oldest stock exchanges. Since its inception in 1875, the BSE has grown immensely, catalyzing India’s financial growth while offering a platform for trading diverse financial instruments. The BSE operates on SENSEX (Sensitive Index), its own index comprised of 30 leading companies from various sectors. With over 5000 companies listed, it offers a wide array of options to investors.
Bonds in BSE: Diverse Investment Avenue
BSE has been instrumental in popularizing unique types of bonds such as convertible, non-convertible, zero-coupon, and bonds with a call or put option. These bonds are basically loans, where an investor lends money to a company or the government. In return, the issuer promises to repay the loan on a specific date, with interest.
For instance, if you purchase a 10-year bond with a face value of INR 1,000 at an annual interest (coupon) rate of 8%, you would receive INR 80 every year for ten years, after which your INR 1,000 would be returned.
National Stock Exchange: A Modern Trading Platform
NSE, on the other hand, is relatively modern, established in 1992. Despite its late entry, it swiftly rose to prominence, employing modern, fully automated screen-based electronic trading systems, making trading more transparent, efficient, and accessible. The NSE utilizes NIFTY as its major index, comprising 50 listed stocks from 24 diverse sectors.
One of the significant appeals of NSE is its widespread reach. The NSE has around 2000 shares listed and is more nationally accessible, with terminals in almost every Indian city. Consequently, higher trading volumes are observed in NSE as compared to the BSE. Like BSE, the NSE also facilitates trading in various types of bonds, promoting broader investment options for investors.
Beyond just equities and various types of bonds, both BSE and NSE also offer platforms for trading derivatives, mutual funds, and exchange-traded funds. Each has its depository services: the BSE with the Central Depository Services Limited (CDSL) and the NSE with the National Securities Depository Limited (NSDL).
Diverse Trading Instruments Offered by BSE and NSE
Both the NSE and BSE have systems which are transparent, making the trading process simpler and more efficient. Bombay Stock Exchange operates on the BOLT (BSE On-Line Trading) system, handling millions of transactions daily. Conversely, NSE operates on the NEAT (National Exchange for Automated Trading) system, a fully automated screen-based trading system.
Let’s consider some numbers as an example. The market capitalization of BSE was INR 2,30,50,000 Crores in October 2021 while NSE market capitalization was much larger, standing at INR 2,49,47,000 Crores in the same month.
While both exchanges essentially serve the same purpose, there are marked differences in their operation, reach, volume, and the types of financial instruments traded. The choice between BSE and NSE often boils down to personal preferences, needs, and the advice of a financial advisor.
Disclaimer
Trading in stock market, whether it’s BSE or NSE, is subject to market risks. The information provided above is for informational purposes only, and it does not constitute advice or a recommendation to invest or trade. The investor must gauge all the pros and cons of investing or trading in the Indian brokers’ market. Prior to any market decision, it is advised to research thoroughly and, if needed, consult with a financial advisor or broker. The investor is responsible for any decision made.
