Bombay Stock Exchange

Bombay Stock Exchange

Bombay Stock Exchange is one of the oldest stock exchanges in Asia, with a history of around 150 years. It offers shares trading of some of the largest companies in Asia. In this guide, we’ll break down what the exchange is about from past to present.

Bombay Stock Exchange

What is the Bombay Stock Exchange?

The Bombay Stock Exchange or BSE Limited, is the second-largest stock exchange in India, and the eighth-largest in the world. It has a market cap of $4 trillion and provides investment opportunities to retail and institutional investors.

The BSE is one of the two stock exchanges in India. The other is the National Stock Exchange. The NSE is larger in capital than the BSE and is India’s largest stock exchange. As of 2023, there were over 5300 companies listed on the Bombay Stock Exchange.

The Bombay Stock Exchange comes under the regulation of SEBI (Securities and Exchange Board of India). It is a regulatory body that monitors India’s stocks and commodities markets.

Interestingly, the BSE lists its vision as “Emerge as the premier Indian stock exchange by establishing global benchmarks.” The exchange hopes to provide local and global investors a better investment environment.

Bombay Stock Exchange graphicBombay Stock Exchange

How did the Bombay Stock Exchange start?

The Bombay Stock Exchange started after the creation of The Native Shares and Stock Broker Association.

In 1855, Premchand Roychand, a businessman from Bombay (now Mumbai), started gathering other brokers under the Banyan Tree. It’s important to note that these brokers were mostly of Gujarati, Parsi, and Marathi descent.

That Banyan tree was located in front of Bombay’s Town Hall. At that time, shares of companies such as a cotton mill were traded, and people came to this particular tree to buy or sell shares.

Fun fact: Bombay was an epicenter of cotton trading at that time, so shares related to cotton mills were heavily traded. However, many other shares rose to astronomical values. For instance, Bank of Bombay’s stock rose from Rs. 500 to Rs. 2850. The story has an interesting backdrop, and we’ll cover it in our stock market crashes section.

As people joined in, the informal marketplace became the formal marketplace.

Several years after the brokers began meeting, they moved to another spot under banyan trees at Meadows Street. In addition to moving from place to place, brokers always overflowed into the streets as the broker grew and people began taking interest.

The brokers finally founded a permanent place in 1874. Dalal Street (Brokers’ Street) was the perfect name for the new location. Dall comes from Marathi, which means a broker.

As people joined in, the informal marketplace became the formal marketplace.

When was the Bombay Stock Exchange founded?

The Bombay Stock Exchange was founded in 1875. As mentioned above, the Bombay Stock Exchange started with establishing the Native Share and Stock Brokers Association. Let’s see BSE’s historical timeline:

After moving to Dalal Street in 1874, the brokers gathered to create a formal marketplace for trading shares. A year later, in 1875, they formally founded the Native Share and Stock Brokers Association.

Illustration of the Shares Market by London News in 1865

In 1929, the Native Shares and Stock Broker Association moved to yet another location, the present address of the exchange.

Ten years after the country’s independence, in 1957, as the volume expanded, the exchange was recognized by the Indian government and became the country’s first stock exchange. The name was changed to Bombay Stock Exchange.

In 1986, the Bombay Stock Exchange introduced BSE30 (BSE SENSEX), an index of the 30 largest companies in India. In 2000, BSE used the BSE SENSEX to open its derivative market.

In the 1990s, the BSE attracted positive and negative news. In 1995, it switched from floor to electronic trading system (BOLT). The electronic trading system had a capacity of 8 million orders per day.

Also, in the 1990s, the Indian government allowed foreign investors to participate in the Bombay Stock Exchange. They introduced two programs: foreign direct investment (FDI) and foreign portfolio investment (FPI). To make a foreign portfolio investment, you must be a foreign institutional investor and get approval from the SEBI.

The negative news came in 1992, when a broker named Harshad Mehta, along with others, used market manipulation and did a scam of around $10 million.

