DESIGN OF STUDY

Objectives
To study importance of Bse & Nse in todays world.
To find out investors preference regarding the same.
To find out market capitalization of both Bse & Nse.

Sources of Data
The data was collected by visiting various websites which helped me in
collecting data regarding BSE & NSE and its comparison thereby
leading to successful completion of my project.

Introduction
A stock market or equity market is a public (a loose network of
economic transactions, not a physical facility or discrete entity) for the trading
of company stock (shares) and derivatives at an agreed price; these are
securities listed on a stock exchange as well as those only traded privately.
The size of the world stock market was estimated at about $36.6 trillion
at the start of October 2008. The total world derivatives market has been
estimated at about $791 trillion face or nominal value, 11 times the size of the
entire world economy. The value of the derivatives market, because it is stated
in terms of notional values, cannot be directly compared to a stock or a fixed
income security, which traditionally refers to an actual value. Moreover, the
vast majority of derivatives 'cancel' each other out. Many such relatively
illiquid securities are valued as marked to model, rather than an actual market
price.
The stocks are listed and traded on stock exchanges which are entities
of a corporation or mutual organization specialized in the business of bringing
buyers and sellers of the organizations to a listing of stocks and securities
together. The largest stock market in the United States, by market cap, is the
New York Stock Exchange, NYSE. Major European examples of stock
exchanges include the London Stock Exchange, Paris Bourse,etc. Asian
examples include the Tokyo Stock Exchange, the Hong Kong Stock
Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange.
2

In Latin America, there are such exchanges as the BM&F Bovespa and the
BMV.

History of Stock Market

In 12th century France the courratiers de change were concerned with
managing and regulating the debts of agricultural communities on behalf of
the banks. Because these men also traded with debts, they could be called the
first brokers. A common misbelief is that in late 13th century Bruges
commodity traders gathered inside the house of a man called Van der Beurze,
and in 1309 they became the "Brugse Beurse", institutionalizing what had
been, until then, an informal meeting, but actually, the family Van der Beurze
had a building in Antwerp where those gatherings occurred; the Van der
Beurze had Antwerp, as most of the merchants of that period, as their primary
place for trading. The idea quickly spread around Flanders and neighboring
counties and "Beurzen" soon opened in Ghent and Amsterdam.
In the middle of the 13th century, Venetian bankers began to trade in
government securities. In 1351 the Venetian government outlawed spreading
rumors intended to lower the price of government funds. Bankers in Pisa,
Verona, Genoa and Florence also began trading in government securities
during the 14th century. This was only possible because these were
independent city states not ruled by a duke but a council of influential
citizens. The Dutch later started joint stock companies, which let shareholders
3

invest in business ventures and get a share of their profits or losses. In 1602,
the Dutch East India Company issued the first share on the Amsterdam Stock
Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to

have been the first stock exchange to introduce continuous trade in the early
17th century. The Dutch "pioneered short selling, option trading, debt-equity
swaps, merchant banking, unit trusts and other speculative instruments, much
as we know them". There are now stock markets in virtually every developed
and most developing economies, with the world's biggest market being in the
United States, United Kingdom, Japan, India, China, Canada, Germany,
France, South Korea and the Netherlands.

Market participants
A few decades ago, worldwide, buyers and sellers were individual
investors, such as wealthy businessmen, usually with long family histories to
particular

corporations.

Over

time,

markets

have

become

more

"institutionalized"; buyers and sellers are largely institutions.

The rise of the institutional investor has brought with it some
improvements in market operations. Thus, the government was responsible
for "fixed" (and exorbitant) fees being markedly reduced for the 'small'
investor, but only after the large institutions had managed to break the
brokers' solid front on fees. (They then went to 'negotiated' fees, but only for
large institution.)
However, corporate governance (at least in the West) has been very
much adversely affected by the rise of (largely 'absentee') institutional
'owners'.

Importance of stock market

Function and purpose
The stock market is one of the most important sources for companies
to raise money. This allows businesses to be publicly traded, or raise
additional capital for expansion by selling shares of ownership of the
company in a public market. The liquidity that an exchange provides affords
investors the ability to quickly and easily sell securities. This is an attractive
feature of investing in stocks, compared to other less liquid investments such
as real estate.
History has shown that the price of shares and other assets is an
important part of the dynamics of economic activity, and can influence or be
an indicator of social mood. An economy where the stock market is on the
rise is considered to be an up-and-coming economy. In fact, the stock market
6

is often considered the primary indicator of a country's economic strength and

development.
Rising share prices, for instance, tend to be associated with increased
business investment and vice versa. Share prices also affect the wealth of
households and their consumption. Therefore, central banks tend to keep an
eye on the control and behavior of the stock market and, in general, on the
smooth operation of financial system functions. Financial stability is the
raison d'tre of central banks.
Exchanges also act as the clearinghouse for each transaction, meaning
that they collect and deliver the shares, and guarantee payment to the seller of
a

security. This eliminates the risk to an individual buyer or seller that the
counterparty could default on the transaction.
The smooth functioning of all these activities facilitates economic
growth in that lower costs and enterprise risks promote the production of
goods and services as well as employment. In this way the financial system
contributes to increased prosperity.
Relation of the stock market to the modern financial system
The financial system in most western countries has undergone a
remarkable

transformation.

