Bombay Stock Exchange (BSE): Full Form, Meaning, History, Role & Indices
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Stock exchange is the marketplace where buyers and sellers trade securities like bonds, stocks, and other instruments. Companies use a stock exchange in India to sell their securities to raise capital, and investors buy them to earn a profit. Among India's two primary stock exchanges, NSE and BSE, BSE, or Bombay Stock Exchange, is the oldest in Asia, located in Mumbai. With over 5,000 listed companies on the BSE, it is one of the top stock exchanges worldwide with the maximum number of listed companies.

Thus, it is crucial to the country’s economic growth by helping companies raise capital and letting investors earn profit. Let’s dive deeper into BSE and it’s working.

What is the Bombay Stock Exchange?

The Bombay Stock Exchange is Asia's largest and oldest stock exchange, serving as a platform for trading various financial instruments like stocks, currencies, and derivatives. Comprising some of the most actively traded and liquid stocks, BSE Sensex is the benchmark index in the country. Significantly impacting the Indian economy, it is a barometer of India’s financial performance.

Over the years, the Bombay Stock Exchange has introduced several new products and services, including currency trading, debt, equity, mutual funds, investment banking, etc. BSE has been a crucial player in the country's economic development because of its efficient trading systems, solid technology infrastructure, and high accountability and transparency.

Significance of the Bombay Stock Exchange

The BSE stock exchange in India is a large marketplace where people can buy and sell business stocks and shares. It allows companies to raise capital from the public and lets individuals invest in companies to earn potential profits. The success of Indian companies indicates positive development and things moving forward. Therefore, apart from being a platform for stock trading, BSE is also an integral component of the country’s financial system.

History of the Bombay Stock Exchange

The formulation of BSE started in the mid-19th century when stockbrokers informally traded stocks under banyan trees on Bombay's Dalal Street. Over the years, the requirement for a regulated and organised trading platform became prominent. As a result, BSE was formally established in Bombay in 1875.

Bombay, now Mumbai, is India's financial centre, and many large investment firms, banks, and financial services companies are operational on Dalal Street. Considering the requirement for a digital platform, the BSE received technological support from CMC Ltd. in 1995 to go digital. Like Wall Street in the US, many Indian investors cite investment activities in Dalal Street to represent the Indian financial sector.

How Does BSE Work?

The BSE price-time priority is its operational principle, where it executes orders based on the time of placing the order and the best price available. An order-matching mechanism and a sophisticated trading platform ensure order execution accurately and quickly. Moreover, the stock exchange in India has a regulatory framework to ensure fairness and transparency in trading activities.

An investor can access the exchange through an online trading platform or brokerage firm and place orders to purchase or sell the desired securities. A listed company must comply with the disclosure requirements. BSE implements regular monitoring of trading activities to prevent insider trading and market abuse.

Listing and Trading on BSE

BSE has laid out certain conditions for listing a company on the exchange through new listing (IPO or FPO) and direct listing. IPO allows a company to offer its shares to investors for the first time. FPO allows an already-listed company to issue new shares to new investors or existing shareholders. An already-listed company can approach the exchange to list its shares through a direct listing. 

To get listed, a company must obtain permission from the BSE to use the exchange's name on its prospectus. They must submit an application letter to the stock exchange and complete securities allotment within a month of subscription list closure. After completing all the formalities, the company must deposit a percentage of the issue amount with the BSE. Major market segments and categories include equity instruments, IPOs, government securities, and debt instruments.

BSE Indices

The BSE has multiple indices to get a snapshot of the stock market’s performance. The major ones include the following:

  • BSE Sensex: It is a flagship BSE index comprising thirty of the most actively traded stocks on the stock exchange in India. Analysts, media, and investors widely track it to gauge the Indian economy.
  • BSE 500: The index comprises 500 BSE-listed companies from various sectors, indicating the Indian stock market. Investors can use it to monitor the Indian stock market’s overall performance.
  • BSE Midcap: It comprises companies from multiple sectors with a market cap between Rs 5,000 crore and Rs 20,000 crore. Investors use it to gain exposure to mid-sized companies.
  • BSE Smallcap: The index comprises companies below a market capitalisation of Rs 5,000 crore or less. Investors use it for exposure to small-sized companies.
  • BSE Bankex: Comprising companies in financial and banking services, it helps investors measure the banking sector’s performance.
  • BSE Healthcare: The index comprises healthcare and pharmaceutical companies listed on the Bombay Stock Exchange. For investors, it is a useful indicator of the healthcare sector’s performance.

These indices provide investors with an easy and quick way to track different sectors’ performance and the overall stock market in India. Investors use them to make informed investment decisions, analyse market trends, and monitor portfolio performance.

What are the Various Investment Methods?

The BSE provides multiple investment methods, including the following

  1. Equity: Buying shares of publicly traded companies and earning return through capital appreciation and dividends
  2. Mutual Funds: Professionally managed investment funds that pool investors’ money and invest in securities like bonds and stocks
  3. Initial Public Offerings (IPOs): The process that private companies use to offer shares for investment for the first time
  4. Exchange Traded Funds (ETFs): Investment funds that track specific indices for investors
  5. Bonds: Include government and company bonds to raise funds and provide a fixed income stream to investors through interest
  6. Derivatives: Financial instruments deriving value from underlying assets like options and futures

Technological Advancements and Innovations

Acknowledging the significance of technological progress, BSE has modernised its systems. As a result, the stock market in India is no longer limited to the wealthy. Anyone with internet and a smartphone can trade stocks online from their homes. BSE has significantly contributed to the country’s economic growth by democratising stock investments.

Role of BSE in the Indian Economy

The Bombay Stock Exchange is a prominent stock exchange in India, providing various investment methods for investors. Investors can utilise several major indices to measure the market’s overall performance and choose from multiple investments, like IPOs, equities, derivates, ETFs, bonds, and mutual funds. Apart from ample investment opportunities, the exchange also creates jobs in the sector to help the economy. All in all, BSE is an efficient and transparent platform for investing in the Indian stock market and achieving financial goals through informed investment decisions.

Frequently Asked Questions

Q: How does BSE make money?

Transaction charges from merchants are the primary source of income for the BSE.

Q: Which is better, NSE or BSE?

NSE is better due to higher market capitalisation, bigger trading volume, more technologically advanced systems, and better liquidity.

Q: Can I buy from NSE and sell in BSE?

You may buy from NSE and sell the stocks in BSE through your Demat account.

Q: Is BSE risky?

BSE is not risk-free since stock market investments are subject to market risks.

Q: Is BSE a broker?

BSE is a stock exchange which brokers use to buy and sell stocks.

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