In 2005, the Bombay Stock Exchange changed its name to Bombay Stock Exchange LTD. This happened because of the exchange’s demutualization. We’ll cover more about this in a while.

In 2012, the BSE and the National Stock Exchange introduced the platform for small and medium enterprises (SMEs). The purpose of this introduction was to facilitate emerging companies so that they can raise capital.

In 2016, the Bombay Stock Exchange introduced its IPO. The purpose of the IPO was to raise the cash flow, as the BSE was losing capital to the National Stock Exchange over the years. Following the IPO, BSE introduced the commodity electronic trading platform in 2017.

Who owns the Bombay Stock Exchange?

The Bombay Stock Exchange is a publicly-held company whose ownership is distributed among several stakeholders like institutional, retail, and foreign investors.

However, the ownership structure wasn’t always like this. Before demutualization in 2005, the BSE was owned by brokers, financial institutions, and foreign investors.

If you are confused about demutualization, here’s what you need to know:

The demutualization refers to the process by which a member-owned entity becomes a shareholders-owned entity. The process happens because the entity wants to convert the business structure to for-profits only.

Benefits of Demutualization

Benefits of Demutualization

Before 2005, the Bombay Stock Exchange operated as a non-profit entity, and brokers played a major part in the exchange’s operations. However, the Indian government wanted to end the brokers’ hold over the exchange, so they demutualized and converted the exchange into a for-profit entity.

The BSE wasn’t the first exchange to get demutualized. In 2003, the Indian government demutualized the National Stock Exchange.

Did you know the London Stock Exchange got demutualize in 2000?

How does the Bombay Stock Exchange work?

The Bombay Stock Exchange works like a marketplace and provides a platform for investors to buy/sell stocks, bonds, mutual funds, and other assets.

There are several factors involved in the working of the Bombay Stock Exchange:

Listing

The BSE allows the companies to get listed and provide their shares to the general public. To get listed, companies can follow two ways:

IPO/FPO

IPO or Initial Public Offering is a process by which companies list their shares for the first time. The FPO (follow-on public offer) is the additional issuance of the company’s shares after the IPO.

The listing requirements for the IPO and FPO are:

  • Paid-up capital should be Rs. 10 Crore for IPO and Rs. 3 Crore for FPO.
  • The minimum share size should be Rs. 10 crore.
  • The market cap should be Rs. 25 Crore.
  • The companies must submit 1% of the issue amount deposit
  • Besides financials, the company must submit a letter to the Bombay Stock Exchange to use their name and complete the allotment of securities within 30 days.

Direct listing

The companies listed on the National Stock Exchange can be directly listed on the BSE. There are several types of direct listing companies:

  • Companies having a daily turnover of more than Rs. 500 Crore.
  • Companies having a daily turnover of less than Rs. 500 Crore.
  • Companies listed on the SME platform of the National Stock Exchange.

Trading system

As mentioned earlier, with the introduction of the electronic trading system, BOLT, companies listed on the BSE entirely trade electronically.

The exchange follows a trading mechanism called the order-driven system. In this system, buy/sell orders are matched based on price and time and transparently display buy/sell orders. Institutional investors can also use the DMA (direct market access) to place their trades directly on the exchange.

Market segmentation

The BSE is divided into two segments: the equity and the derivatives. The equity sector involves trading stocks, bonds, and others, while the derivatives segment involves futures and options trading.

Besides these two sectors, the Bombay Stock Exchange offers 36 indices. These indices track the performance of specific market sectors. We already talked about the BSE-SENSEX; let’s see others, too:

1. The S&P BSE AllCap comprises S&P BSE LargeCap, MidCap, and the SmallCap. It measures the performance of the overall Indian stock market.

