Bombay Stock Exchange
The Indian stock market has become one of the most traded and invested exchanges worldwide, with record-breaking trading volumes. India's primary trading centres are the Bombay Stock Exchange and the National Stock Exchange. Before making an investment decision, it is wise to understand the history and operations of the stock exchanges, beginning with the Bombay Stock Exchange.
What Is the Bombay Stock Exchange?
The BSE full form is the Bombay Stock Exchange. It allows various private companies to become public companies by offering their shares for the first time to the general public through Initial Public Offering. The Bombay Stock Exchange is India's oldest running exchange, established in 1875.
Previously, it used to run operations under a different name—the Native Share and Stock Brokers' Association. The Bombay Stock Exchange is situated in Mumbai and lists around 6,000 companies, making it one of the biggest stock exchanges worldwide, along with market leaders such as the New York Stock Exchange and the Shanghai Stock Exchange.
Premchand Roychand founded the Bombay Stock Exchange in 1875, which is now run and managed by the current chairman Sethuathnam Ravi. The BSE was the first in Asia and now includes an equity trading platform for SMEs (small and medium enterprises). The Bombay Stock Exchange, created to list equities, has now diversified into other stock market activities such as clearing, settlement and risk management of all the included parties and activities.
How Does It Work?
The Bombay Stock Exchange allows current private companies to offer their shares to the general public for subscription. The centre assists companies in following the Initial Public Offerings (IPOs) process to ensure that they easily list their shares on the BSE after following the set guidelines by the Securities and Exchange Board of India (SEBI).
Once the companies list their shares, they enter the secondary market where the investors can buy and sell the stocks by investing their money through a Demat and trading account.
The BSE has established a comprehensive electronic trading system to allow investors to execute such financial transactions. Investors can invest in the companies listed on the stock exchange by using their funds through the Demat account and placing market orders in BSE online.
The BSE online is a system within the BSE that allows investors to buy and sell equities digitally without having to follow the physical share certificate system. However, every transaction executed by the investors on the Bombay Stock Exchange is conducted through a stock brokerage firm. They must open a Demat and trading account with a brokerage firm to buy and sell securities on the BSE.
However, if an entity makes a large financial transaction, the BSE may give it a particular preferential advantage to direct investment without investing through a brokerage firm. The Bombay Stock Exchange uses the BOLT-Bombay Online Trading Platform for effective trading.
Like other stock exchanges, SEBI has made it mandatory for the Bombay Stock Exchange to use a T+2 settlement procedure for the transactions made by the investors. When investors buy or sell securities on the exchange, the BSE takes three days (the trading day plus two more days) to credit shares into the buyer's Demat account and payment into the trading account of the seller.
What Are The Advantages of Listing?
The primary function of the Bombay Stock Exchange is to assist companies in the Initial Public Offering process. It ensures that the companies can sell their shares to the general public and raise the desired funding through a transparent and effective fundraising process.
Companies who want to raise capital and become public-listed companies can list their shares on the BSE for the following benefits.
- Capital Generation
The primary motive of the companies running a business is to have adequate capital to invest in various aspects of their businesses. Listing on the BSE allows companies to offer their shares to the general public against a set subscription amount that the company gets for the sale of shares.
The company can use these funds to invest in business activities for working capital, expansion, advertising, etc. Furthermore, the listing also increases the goodwill of the company as investors analyse the fundamentals of the company and, if good, may turn to use the products and services. It also helps increase liquidity for businesses and investors as the shares can be readily sold on the exchange.
- Transparency
Listing brings companies under the regulatory framework of SEBI, where the investors can glance through companies’ information to ensure they are investing in a legal and licensed company. It creates transparency and protects the investors’ investments. In case of fraud, BSE and SEBI provide all the needed support to the investors to ensure they get their investments back.
- Pricing Rules
The securities price listed on the Bombay Stock Exchange is set through a general demand and supply equilibrium. If the demand is higher than the number of floating shares, the price of the share increases. On the other hand, if the demand is lower than the number of floating shares, the price decreases.
Such a price parity allows investors to know the real value of the shares, affecting a company’s fundamentals and market capitalisation. If positive, such a company can easily procure further funds.
What Are The Various Investment Methods?
Investors can invest in BSE-listed companies through one of the two below-mentioned procedures:
- Direct Investment
You can invest in companies through the Bombay Stock Exchange without going through a certified stockbroker or a stockbroking agency. The stock exchanges allow registered broking agencies and institutional investors to make direct investments to buy or sell securities on the BSE.
The flexibility relies on the high volume of transactions agencies and investors make. Since the transactions are in bulk, SEBI provides them with the facility to invest directly.
- Indirect Investment
This process requires retail investors to open a Demat and trading account with a stockbroking agency to invest in BSE-listed companies. Since the invested amount and the volume are considerably less for retail investors, SEBI has made it mandatory for retail investors to invest through a licensed stockbroking agency and not directly in the companies.
Chief Investment Segments
Companies can use various financial instruments through the Bombay Stock Exchange.
- Equity:
Equities are shares of a company that constitutes the ownership and allows companies to raise adequate capital to run business operations smoothly. The companies utilise the process of Initial Public Offering to sell their shares to the public for the first time. After listing company shares on the BSE, the investors become part owners of the company equaling the percentage of shares.
- Debt Instruments:
Debt instruments work as a loan product for companies where such companies issue bonds and other securities to raise funds from the public without giving them ownership. However, such instruments provide regular income to investors and the promise of principal repayment.
- Indices:
There are numerous indices listed on the stock exchange that mirror the top companies' performance. For example, Sensex is an index that reflects the performance of the top 30 companies and provides a way for investors to make profits based on the actual performance of the top companies. The Bombay Stock Exchange also uses such indices to monitor the performance of top-listed companies.
Background of the BSE
An Indian businessman named Premchand Roychand started the Bombay Stock Exchange in 1875, which was then called the Native Share and Stockbrokers Association. The idea of the stock exchange came after some traders, along with Premchand Roychand, would gather under a tree in the current Dalal Street to purchase and sell shares of various companies to each other. The association later evolved into what is now called the Bombay Stock Exchange.
Previously, the BSE followed an open outcry system where the licensed brokers used to stand in a ring and call out all the bids and the related prices. Once the investors bought the shares, the traders issued a physical share certificate to showcase their ownership. However, the open outcry system created a chaotic environment in the exchange and resulted in some buyers or sellers losing good bids.
The Securities and Exchange Board of India replaced the open outcry system and the issuance of physical share certificates with a digital system that requires the transactions in shares digitally and virtually holding the shares in the Demat account.
Top 10 Companies Listed Under Bombay Stock Exchange
Here are the top ten companies listed under the Bombay Stock Exchange:
- 1. Reliance Industries Ltd.
- 2. Tata Consultancy Services Ltd.
- 3. HDFC Bank Ltd.
- 4. Infosys Ltd.
- 5. ICICI Bank Ltd.
- 6. Hindustan Unilever Ltd.
- 7. State Bank of India
- 8. Housing Development Finance Corp Ltd.
- 9. Bharti Airtel Ltd.
- 10. Adani Enterprises Ltd.
Conclusion
The Bombay Stock Exchange is the oldest stock exchange that started India's financial and investment revolution. Starting in 1875, it created a path for Indian companies to utilise the included investment instruments and raise adequate funds for the smooth running of their operations.
The exchange has become a one-stop solution for companies and investors to find best-in-class trading practices through unique features and an advanced technology-backed online trading platform. For investors looking to start their investment journey, the Bombay Stock Exchange provides the utmost transparency and safety.
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