One

feature

of

this

development

is

disintermediation. A portion of the funds involved in saving and financing,

7

flows directly to the financial markets instead of being routed via the
traditional bank lending and deposit operations. The general public's
heightened interest in investing in the stock market, either directly or through
mutual funds, has been an important component of this process.
Statistics show that in recent decades shares have made up an
increasingly large proportion of households' financial assets in many
countries. In the 1970s, in Sweden, deposit accounts and other very liquid
assets with little risk made up almost 60 percent of households' financial
wealth, compared to less than 20 percent in the 2000s. The major part of this
adjustment in financial portfolios has gone directly to shares but a good deal
now takes the form of various kinds of institutional investment for groups of
individuals, e.g., pension funds, mutual funds, hedge funds, insurance
investment of premiums, etc.

The trend towards forms of saving with a higher risk has been
accentuated by new rules for most funds and insurance, permitting a higher
proportion of shares to bonds. Similar tendencies are to be found in other
industrialized countries. In all developed economic systems, such as the
European Union, the United States, Japan and other developed nations, the
trend has been the same: saving has moved away from traditional
(government insured) bank deposits to more risky securities of one sort or
another.
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The stock market, individual investors, and financial risk

Riskier long-term saving requires that an individual possess the ability
to manage the associated increased risks. Stock prices fluctuate widely, in
marked contrast to the stability of (government insured) bank deposits or
bonds. This is something that could affect not only the individual investor or
household, but also the economy on a large scale. The following deals with
some of the risks of the financial sector in general and the stock market in
particular. This is certainly more important now that so many newcomers
have entered the stock market, or have acquired other 'risky' investments
(such as 'investment' property, i.e., real estate and collectables).
With each passing year, the noise level in the stock market rises.
Television commentators, financial writers, analysts, and market strategists
are all overtaking each other to get investors' attention. At the same time,
individual investors, immersed in chat rooms and message boards, are
exchanging questionable and often misleading tips. Yet, despite all this
available information, investors find it increasingly difficult to profit. Stock
prices skyrocket with little reason, then

plummet just as quickly, and people who have turned to investing for their
children's education and their own retirement become frightened. Sometimes
there appears to be no rhyme or reason to the market, only folly.
This is a quote from the preface to a published biography about the
long-term value-oriented stock investor Warren Buffett. Buffett began his
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career with $100, and $100,000 from seven limited partners consisting of
Buffett's family and friends. Over the years he has built himself a multibillion-dollar fortune. The quote illustrates some of what has been happening
in the stock market during the end of the 20th century and the beginning of
the 21st century.
The behavior of the stock market
From experience we know that investors may 'temporarily' move
financial prices away from their long term aggregate price 'trends'. (Positive
or up trends are referred to as bull markets; negative or down trends are
referred to as bear markets.) Over-reactions may occurso that excessive
optimism (euphoria) may drive prices unduly high or excessive pessimism
may drive prices unduly low. Economists continue to debate whether financial
markets are 'generally' efficient.
According to one interpretation of the efficient-market hypothesis
(EMH), only changes in fundamental factors, such as the outlook for margins,
profits or dividends, ought to affect share prices beyond the short term, where
random 'noise' in the system may prevail. (But this largely theoretic academic
viewpointknown as 'hard' EMHalso predicts that little or no trading
should take place, contrary to fact, since prices are already at or near
equilibrium, having priced in all public knowledge.) The 'hard' efficientmarket hypothesis is sorely tested by such events

10

as the stock market crash in 1987, when the Dow Jones index plummeted
22.6 percentthe largest-ever one-day fall in the United States.
This event demonstrated that share prices can fall dramatically even
though, to this day, it is impossible to fix a generally agreed upon definite
cause: a thorough search failed to detect any 'reasonable' development that
might have accounted for the crash. (But note that such events are predicted
to occur strictly by chance, although very rarely.) It seems also to be the case
more generally that many price movements (beyond that which are predicted
to occur 'randomly') are not occasioned by new information; a study of the
fifty largest one-day share price movements in the United States in the postwar period seems to confirm this.
However, a 'soft' EMH has emerged which does not require that prices
remain at or near equilibrium, but only that market participants not be able to
systematically profit from any momentary market 'inefficiencies'. Moreover,
while EMH predicts that all price movement (in the absence of change in
fundamental information) is random (i.e., non-trending), many studies have
shown a marked tendency for the stock market to trend over time periods of
weeks or longer. Various explanations for such large and apparently nonrandom price movements have been promulgated. For instance, some research
has shown that changes in estimated risk, and the use of certain strategies,
such as stop-loss limits and Value at Risk limits, theoretically could cause
financial markets to overreact. But the best explanation seems to be that the
distribution of stock market prices is non-Gaussian (in which case EMH, in
any of its current forms, would not be strictly applicable).
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Other research has shown that psychological factors may result in

