A stock exchange is an organised market that facilitates the trading of financial securities of thousands of companies at one place. Stock exchanges allow the investors to buy or sell securities such as shares, bonds, derivatives and others soon after they are issued by the companies in the primary market.
In India, there are two predominant stock exchanges namely BSE formerly known as Bombay Stock Exchange and National Stock Exchange (NSE).
What is BSE?
BSE, earlier known as the Bombay Stock Exchange, is Asia’s first stock exchange. In the year 1875, BSE got operational under ‘The Native Share and Stock Brokers Association’.
Premchand Roychand founded it on Dalal Street, and investors used to trade stocks physically. Later, this association changed its structure to constitute Bombay Stock Exchange in 1875.
BSE has its own index known as Sensex that comprises the top 30 stocks among all the companies which are listed with the BSE. The number of companies listed in BSE is around 5,400, according to the latest information.
What is NSE?
NSE, also known as National Stock Exchange, is considered to be the leading stock exchange in India in terms of market capitalization. The NSE is the first stock exchange that has been operational electronically and is now in a fully automated form in India. In other words, NSE is the first dematerialised electronic exchange in the country.
The NSE was established in 1992 with an aim to ensure transparency in the Indian stock market. Since then, it has been ensuring appropriate trading in the market along with resolving debt and equity settlement among the investors.
Similar to BSE, NSE also has its own index known as Nifty that consists of the top 50 companies among those listed with NSE. Currently, there are around 1,600 companies listed in NSE.
Difference between NSE and BSE
In terms of incorporation, having been established in 1875, BSE is far older than NSE since the latter was established in 1992 — more than a century later.
In view of electronic trading, NSE was a pioneer in India. NSE has been a dematerialised electronic exchange since its inception, while BSE switched to electronic trading in 1995.
Importantly, the number of companies listed with BSE is greater than that of NSE. BSE has over 5,000 companies listed with it, whereas NSE has nearly 1,600 companies.
How do these stock exchanges work?
Firstly, the investor can hire the services of brokers registered with markets regulator SEBI to buy stocks at an exchange of companies listed there. The entire trading mechanism under both the stock exchanges is similar.
However, the two stock exchanges have their own index. Sensex is the market index for BSE, while Nifty is the NSE’s index. The movement of these stock indices give an indication of the pattern of stock prices that comprise these indices.
The whole purpose of listing a company with a stock exchange is to raise capital for further progress of the company. So, the company should first issue its Initial Public Offering (IPO) and invite the public to apply for its shares.
Then the shares get listed at a specific price set by the respective company. The investors buy shares and become shareholders of that particular company.
The investors, after becoming the shareholders, start receiving dividends from the company and the amount of the dividend is based on the profits posted by the company.
This entire process takes place under the regulations defined by the market regulator -Securities and Exchange Board of India (SEBI).
To summarise, there are two key stock markets in India, and their functioning is more and less the same. The early investors can commence their investment journey by buying stocks listed with any of the two stock markets.