BSE - What is Bombay Stock Exchange?

What is BSE?

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.

The BSE is 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.

How 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 efficiency.

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.

Advantages of listing with BSE

There are several advantages that a company can enjoy by listing with BSE –

1.    Hassle-free 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.

2.    Legal 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.

3.    Publishing 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.

4.    Pricing 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.

5.    Collateral 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.

What 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.

Major Investment Segments

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.

Major 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:

1.    S&P BSE Auto

2.    S&P BSE Bankex

3.    S&P BSE Capital Goods

4.    S&P BSE Consumer Durables

5.    S&P 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.