exaggerated (statistically anomalous) stock price movements (contrary to
EMH which assumes such behaviors 'cancel out'). Psychological research has
demonstrated that people are predisposed to 'seeing' patterns, and often will
perceive a pattern in what is, in fact, just noise. (Something like seeing
familiar shapes in clouds or ink blots.) In the present context this means that a
succession of good news items about a company may lead investors to
overreact positively (unjustifiably driving the price up). A period of good
returns also boosts the investor's self-confidence, reducing his (psychological)
risk threshold.
Another phenomenonalso from psychologythat works against an
objective assessment is group thinking. As social animals, it is not easy to
stick to an opinion that differs markedly from that of a majority of the group.
An example with which one may be familiar is the reluctance to enter a
restaurant that is empty; people generally prefer to have their opinion
validated by those of others in the group.
In one paper the authors draw an analogy with gambling. In normal
times the market behaves like a game of roulette; the probabilities are known
and largely independent of the investment decisions of the different players.
In times of market stress, however, the game becomes more like poker
(herding behavior takes over). The players now must give heavy weight to the
psychology of other investors and how they are likely to react
psychologically.
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The stock market, as with any other business, is quite unforgiving of

amateurs. Inexperienced investors rarely get the assistance and support they
need.

In the period running up to the 1987 crash, less than 1 percent of the
analyst's recommendations had been to sell (and even during the 2000 2002
bear market, the average did not rise above 5 %%). In the run up to 2000, the
media amplified the general euphoria, with reports of rapidly rising share
prices and the notion that large sums of money could be quickly earned in the
so-called new economy stock market. (And later amplified the gloom which
descended during the 2000 2002 bear market, so that by summer of 2002,
predictions of a DOW average below 5000 were quite common.)
Irrational behavior
Sometimes the market seems to react irrationally to economic or
financial news, even if that news is likely to have no real effect on the
fundamental value of securities itself. But this may be more apparent than
real, since often such news has been anticipated, and a counterreaction may
occur if the news is better (or worse) than expected. Therefore, the stock
market may be swayed in either direction by press releases, rumors, euphoria
and mass panic; but generally only briefly, as more experienced investors
(especially the hedge funds) quickly rally to take advantage of even the
slightest, momentary hysteria.

13

Over the short-term, stocks and other securities can be battered or

buoyed by any number of fast market-changing events, making the stock
market behavior difficult to predict. Emotions can drive prices up and down,
people are generally not as rational as they think, and the reasons for buying
and selling are generally obscure. Behaviorists argue that investors often
behave 'irrationally' when making investment decisions thereby incorrectly
pricing securities, which causes market

inefficiencies, which, in turn, are opportunities to make money. However, the

whole notion of EMH is that these non-rational reactions to information
cancel out, leaving the prices of stocks rationally determined.
Stock market index
The movements of the prices in a market or section of a market are
captured in price indices called stock market indices, of which there are many,
e.g., the S&P, the FTSE and the Euronext indices. Such indices are usually
market capitalization weighted, with the weights reflecting the contribution of
the stock to the index. The constituents of the index are reviewed frequently
to include/exclude stocks in order to reflect the changing business
environment.
Derivative instruments
Financial innovation has brought many new financial instruments
whose pay-offs or values depend on the prices of stocks. Some examples are
14

exchange-traded funds (ETFs), stock index and stock options, equity swaps,
single-stock futures, and stock index futures. These last two may be traded on
futures exchanges (which are distinct from stock exchangestheir history
traces back to commodities futures exchanges), or traded over-the-counter. As
all of these products are only derived from stocks, they are sometimes
considered to be traded in a (hypothetical) derivatives market, rather than the
(hypothetical) stock market.

Leveraged strategies
Stock that a trader does not actually own may be traded using short
selling; margin buying may be used to purchase stock with borrowed funds;
or, derivatives may be used to control large blocks of stocks for a much
smaller amount of money than would be required by outright purchase or sale.
Short selling
In short selling, the trader borrows stock (usually from his brokerage
which holds its clients' shares or its own shares on account to lend to short
sellers) then sells it on the market, hoping for the price to fall. The trader
eventually buys back the stock, making money if the price fell in the
meantime and losing money if it rose. Exiting a short position by buying back
the stock is called "covering a short position." This strategy may also be used
15

by unscrupulous traders in illiquid or thinly traded markets to artificially

lower the price of a stock. Hence most markets either prevent short selling or
place restrictions on when and how a short sale can occur. The practice of
naked shorting is illegal in most (but not all) stock markets.
Margin buying
In margin buying, the trader borrows money (at interest) to buy a stock
and hopes for it to rise. Most industrialized countries have regulations that
require that if the borrowing is based on collateral from other stocks the trader
owns outright, it can be a maximum of a certain percentage of those other
stocks' value. In the United States, the margin requirements have been 50 %%
for many years (that is,

if you want to make a $1000 investment, you need to put up $500, and there
is often a maintenance margin below the $500).
A margin call is made if the total value of the investor's account cannot
support the loss of the trade. (Upon a decline in the value of the margined
securities additional funds may be required to maintain the account's equity,
and with or without notice the margined security or any others within the
account may be sold by the brokerage to protect its loan position. The
investor is responsible for any shortfall following such forced sales.)