S&P BSE AllCap chart

2. The S&P BSE LargeCap represents 70% of the total market cap of the S&P BSE AllCap. It tracks the performance of large-size companies. Some of the S&P BSE LargeCap companies include:

  • Reliance Industries
  • Tata Consultancy Services
  • HDFC Bank
  • ICICI Bank
  • Infosys
  • Life Insurance Cooperation of India
  • State Bank of India
  • Bharti Airtel
  • Hindustan Unilever
  • ITC

S&P BSE LargeCap

3. The S&P BSE Midcap signifies 15% of the total market cap of the S&P BSE AllCap. It tracks the performance of mid-size companies. Some of the top companies are;

  • Suzlon Energy
  • Indian Renewable Energy Development Agency
  • SJVN
  • The New India Insurance Company
  • Bank of Maharastra
  • Kalyan Jewelers India
  • IRB Infrastructure Developers
  • Global Health
  • Housing and Urban Development Cooperation
  • Gland Pharma

S&P BSE Midcap

4. The S&P BSE SmallCap symbolizes the bottom 15% of the total market cap of the S&P BSE AllCap. The top 10 S&P BSE SmallCap are:

S&P BSE SmallCap chart

5. The S&P BSE–100 measures the performance of the 100 largest companies listed on the Bombay Stock Exchange.

S&P BSE–100 chart

6. The S&P BSE – 500 represents the 500 largest companies listed on the BSE.

S&P BSE – 500 chart

Market participants

The Bombay Stock Exchange consists of several market players who run the exchange. These include banks, financial institutions, brokers, institutional investors, and retail investors.

What is the purpose of the Bombay Stock Exchange?

The main purpose of the Bombay Stock Exchange is to facilitate companies and investors.

Companies list themselves through an IPO or direct listing and offer shares to the investors. They make money by raising capital from investors. And investors make money through capital appreciation and dividends.

The Bombay Stock Exchange also serves other purposes. These include:

  • As Bombay is one of the largest stock exchanges in India, it helps in economic development. It has contributed significantly to the economic landscape, especially the debt market. Not only trading, it also offers investors risk management, clearing, and settlements.
  • The other purpose of the BSE is to corporate governance. Companies listed on the BSE must meet certain regulatory standards set by the SEBI. This includes submitting quarterly and annual earnings reports.
  • The BSE also provides research and educational content for retail and institutional investors. It helps you get the information from the primary source and make decisions accordingly.
  • Most importantly, the Bombay Stock Exchange provides security to investors. They ensure a regulated and secure trading environment through SEBI.

Who created the Bombay Stock Exchange?

The Bombay Stock Exchange was created by Premchand Roychand. It began as the Native Share & Stock Brokers Association.

The businessman gathered other brokers in 1855 and started a marketplace for shares trading. As we have explained earlier, as the volume grew, the brokers switched different places and finally created the Bombay Stock Exchange in 1875.

What are the trading hours on the Bombay Stock Exchange?

The trading hours on the Bombay Stock Exchange are between 9.15 AM to 3.30 PM. The equity and the derivative segments have pre and post-trading sessions.

Pre-trading session

The pre-trading sessions are from 9 AM to 9.15 AM. The pre-trading session is further categorized into three-time slots:

  • From 9 AM to 9.08 AM, you can buy/sell stocks or other tradeable instruments. You can also change your order.
  • Between 9.08 AM and 9.12 AM, you can’t place orders or change/cancel orders.
  • The last 3 minutes connect all orders and prepare for the start of normal trading hours.

Post-trading session

The post-trading session starts at 3.30 PM till 4.00 PM. The post-trading session involves two time slots.

  • Between 3.30 PM and 3.40 PM, the closing price of stocks is calculated.
  • From 3.40 PM to 4.00 PM, you can place orders if there are sufficient buyers/sellers.

What are the major exchanges on the Bombay Stock Exchange?

There are no major exchanges in the Bombay Stock Exchange. Unlike some exchanges like the NYSE, London, Toronto, Japan, and Shanghai, the BSE doesn’t have a separate exchange.

What are the biggest crashes on the Bombay Stock Exchange?

