The Bombay Stock Exchange is the first and oldest stock
exchange in India as well as Asia. It was founded by Premchand Roychand in 1875
and is currently managed by S.S. Mundra, serving as the chairman of BSE.
TheBSEis located in Mumbai, India and lists more than 5000 companies with a total market capitalization of $3.5 Trillion. Also, BSE is one of the largest stock exchange in the world, along with the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange Group and Japan Exchange Group.
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
vastly popular worldwide used by the NYSE, NASDAQ, etc. Some of the benefits of
the electronic trading are faster execution, fewer errors and better
The BSE’s overall performance is measured by the
Sensitivity Index or SENSEX. SENSEX is a benchmark index of 30 of the BSE’s
largest and most actively traded stocks covering 12 sectors.
Trading in the BSE share market has to be done through a
brokerage agency against a stipulated charge. Investors can invest in these
stocks through a registered share broking firm. Transactions made in BSE online
are done through a T+2 rolling settlement basis, wherein all the transactions
are processed within two days. Securities and Exchange Board of India (SEBI) is
responsible for the smooth functioning and regulation of this stock exchange.
of listing with BSE
There are several advantages that a company can enjoy by
listing with BSE –
Generation of Capital – The companies that are listed on the stock exchange
enjoy the trust and confidence of investors present in the market. It also
spreads market knowledge about business, allowing investors to properly assess
the company’s future prospects and invest accordingly.
Market securities can readily be bought
and sold in a financial market if it is listed on Bombay Stock Exchange,
thereby providing sufficient liquidity to both businesses and investors.
Supervision – If the investors choose to invest in companies listed on BSE,
they can skim through the fraudulent companies. Also, several rules and
regulations are mandated by SEBI which monitors the actions of registered
companies, minimizing the chances of investors incurring a loss due to
company’s illegal activity.
Adequate Information – As per SEBI rules and regulations, the companies listed
on Bombay Stock Exchange must report adequate information about total revenue
generation, total dividend, bonus, transfer issues, reinvestment pattern, etc.
on an annual basis.
Rules – The price of securities trading in the BSE is determined through demand
and supply patterns of the same currently prevailing. This price reflects the
real value of the share, which affects the company’s market capitalization and
ease of procurement of funds.
Guarantee – Securities issued by a company acts as a collateral guarantee at
the time of availing loans. Most financial institutions accept equity shares
listed in BSE as leverage against which funds can be obtained.
are the various Investment Methods?
The securities listed on the Bombay Stock Exchange can be
traded directly or indirectly depending on the volume of transactions
undertaken. Primarily bulk transactions on BSE are only possible through
registered brokerage firms and institutional investors. Whereas on the other
hand, retail investors can make transactions through certified stock brokers,
broking firms or any stock investing platform.
All companies listed under BSE can use the following
financial instruments to raise funds for their business:
·Equity – The most common equity instrument
issued by the company to raise adequate capital for its smooth business
operations is ‘Shares’. Massive equity is raised during an Initial Public
Offering (IPO) by the company in its early stages of business. However, the
issuance of new shares is subjected to strict SEBI rules and regulations
because of volatility in stock prices at this stage.
·Debt Instruments – The underlying companies
issues these securities to raise funds without giving ownership to the
investors. Relatively risk-free in nature, trading in debt instruments can be
done in both primary and secondary market, depending upon its nature.
·Government Securities – Common government
securities that trade on BSE are Zero coupon bonds, floating rate bonds, dated
securities and capital indexed bonds.
Indices in BSE
Sensex is a benchmark index under BSE. It is a free float
market-weighted index that tracks the performance of the top 30 companies in
India. Therefore, the BSE share market uses Sensex to track the performance of
these companies to determine whether the Indian capital market will fall or
rise depending on the stock price movement.
Other than the benchmark index, several other sectoral
indices are also provided by BSE, such as:
BSE Capital Goods
BSE Consumer Durables
BSE Fast Moving Consumer Goods
Bombay Stock Exchange plays a pivotal role in regulating
the financial markets of India. Market fluctuations in an economy can easily be
observed through the performance of its benchmark index, which has cascading
effects on the capital sector of economies all around the world.