16

Regulation of margin requirements (by the Federal Reserve) was

implemented after the Crash of 1929. Before that, speculators typically only
needed to put up as little as 10 percent (or even less) of the total investment
represented by the stocks purchased. Other rules may include the prohibition
of free-riding: putting in an order to buy stocks without paying initially (there
is normally a three-day grace period for delivery of the stock), but then selling
them (before the three-days are up) and using part of the proceeds to make the
original payment (assuming that the value of the stocks has not declined in
the interim).
New issuance
Global issuance of equity and equity-related instruments totaled
$505 billion in 2004, a 29.8 %% increase over the $389 billion raised in 2003.
Initial public offerings (IPOs) by US issuers increased 221 %% with 233
offerings that raised $45 billion, and IPOs in Europe, Middle East and Africa
(EMEA) increased by 333 %%, from $ 9 billion to $39 billion.

Investment strategies
One of the many things people always want to know about the stock
market is, "How do I make money investing?" There are many different
approaches; two basic methods are classified as either fundamental analysis
or technical analysis. Fundamental analysis refers to analyzing companies by
their financial statements found in SEC Filings, business trends, general
economic conditions, etc. Technical analysis studies price actions in markets
17

through the use of charts and quantitative techniques to attempt to forecast

price trends regardless of the company's financial prospects. One example of
a technical strategy is the Trend following method, used by John W. Henry
and Ed Seykota, which uses price patterns, utilizes strict money management
and is also rooted in risk control and diversification.
Additionally, many choose to invest via the index method. In this
method, one holds a weighted or unweighted portfolio consisting of the entire
stock market or some segment of the stock market (such as the S&P 500 or
Wilshire 5000). The principal aim of this strategy is to maximize
diversification, minimize taxes from too frequent trading, and ride the general
trend of the stock market (which, in the U.S., has averaged nearly 10 %
%/year, compounded annually, since World War II).

Stock Markets in India-An Introduction

Stock markets refer to a market place where investors can buy and sell
stocks. The price at which each buying and selling transaction takes is
determined by the market forces (i.e. demand and supply for a particular
stock).

18

Let us take an example for a better understanding of how market forces

determine stock prices. ABC Co. Ltd. enjoys high investor confidence and
there is an anticipation of an upward movement in its stock price. More and
more people would want to buy this stock (i.e. high demand) and very few
people will want to sell this stock at current market price (i.e. less supply).
Therefore, buyers will have to bid a higher price for this stock to match the
ask price from the seller which will increase the stock price of ABC Co. Ltd.
On the contrary, if there are more sellers than buyers (i.e. high supply and low
demand) for the stock of ABC Co.Ltd. in the market, its price will fall down.
In earlier times, buyers and sellers used to assemble at stock exchanges
to make a transaction but now with the dawn of IT, most of the operations are
done electronically and the stock markets have become almost paperless.
Now investors dont have to gather at the Exchanges, and can trade freely
from their home or office over the phone or through Internet.

The Origin of The Indian Stock Market

One of the oldest stock markets in Asia, the Indian Stock Markets have
a 200 years old history.
19

18th

East India Company was the dominant institution and by end of

Century

the century, business in its loan securities gained full

momentum

1830's

Business on corporate stocks and shares in Bank and Cotton

presses started in Bombay. Trading list by the end of 1839 got
broader

1840's

Recognition from banks and merchants to about half a dozen

brokers

1850's

Rapid development of commercial enterprise saw brokerage

business attracting more people into the business

1860's

The number of brokers increased to 60

1860-61

The American Civil War broke out which caused a stoppage of

cotton supply from United States of America; marking the

1862-63

beginning of the "Share Mania" in India

The number of brokers increased to about 200 to 250
A disastrous slump began at the end of the American Civil War

1865

(as an example, Bank of Bombay Share which had touched Rs.

2850 could only be sold at Rs. 87)

Pre-Independence Scenario - Establishment of Different Stock Exchanges

20

1874

With the rapidly developing share trading business, brokers

used to gather at a street (now well known as "Dalal Street") for
the purpose of transacting business.

1875

"The Native Share and Stock Brokers' Association" (also known

as "The Bombay Stock Exchange") was established in Bombay

1880's

Development of cotton mills industry and set up of many others

1894

Establishment of "The Ahmedabad Share and Stock Brokers'

Association"

1880

- Sharp increase in share prices of jute industries in 1870's was

90's

followed by a boom in tea stocks and coal

1908

"The Calcutta Stock Exchange Association" was formed

1920

Madras witnessed boom and business at "The Madras Stock

Exchange" was transacted with 100 brokers.

