When we talk about the Indian stock markets, the two prominent names that come to mind right straight away are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Therefore, in this article, we are going to discuss more about the major benchmark indices – Sensex and Nifty.
Let’s start with the definition of a stock exchange. The most widely understood and accepted definition of a stock exchange is that it is a regulated and organized place where investors can buy and/or sell stocks, bonds, and other securities. In India, the two big stock exchanges are the NSE and BSE. Usually, there’s a central location for record keeping. However, trade is not tied in to any physical location and happens electronically. These two are the biggest stock exchanges that dominate stock market investment in India. That said, there are clear differences between the two, which can impact your decision to invest via the BSE or the NSE.
BSE is the oldest stock exchange not only in India, but also in Asia. NSE, on the other hand, is larger than BSE in terms of daily turnover and number of trades that happen on the index. In terms of market capitalization, BSE ranks the 10th in the world whereas NSE ranks 11th. BSE has more than 6000 companies listed on it, while NSE has more than 1600 companies listed on it. BSE has raised capital by issuing its shares, which are traded on the NSE. However, NSE is still a private limited company, which is getting ready to come up soon with its IPO.
A look at the indices gives you a good picture of the status of the markets. Both NSE and BSE have different types of indices such as broader, sectoral, thematic, and strategic indices. Broader indices capture the broader picture of the markets. Sectoral indices tell you the status of a specific sector. In case of NSE, examples of broader indices include Nifty 100, Nifty 200, Nifty 500, Nifty Midcap 50, and Nifty SML 100. Sectoral indices of the NSE include bank, auto, FMCG, media, IT, metal, and pharma. Thematic indices are those that are based on themes such as commodity, energy, infra, and FMCG. Strategic indices are those that are based on quantitative models and investment strategies to provide a single value for an aggregate performance for a number of companies.
In case of BSE, broader indices include S&P BSE Largecap, Allcap, Midcap select index, and smallcap. Sectoral indices at the BSE include S&P BSE Bankex, IT, PSU, and metal. There are also special indices such as the S&P BSE IPO, which tracks all the IPOs. There is the S&P BSE SME IPO, which tracks SME IPOs. There are also volatility indices in the BSE.
NSE’s capital market operations started in 1994, which makes it very new compared with the BSE, which was established in 1875. NSE was the first stock exchange in India that started providing fullyautomated, screen-based electronic trading system. Before NSE arrived, trading membership was confined to a group of brokers. Investment in shares was not accessible to the general public of all parts of India. NSE changed the investment landscape in India and made stock market investment available to the Indian masses. NSE brought in the much-needed transparency and technology in the field and became attractive to local and international investors in a short span. It became a leader in India.
In case of liquidity, NSE is a clear winner, since volumes traded in NSE are much higher compared with BSE. Thus, intraday traders generally prefer NSE. On the other hand, BSE could be a good option for long-term investors who do not buy and/or sell shares on a regular basis. However, for intraday traders who trade on leverage, low volumes on BSE could be a problem. For instance, volume of HDFC shares traded on the NSE on May 05, 2017 was 23 lakhs whereas it was only 1.32 lakhs on the BSE for HDFC.
In case of NSE, the benchmark index is Nifty, which is made of major 50 stocks listed on it. In case of the BSE, the benchmark index is the Sensex, which is made of major 30 stocks listed on it. These indices are reviewed periodically and the stocks that do not satisfy the laid down criteria are replaced.
Therefore, choose the index in which you want to invest wisely based on your investment objective. If you are finding it difficult to make the choice, write us at firstname.lastname@example.org