What is Bombay Stock Exchange?
The Bombay Stock Exchange (BSE) is the oldest stock exchange in both India and Asia, established in 1875 by Premchand Roychand. Headquartered on Dalal Street, Mumbai, the BSE lists over 6,000 companies and plays a crucial role in shaping India’s financial markets.
BSE is one of the world’s largest securities markets, offering investors opportunities to trade in equities, debt instruments, mutual funds, and more. It also provides vital services such as investor education, risk management, clearing, and settlement.
How Does the BSE Work?
Trading on BSE is conducted electronically through the BOLT (Bombay Online Trading) system, which allows investors to place orders directly online. The platform operates on a T+2 rolling settlement system, meaning transactions are settled within two days. SEBI (Securities and Exchange Board of India) oversees BSE, ensuring the stock exchange functions smoothly by updating regulations regularly.
History of BSE
The roots of the BSE trace back to the 19th century when traders, led by Premchand Roychand, would gather under a banyan tree in Mumbai. Initially called the Native Share & Stock Brokers Association, the BSE later moved to Dalal Street in 1874. BSE adopted digital trading in 1995, following the success of the National Stock Exchange (NSE), which made prices accessible to all investors.
Advantages of Listing on BSE
Being listed on the Bombay Stock Exchange offers several benefits:
1. Easy Capital Generation
Listed companies enjoy the trust of all kinds of investors present in the market. It spreads market knowledge regarding a budding business, allowing individuals to carefully analyse the imminent condition of such companies and invest accordingly.
Paid-up capital for a business can only be raised effectively if a company is listed with a prevalent stock exchange in a country.
Market securities can be readily sold in a financial market if it is listed on the Bombay Stock Exchange, thereby sufficing the liquidity needs of both businesses and individual investors. Funds to meet any requirement of a company can be obtained through the issuance of debt and equity securities, which investors purchase for the purpose of wealth creation.
Securities purchased can be readily sold through the electronic trading settlement of BSE, thereby allowing investors to encash their investment as and when the need arises effectively.
2. Legal Oversight
Investors can skim through fraudulent companies if they choose to invest in organisations listed with BSE.
Several rules and regulations are mandated by SEBI to monitor the actions of registered companies, minimising the chances of investors incurring a loss due to illicit activities of a business.
3. Transparent Pricing
Prices on BSE are determined by demand and supply, ensuring that securities trade at their real market value.
4. Collateral for Loans
Securities listed on BSE can be used as collateral when companies seek loans, improving access to financing.
Investment Methods on BSE
Trading of securities of a company listed on the Bombay Stock Exchange can be done either directly or indirectly, depending upon the volume of transactions undertaken. There are two main types of trading on BSE:
1. Primary Market
Large transactions are handled by institutional investors through registered brokerage agencies.
2. Secondary Market
Retail investors can trade through stockbrokers or stock trading platforms. A demat account is required for electronic transactions, which ensures virtual ownership of stocks.
Chief Investment Segments on BSE
Companies listed on BSE can raise funds through various financial instruments:
1. Equity
Equity instruments primarily consist of shares issued by a company to raise adequate paid-up capital for its smooth operations. Massive equity is raised during an initial public offering of a start-up company in the primary capital market. However, new issuance of shares is subject to strict regulations under SEBI due to the volatility of prices at this stage.
Equity already issued can be traded amongst retail customers in the secondary market through a stockbroker.
2. Debt Instruments
These tools are issued by an underlying company to raise finances without giving ownership to investors. Relatively risk-free in nature, trading in debt instruments can be done in both primary and secondary markets, depending upon its nature.
Various government securities such as zero coupon bonds, floating rate bonds, capital indexed bonds and dated securities are traded in BSE.
Major BSE Indices
Sensex is BSE’s benchmark index, tracking the top 30 companies across various sectors. BSE also offers several sectoral indices such as:
- S&P BSE Auto
- S&P BSE Bankex
- S&P BSE Capital Goods
- S&P BSE Consumer Durables
- S&P BSE Fast moving consumer goods
Additionally, BSE provides indices for small and mid-cap companies through the BSE Small-cap and BSE Mid-cap indices, which are popular among index mutual funds.
Conclusion
The Bombay Stock Exchange plays a vital role in India’s financial system. Its benchmark index, Sensex, serves as an indicator of market trends and has a global influence. With its rich history and ongoing advancements, BSE continues to be a cornerstone of India’s stock market.
Happy Investing!
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