The biggest crashes on the Bombay Stock Exchange occurred in 1865, 1982, 1992, 2007-08, 2015, 2020,

Cotton-frenzy of 1865

The first market crash happened in 1865. Remember when we told you that cotton was big in mid-19th century India? There’s a special story behind this, so let’s unwrap it.

After the Indian War in 1857, the rule of India was transferred from East India Company to the British Empire. 8 years later, Premchand and other brokers were enjoying a strong bull market.

Shares of many companies were skyrocketing. The Bank of Bombay was trading at Rs. 2850, up from Rs. 500, and shares of cotton companies were skyrocketing as well.

Why? Because the US President Abraham Lincoln abolished slavery, and this stopped the cotton source for the British. The cotton prices in India rose, and it was called white gold.

So, the British made India their source of cotton and money made from cotton was injected into the stock market. However, the market crashed during the same year, and the same Bank of Bombay stock was trading at Rs. 87.

The bear sellers of 1982

In 1982, Dhirubai Ambani short-sold Reliance stock, which caused the BSE to stop trading for three days.

Dhirubai Ambani was a known short-seller who founded the Bear Cartel group. In 182, the cartel sold around Rs.1 to 1.1 million shares of Reliance, and the stock value dropped from Rs. 131 to 121 within a few hours.

Seeing this, the friends of Reliance, as they were called, started buying the shares aggressively. This put the BSE to a halt, and the market crashed and stopped its operations for three days.

Scam of 1992

As we mentioned earlier, the corruption scandal of 1992 caused the Bombay Stock Market to crash. The market went down the hill by more than 12%.

Financial crises of 2007/08

In 2007-08, as the global financial crises hit, the Bombay Stock Exchange fell. The Sensex Index lost almost 2300 points on January 22, 2008.

The ripple effect of 2015

In 2015, the BSE’s Sensex Index fell by 1624 points. It was because of the ripple effect of the Chinese economic slowdown.

Pandemic Hit of 2020

Markets around the world fell under the impact of the COVID-19 pandemic, and BSE was no exception. The exchange lost around 3000 points on March 12.

BSE SENSEX Index chart from January 3, 1986 till February 2, 2024

Does the Bombay Stock Exchange have holidays?

Yes, the Bombay Stock Exchange has holidays. The list of holidays is divided into full days and mornings off.

DayHolidayFull-day or Morning-off
January 26Republic DayFull day off
According to the Hindu CalendarMaha ShivaratriFull day off
According to the Hindu CalendarHoliMorning off
Last Friday of MarchGood FridayFull day off
According to the Islamic CalendarEid-FitrMorning off
According to the Hindu CalendarDr Baba Saheb Ambedkar Jayanti Morning off
According to the Hindu CalendarRam NavamiMorning off
According to the Hindu CalendarMahavir Jayanti Morning off
May 1Maharashtra Day Full day off
According to the Muslim CalendarEid ul AdhaFull day off
According to the Muslim CalendarMuharram Morning off
August 15Independence Day Full day off
According to the Hindu CalendarGanesh ChaturthiMorning off
October 2Birthday of GandhiFull day off
According to the Hindu CalendarDasara Morning off
According to the Hindu CalendarDiwaliMorning Off
According to the Nanakshahi calendarBirthday of Guru NanakMorning Off
December 25Christmas Full day off

It’s important to note that these are the official holidays listed on the Indian calendar, and specific holidays can occur in a year. 

What was the first company traded on the Bombay Stock Exchange?

The first company traded on the Bombay Exchange was D.S. Prabhudas & Company.

The company was one of the brokerage firms that initiated the Native Share and Stock Brokers Association. Now, the D.S. Prabhudas & Company has a joint venture with Merill Lynch Limited.

Final thoughts 

We travelled back in time and returned to the present to explain what the Bombay Stock Exchange is all about. The BSE is one of the oldest in Asia and contributes significantly to the Indian economic landscape.

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