The Indian stock markets are known to be well structured and highly regulated. With the market regulator SEBI ensuring investor protection and fair trading practices, various market intermediaries, such as stock exchanges, depository participants, clearing corporations, etc., tend to work in alignment with the norms set.
Out of all the market participants, stock exchanges play an important role since these act as platforms for investors to trade in securities. Among the various stock exchanges in India, two stock exchanges enjoy the most popularity considering their size, NSE and BSE. Here, we will discuss each of these and highlight key differences for new investors to know the better option of the two.
What is NSE?
NSE, or the National Stock Exchange, was established in 1992 and was the first exchange in India to provide an automated electronic trading system.
NSE was known to be at the forefront of the electronic settlement system, replacing the paper-based share settlement in the country. Since its inception, NSE has fast evolved its electronic trading platform to suit the ever-changing demands of the share market. In the present day, the stock exchange can alone handle more than 16,000 orders per second and even possesses the capability to scale up as needed.
NSE, in partnership with some of the country’s leading financial institutions, formed the country’s first Depository – NSDL [National Securities Depository Limited]. The main objective of this initiative was to minimise share certificate forgeries and bring in efficiency in the settlement process.
Did you know
Since its inception, NSE’s index, Nifty, has grown close to 18 times from a base value of 1000 at inception to approximately 18k points this year.
What is BSE?
BSE, or the Bombay Stock Exchange, is known as one of the most premier stock exchanges in India and one of the ten largest stock exchanges across the globe. Although it was established way back in 1875, it was only recognized as an official stock exchange in 1957. In 1995, the exchange came up with its online share trading platform known as BSE Online Trading System (BOLT).
BSE partnered with some of the country’s leading banks to establish CDSL [Central Depository Services (India) Limited]. Today, all the country’s leading stock exchanges are connected with the CDSL.
Did you know
Despite their popularity and penetration, NSE and BSE see participation from only about 2.5% of the country’s population.
Difference between NSE and BSE
The table below highlights the main differences between NSE and BSE:
|Meaning||NSE or National Stock Exchange is India’s largest stock exchange offering a completely automated trading set-up.||BSE or Bombay Stock Exchange is the country’s and also Asia’s oldest stock exchange that offers high-speed trading.|
|Established on||It was founded in 1992 and recognized in 1993.||BSE was founded in 1875 and recognised in 1957.|
|Global ranking||NSE ranks 11th among the world’s largest stock exchanges.||BSE ranks 10th among the worlds’ largest stock exchanges.|
|Index name||NSE’s benchmark index is called NIFTY 50. The index tracks 50 of the largest and highly liquid stocks out of the more than 1600 stocks listed on NSE.||BSE’s benchmark index is called SENSEX. This index tracks 30 of the largest and leading companies listed on BSE.|
|Market capitalization||The market capitalization of NSE is Rs. 199 trillion||The market capitalization of BSE is Rs. 266 trillion|
|Presence||NSE has trading terminals in more than 1500 cities.||BSE has trading terminals in about 450 cities.|
|Scale||1600 companies that are listed on NSE.||Nearly 5800 companies are listed on BSE.|
|Liquidity||NSE offers higher liquidity since higher volumes are traded as compared to BSE.||BSE offers comparatively lower liquidity.|
|Products||Equities, derivatives, mutual funds, currency, corporate Bonds, Initial Public Offering(IPO), Institutional Placement Program(IPP), etc||Equities, derivatives, currency, commodity mutual funds, corporate bonds, Initial Public Offering(IPO),etc|
How do NSE and BSE work?
Both NSE and BSE have mostly similar trading mechanisms, as both allow investors and traders to connect on the exchanges through brokers. Investors can place buy or sell orders on either of these exchanges.
The indices of NSE and BSE, ‘Nifty’ and ‘Sensex’ respectively, indicate the health of stocks listed on these exchanges. Considering the scale of each of these exchanges, their indices also indicate the overall economic health of the Indian markets.
If a company plans to raise money through investors, it must get registered with a recognised stock exchange through an IPO. The company can then offer shares at a particular price to investors who wish to buy them to become shareholders of the company.
If the company performs well, it can declare dividends for shareholders as per the shares held. As it grows, the company can attract more investors and therefore more shares can be issued. All such transactions can be carried out in the stock markets through a stock exchange, such as NSE or BSE.
An investor who is new to the stock markets may be confused while selecting between NSE and BSE. The choice, however, depends mostly on the companies that are listed on each of these. Most stocks circulating in the Indian stock markets are listed on both BSE and NSE. Hence, an investor can pick either of these depending on their preference.
While NSE has a significantly lesser number of stocks listed on it as compared to BSE, it offers higher liquidity and allows investors to convert their investment into cash at any time. This is the main reason why NSE is preferred over BSE.
Yes, you can buy a share from NSE and sell on BSE, however, this may not necessarily fetch profits unless an arbitrage opportunity arises.
BSE SENSEX is calculated as – total free float market capitalization/ base market capitalization x Base index value.
The formula for Nifty 50 is current market value / base market capital x 1000.
New investors who prefer intraday trading may opt for NSE since it offers more liquidity. BSE, on the other hand, is more suited for seasoned investors who prefer long-term investments.