1923

When recession followed, number of brokers came down to 3

and the Exchange was closed down

1934

Establishment of the Lahore Stock Exchange

1936

Merger of the Lahore Stock Exchange with the Punjab Stock

Exchange

1937

Re-organisation and set up of the Madras Stock Exchange

21

Limited (Pvt.) Limited led by improvement in stock market

activities in South India with establishment of new textile mills
and plantation companies
1940

Uttar Pradesh Stock Exchange Limited and Nagpur Stock

Exchange Limited was established

1944

Establishment of "The Hyderabad Stock Exchange Limited"

1947

"Delhi Stock and Share Brokers' Association Limited" and "The

Delhi Stocks and Shares Exchange Limited" were established
and later on merged into "The Delhi Stock Exchange
Association Limited"

Post Independence Scenario

Regulations Act, 1956. The Exchanges that were recognized under the
Act The depression witnessed after the Independance led to closure of a lot of
exchanges in the country. Lahore Estock Exchange was closed down after the
22

partition of India, and later on merged with the Delhi Stock Exchange.
Bnagalore Stock Exchange Limited was registered in 1957 and got
recognition only by 1963. Most of the other Exchanges were in a miserable
state till 1957 when they applied for recognition under Securities Contracts
were:
1. Bombay
2. Calcutta
3. Madras
4. Ahmedabad
5. Delhi
6. Hyderabad
7. Bangalore
8. Indore
Many more stock exchanges were established during 1980's, namely:
1. Cochin Stock Exchange (1980)
2. Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
3. Pune Stock Exchange Limited (1982)
4. Ludhiana Stock Exchange Association Limited (1983)
23

5. Gauhati Stock Exchange Limited (1984)

6. Kanara Stock Exchange Limited (at Mangalore, 1985)

7. Magadh Stock Exchange Association (at Patna, 1986)

8. Jaipur Stock Exchange Limited (1989)
9. Bhubaneswar Stock Exchange Association Limited (1989)
10.Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
11.Vadodara Stock Exchange Limited (at Baroda, 1990)
12.Coimbatore Stock Exchange
13.Meerut Stock Exchange
At present, there are twenty one recognized stock exchanges in India
which does not include the Over The Counter Exchange of India Limited
(OTCEI) and the National Stock Exchange of India Limited (NSEIL).
Government policies during 1980's also played a vital role in the
development of the Indian Stock Markets. There was a sharp increase in
number of Exchanges, listed companies as well as their capital.

24

BOMBAY STOCK EXCHANGE

The oldest stock exchange in Asia (established in 1875) and the first in
the country to be granted permanent recognition under the Securities Contract
Regulation Act, 1956, Bombay Stock Exchange Limited (BSE) has had an
interesting rise to prominence over the past 135 years.
While BSE is now synonymous with Dalal Street, it was not always so.
The first venues of the earliest stock broker meetings in the 1850s were in
rather natural environs - under banyan trees - in front of the Town Hall, where
Horniman Circle is now situated. A decade later, the brokers moved their
venue to another set of foliage, this time under banyan trees at the junction of
Meadows Street and what is now called Mahatma Gandhi Road. As the
number of brokers increased, they had to shift from place to place, but they
always overflowed to the streets. At last, in 1874, the brokers found a
permanent place, and one that they could, quite literally, call their own. The
new place was, aptly, called Dalal Street ( Brokers' Street).

25

In 2002, the name "The Stock Exchange, Mumbai" was changed to

Bombay Stock Exchange. Subsequently on August 19, 2005, the exchange
turned into a corporate entity from an Association of Persons (AoP) and
renamed as Bombay Stock Exchange Limited.
BSE, which had introduced securities trading in India, replaced its open
outcry system of trading in 1995, with the totally automated trading through
the BSE Online trading (BOLT) system. The BOLT network was expanded
nationwide in 1997.

Prominent Position
The journey of BSE is as eventful and interesting as the history of
India's securities market. In fact, as India's biggest bourse, in terms of listed
companies and market capitalisation, BSE has played a pioneering role in the
development of the Indian securities market. It is surely BSE's pride that
almost every leading corporate in India has sourced BSE's services in capital
raising and is listed with BSE.
Even in terms of an orderly growth, much before the actual legislations
were enacted, BSE had formulated a comprehensive set of Rules and
Regulations for the securities market. It had also laid down best practices
which were adopted subsequently by 23 stock exchanges which were set up
after India gained its independence.

26

BSE, as a brand, has been and is synonymous with the capital market in
India. Its SENSEX is the benchmark equity index that reflects the health of
the Indian economy.
Several Firsts
At par with the international standards, BSE has in fact been a pioneer in
several areas. It has several firsts to its credit even in an intensely competitive
environment.
First in India to introduce Equity Derivatives
First in India to launch a Free Float Index

First in India to launch US$ version of BSE SENSEX

First in India to launch Exchange Enabled Internet Trading Platform
First in India to obtain ISO certification for a stock exchange
'BSE On-Line Trading System (BOLT) has been awarded the globally
recognised the Information Security Management System standard

BS7799-2:2002.
First to have an exclusive facility for financial training
First in India in the financial services sector to launch its website in
Hindi and Gujarati
Shifted from Open Outcry to Electronic Trading within just 50 days
First bell-ringing ceremony in the history of the Indian capital markets
(listing ceremony of Bharti Televentures Ltd. on

Investor Education

27

February 18,2002)

An equally important accomplishment of BSE is its nationwide

investor awareness campaign - "Safe Investing in the Stock Market" - under
which awareness campaigns and dissemination of information through print
and electronic medium is undertaken across the country. BSE also actively
promotes the securities market awareness campaign of the Securities and
Exchange Board of India.

