Capital Markets

Bombay Stock Exchange

Did you know that the Bombay Stock Exchange we know today started under a banyan tree in the 1850’s? Yes, traders use to meet outside the town hall to trade in stocks as early as 1855. From there developed one of the largest stock exchanges of the world – the Bombay Stock Exchange (BSE). Let us learn more.

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Bombay Stock Exchange

The Bombay Stock Exchange

Initially, the BSE was just an informal gathering of share traders meeting outside the town hall near the present day Horniman Circle. In 1875, these stockbrokers formed the first formal association known as The Native Share & Stock Brokers Association. This was under the leadership of Premchand Roychand wh was the most influential businessman of that era.

It was only in 1928, that the BSE shifted to Dalal Street with whom it is now synonymous. On 31st August 1957, the government recognized the BSE under the Securities Contracts Regulation Act, making it India’s first stock exchange.

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 Sensex- The Index of the BSE

Sensex (S&P BSE Index) is the most popular index of the BSE. It is, in fact, the benchmark index of the stock exchange. It is the value-weighted index of the largest 30 companies of the stock exchange which are actively trading.  It provides the most accurate gauge of the current financial position of the stock market as well as the economy.

To calculate the daily Sensex we divide the market value of the 30 largest, most traded companies of the index by the index divisor. This index divisor relates to the original base value of the Sensex.

Since India went through economic reforms in 1991, the Sensex has seen enormous and rapid growth. There was a major crash in 1992 due to the financial scam, and many such crashes since, but the Sensex has always recovered. It reached 20,000 points in 2007 and reach the highest point of 38,989 in August of 2018.

Organization of the BSE

The day to day functioning of the BSE is managed by a Board of Directors. It consists of a Managing Director as well as a Chairman along with Public Interest and Shareholders Directors. They form the rules and policies with respect to the trading of shares and securities, commodities, derivatives, etc. on the stock exchange.

Importance of the BSE

The Bombay Stock Exchange is the oldest stock exchange in Asia. It has played a very large part of India’s economy over the last two decades. It has involved India’s growing middle class and turned savings to investment. It has a large hand in the rapid growth of India’s GDP from 2002 to 2007.

It has also contributed to bringing technology into the financial sector. It introduced BOLT (BSE online trading system) in 1995 to promote transparency and eliminate any errors. And then came the dematerialization of shares in 2015. Here, shareholders convert their physical shares to electronic balances linked to their Demat accounts.

The BSE has also taken many initiatives to educate and train investors and traders. The idea is to provide maximum investor protection. So the investors need to be educated and rely on solid analysis rather than only speculative actions.

Solved Question for You

Q: Sensex is the only index used by the BSE. True or False?

Ans: This statement is False. Sensex is the most popular index of the BSE. But it is not the only index. There is the BSE 100 and BSE 200 indexes also. But the Sensex is the best barometer of the performance of the stock market.

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