Milestones of BSE
Date
9th Jul 1875
31st Aug 1957

10th Jul 1987

3rd Jan 1989
25th Jul 1990
1st May 1992

Milestone Achieved
The Native Share & Stock Broker's Association formed
BSE granted permanent recognition under Securities Contracts
(Regulation) Act (SCRA)
SENSEX, country's first equity index launched (Base
Year:1978-79 =100)
Investor's Protection Fund (IPF) introduced
BSE Training Institute (BTI) inaugurated
SENSEX closes above 1000
SEBI Act established

14th Mar 1995

1997
22nd
Mar

( An Act to protect, develop and regulate the securities market)

BSE On-Line Trading (BOLT) system introduced
BSE On-Line Trading (BOLT) system expanded nation-wide
Central Depository Services Ltd.(CDSL) set up with other

1999
11th Oct 1999
9th Jun 2000

SENSEX closed above 5000

Equity Derivatives introduced

2nd Jan 1986

28

1st Apr 2003

8th Aug 2005
7th Feb 2006
4th Jan 2010

T+2 settlement Introduced

Incorporation of Bombay Stock Exchange Limited
SENSEX closed above 10000
Market time changed to 9.0 a.m. - 3.30 p.m.

Sensex
The BSE Sensex or Bombay Stock Exchange Sensitivity Index is a
value-weighted index composed of 30 stocks that started January 1, 1986. The
Sensex is regarded as the pulse of the domestic stock markets in India. It
29

consists of the 30 largest and most actively traded stocks, representative of

various sectors, on the Bombay Stock Exchange. These companies account
for around fifty per cent of the market capitalisation of the BSE. The base
value of the sensex is 100 on April 1, 1979, and the base year of BSESENSEX is 1978-79.
At regular intervals, the Bombay Stock Exchange (BSE) authorities
review and modify its composition to be sure it reflects current market
conditions. The index is calculated based on a free-float capitalization
method; a variation of the market cap method. Instead of using a company's
outstanding shares it uses its float, or shares that are readily available for
trading. The free-float method, therefore, does not include restricted stocks,
such as those held by promoters, government and strategic investors.
Initially, the index was calculated based on the full market
capitalization method. However this was shifted to the free float method with
effect from September 1, 2003. Globally, the free float market capitalization is
regarded as the industry best practice.
As per free float capitalization methodology, the level of index at any
point of time reflects the free float market value of 30 component stocks
relative to a base period. The Market Capitalization of a company is
determined by multiplying the price of its stock by the number of shares
issued by the company. This Market

30

capitalization is multiplied by a free float factor to determine the free float

market capitalization. Free float factor is also referred as adjustment factor.
Free float factor represent the percentage of shares that are readily available
for trading.
The Calculation of Sensex involves dividing the free float market
capitalization of 30 companies in the index by a number called Index
divisor.The Divisor is the only link to original base period value of the
Sensex. It keeps the index comparable over time and is the adjustment point
for all Index adjustments arising out of corporate actions, replacement of
scrips, etc.
The index has increased by over ten times from June 1990 to the
present. Using information from April 1979 onwards, the long-run rate of
return on the BSE Sensex works out to be 18.6% per annum, which translates
to roughly 9% per annum after compensating for inflation.

31

NATIONAL STOCK EXCHANGE

The National Stock Exchange (NSE) is a stock exchange located at
Mumbai, India. It is the largest stock exchange in India in terms of daily
turnover and number of trades, for both equities and derivative trading. NSE
has a market capitalization of around 7,262,507 crore (US$ 1,648.59 billion)
(October 2010) and was expected to become the biggest stock exchange in
India in terms of market capitalization by 2009 end, although this has not yet
occurred. Though a number of other exchanges exist, NSE and the Bombay
Stock Exchange are the two most significant stock exchanges in India, and
between them are responsible for the vast majority of share transactions. The
NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY (National
Stock Exchange Fifty), an index of fifty major stocks weighted by market
capitalisation.
NSE is mutually-owned by a set of leading financial institutions, banks,
insurance companies and other financial intermediaries in India but its
ownership and management operate as separate entities. There are at least 2
foreign investors NYSE Euronext and Goldman Sachs who have taken a stake
in the NSE. As of 2006, the NSE VSAT terminals, 2799 in total, cover more
than 1500 cities across India. In October 2007, the equity market
capitalization of the companies listed on the NSE was US$ 1.46 trillion,
making it the second largest stock exchange in South Asia. NSE is the third
largest Stock Exchange in the world in terms of the number of trades in

32

equities. It is the second fastest growing stock exchange in the world with a
recorded growth of 16.6%.

Origins
The National Stock Exchange of India was promoted by leading
Financial institutions at the behest of the Government of India, and was
incorporated in November 1992 as a tax-paying company. In April 1993, it
was recognized as a stock exchange under the Securities Contracts
(Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt
Market (WDM) segment in June 1994. The Capital market (Equities) segment
of the NSE commenced operations in November 1994, while operations in the
Derivatives segment commenced in June 2000.
Innovations
NSE has remained in the forefront of modernization of India's capital and
financial markets, and its pioneering efforts include:
Being the first national, anonymous, electronic limit order book (LOB)
exchange to trade securities in India. Since the success of the NSE,
existent market and new market structures have followed the "NSE"
model.

33

 Setting up the first clearing corporation "National Securities Clearing

Corporation Ltd." in India. NSCCL was a landmark in providing
innovation on all spot equity market (and later, derivatives market)
trades in India.
Co-promoting and setting up of National Securities Depository
Limited, first depository in India
Setting up of S&P CNX Nifty.
NSE pioneered commencement of Internet Trading in February 2000,
which led to the wide popularization of the NSE in the broker
community.

Being the first exchange that, in 1996, proposed exchange traded

derivatives, particularly on an equity index, in India. After four years of
policy and regulatory debate and formulation, the NSE was permitted
to start trading equity derivatives
Being the first and the only exchange to trade GOLD ETFs (exchange
traded funds) in India.
NSE has also launched the NSE-CNBC-TV18 media centre in
association with CNBC-TV18.

34

 NSE.IT Limited, setup in 1999 , is a 100% subsidiary of the National

Stock Exchange of India. A Vertical Specialist Enterprise, NSE.IT
offers end-to-end Information Technology (IT) products, solutions and
services.
Markets
Currently, NSE has the following major segments of the capital market:
Equity
Futures and Options
Retail Debt Market
Wholesale Debt Market
Currency futures
Mutual fund
Stocks lending & borrowing

35

August 2008 Currency derivatives were introduced in India with the

launch of Currency Futures in USD INR by NSE. Currently it has also
launched currency futures in EURO, POUND & YEN. Interest Rate Futures
was introduced for the first time in India by NSE on 31 August 2009, exactly
after one year of the launch of Currency Futures.
NSE became the first stock exchange to get approval for Interest rate
futures as recommended by SEBI-RBI committee, on 31 August 2009, a
futures contract based on 7% 10 Year GOI bond (NOTIONAL) was launched
with quarterly maturities.

36

Milestones of NSE

November 1992 Incorporation

April 1993 Recognition as a stock exchange
May 1993 Formulation of business plan
June 1994 Wholesale Debt Market segment goes live
November 1994 Capital Market (Equities) segment goes live
April 1995 Establishment of NSCCL, the first Clearing Corporation
October 1995 Became largest stock exchange in the country
April 1996 Commencement of clearing and settlement by NSCCL
April 1996 Launch of S&P CNX Nifty
November 1996 Setting up of National Securities Depository Limited,

first depository in India, co-promoted by NSE

December 1996 Commencement of trading/settlement

in

dematerialised securities
July 1998 Launch of NSE's Certification Programme in Financial
Market
August 1998 CYBER CORPORATE OF THE YEAR 1998 award
February 1999 Launch of Automated Lending and Borrowing

Mechanism
January 2000 Launch of NSE Research Initiative
February 2000 Commencement of Internet Trading
June 2000 Commencement of Derivatives Trading (Index Futures)
December 2000 Commencement of WAP trading
June 2001 Commencement of trading in Index Options
July 2001 Commencement of trading in Options on Individual
Securities

37

 November 2001 Commencement of trading in Futures on Individual

Securities
January 2002 Launch of Exchange Traded Funds (ETFs)
October 2002 Launch of NSE Government Securities Index
January 2003 Commencement of trading in Retail Debt Market
June 2003 Launch of Interest Rate Futures
August 2003 Launch of Futures & options in CNXIT Index
August 2008 Launch of Currency Derivatives
November 2009 Launch of Mutual Fund Service System
October 2010 Launch of 5-minute special pre-open trading session, a
mechanism under which investors can bid for stocks before the market
opens.

38

THE ORGANISATION
The National Stock Exchange of India Limited has genesis in the report
of the High Powered Study Group on Establishment of New Stock
Exchanges, which recommended promotion of a National Stock Exchange by
financial institutions (FIs) to provide access to investors from all across the
country on an equal footing. Based on the recommendations, NSE was
promoted by leading Financial Institutions at the behest of the Government of
India and was incorporated in November 1992 as a tax-paying company
unlike other stock exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts
(Regulation) Act, 1956 in April 1993, NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The Capital Market
(Equities) segment commenced operations in November 1994 and operations
in Derivatives segment commenced in June 2000.
Mission
NSE's mission is setting the agenda for change in the securities markets in
India. The NSE was set-up with the main objectives of:
establishing a nation-wide trading facility for equities, debt instruments
and hybrids,
ensuring equal access to investors all over the country through an
appropriate communication network,

39

 providing a fair, efficient and transparent securities market to investors

using electronic trading systems,
enabling shorter settlement cycles and book entry settlements systems,
and
meeting the current international standards of securities markets.
The standards set by NSE in terms of market practices and technology have
become industry benchmarks and are being emulated by other market
participants. NSE is more than a mere market facilitator. It's that force which
is guiding the industry towards new horizons and greater opportunities.
Logo

The logo of the NSE symbolises a single nationwide securities trading

facility ensuring equal and fair access to investors, trading members and
issuers all over the country. The initials of the Exchange viz., N, S and E have
been etched on the logo and are distinctly visible. The logo symbolises use of
state of the art information technology and satellite connectivity to bring
about the change within the securities industry. The logo symbolises vibrancy

40

and unleashing of creative energy to constantly bring about change through

innovation

PROMOTERS
NSE has been promoted by leading financial institutions, banks, insurance
companies and other financial intermediaries:
1. Industrial Development Bank of India Limited
2. Industrial Finance Corporation of India Limited
3. Life Insurance Corporation of India
4. State Bank of India
5. ICICI Bank Limited
6. IL & FS Trust Company Limited
7. Stock Holding Corporation of India Limited
8. SBI Capital Markets Limited
9. The Administrator of the Specified Undertaking of Unit Trust of India
41

10.Bank of Baroda
11.Canara Bank
12.General Insurance Corporation of India
13.National Insurance Company Limited
14.The New India Assurance Company Limited
15.The Oriental Insurance Company Limited
16.United India Insurance Company Limited
17.Punjab National Bank
18.Oriental Bank of Commerce
19.Corporation Bank
20.Indian Bank
21.Union Bank of India

CORPORATE STRUCTURE
NSE is one of the first de-mutualised stock exchanges in the country,
where the ownership and management of the Exchange is completely
divorced from the right to trade on it. Though the impetus for its
establishment came from policy makers in the country, it has been set up as a
42

public limited company, owned by the leading institutional investors in the

country.
From day one, NSE has adopted the form of a demutualised exchange the ownership, management and trading is in the hands of three different sets
of people. NSE is owned by a set of leading financial institutions, banks,
insurance companies and other financial intermediaries and is managed by
professionals, who do not directly or indirectly trade on the Exchange.
The NSE model however, does not preclude, but in fact accommodates
involvement, support and contribution of trading members in a variety of
ways. Its Board comprises of senior executives from promoter institutions,
eminent professionals in the fields of law, economics, accountancy, finance,
taxation, etc, public representatives, nominees of SEBI and one full time
executive of the Exchange.
While the Board deals with broad policy issues, decisions relating to
market operations are delegated by the Board to various committees
constituted by it. Such committees include representatives from trading
members, professionals, the public and the management. The day-to-day
management of the Exchange is delegated to the Managing Director who is
supported by a team of professional staff.

RESEARCH METHODOLOGY

43

The methodology used for the implementation of the project is based

on secondary data & with the help of custom type pie explosion chart. The
data was obtained on the basis of research & findings conducted by various
stock market experts.
1) Comparison of Trade Value of NSE & BSE

264
BSE

NSE
809

Interpretations: It was found out that trade value of nse is far better than bse
on

account of more customer preference.

44

2) Comparison of Market Capitalisation at NSE & BSE

BSE 1588

1627

NSE

Interpretations: On the basis of data obtained it was found out that both bse
&
nse have equal market capitalization.

3) Investors Stock Exchange Preference

Others; 5%

NSE

BSE; 36%

BSE

Others
NSE; 59%

45

Interpretations: Nse occupies more stock exchange preference followed

by

bse & other stock exchanges.

4) Reasons for Preferring NSE the most

50
40
30
20
10
0
Liquidity

Brand Value

Trust

Divesified services

Interpretations: Investors prefer nse because it provides diversified list of

services to its investors followed by its prime
service of

liquidity, brand value & trust.

5) Investors preference for analyzing market

46

36%
Sensex

Nifty

44%
Both of them

Others also

14% 6%

Interpretations: Investors prefer analyzing of sensex more easy as compared

to

nifty and other stock exchanges.

6) Client Satisfaction

25
20
15
10
5
0
NSE

BSE

Equal in both

Interpretations: On the basis of data obtained it was found that most people
were of

the opinion that nse provides them with better services

47

while others

firmly believe in bse while the rest are happy

with both nse & bse.

7) Investors Selection for most secured investment

18%
Bank

Stock Market
40%

38%
Real Estate

Others

4%

Interpretations: Although stock markets have created a huge impact on our

economy researchers say that people prefer investment
in real

estate the most secured as compared to banks,

stock markets &

other investments.

Conclusion
Stock market is something which you cannot predict what is going to
happen in the market tomorrow without proper analyzes of market. So, it is
always preferable to go for some professional help if you wish to invest in
the Indian stock market. You should also be acquainted with the concept of
NSE and BSE.

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Bombay Stock Exchange and National Stock Exchange are both major
stock exchange in India. But there is a difference between NSE and BSE.
Investors put their money in the stock market in order to reap huge benefits
from their investment. But nobody can predict the market as we have already
discussed. Also the growth of these two stock exchanges are decided by our
countrys growth. But you should be aware that it requires a lot of patience.

BIBLIOGRAPHY

www.bseindia.com
www.nseindia.com
www.wikipedia.org
http://www.sharetipsinfo.com
http://wiki.answers.com
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 http://in.answers.yahoo.com
www.sebi.gov.in

50