SIKSHA ‘O’ ANUSANDHAN

Deemed to be university

Introduction to Financial Markets

TOPIC- What are NSE & BSE? How is

SENSEX computed?

Name- Simran Verma

Registration no. - 1841303091

Submitted to:-
Mrs Pallavi Mishra

What are NSE & BSE? How is SENSEX computed?

BSE stands for 'Bombay Stock Exchange’, and NSE stands for 'National Stock Exchange’.
Although everybody understands that both BSE and NSE is something related to securities such as stock
shares and bonds, what is the exact definition of the stock exchange? Let’s find out.
In India, we have two main stock exchange markets: National Stock Exchange (NSE) and Bombay Stock
Exchange (BSE).
 

What is BSE?

In 1875, BSE or Bombay Stock Exchange was established, and it was formerly known as 'The native share
and stock brokers association’. However, after 1957, Government of India recognized this stock exchange as
the premier stock exchange of India, under the Securities Contract Regulation Act, 1956.
SENSEX was also introduced in 1986 as the first ever equity index of India to offer an identifying base for
top 30 exchange trading companies.
In 1995, BSE on-line trading (BOLT) was established, and at that time, its capacity amounted to 8 million
transactions per day.
BSE is the first stock exchange of Asia, and it offers varied services such as market data services, risk
management, CDSL (Central Depository Services Limited) depository services, etc.
Bombay Stock Exchange is additionally 12th biggest stock exchange marketplace in the world, and as of July
2017, its market capitalization is over $2 trillion.

What is NSE?

NSE or National Stock Exchange is located in Mumbai, and it is India’s leading stock exchange market. It
first came into existence in 1992 and brought with it an electronic exchange system in India, which led to the
removal of the paper based system.
NSE introduced Nifty 50 in 1996 as the identifying base for top 50 stock index, and it is extensively utilized
as Indian capital markets’ barometer and by Indian investors.
National Stock Exchange became a stock exchange recognized company by 1993, and in 1992, it was
incorporated as a tax paying company under Securities Contracts Act, 1956.
Formation of NSDL (National Securities Depository Limited) took place in 1995 to offer investors a safe
platform for transferring and holding their bonds and shares electronically.
 
National Stock Exchange is the 10th biggest stock exchange marketplace, and as of March 2017, its market
capitalization reached over $1.41 trillion.

Key Differences

• Both National Stock Exchange and Bombay Stock Exchange are one of the top stock exchanges in India.
However, the oldest is BSE and youngest is NSE.
• While Bombay Stock Exchange is 10th in top stock exchanges, National Stock Exchange is 11th in position.
• Electronic exchange system was first introduced by NSE in 1992 and BSE’s electronic system, BOLT, came
into existence in 1995.
• While NSE’s index, Nifty 50, gives top 50 stock index, BSE’s index, SENSEX, gives top 30 stock index.
• BSE became a recognized stock exchange in 1957 and NSE was recognized in 1993.
What is SENSEX?

The Sensex is primarily an index reflecting the movement of the share prices in the Bombay Stock Exchange
(BSE). If the Sensex value goes up, it means there is a general increase in prices of shares and vice versa

What is the methodology used to calculate Sensex?

Initially, Sensex used the weighted market capitalisation methodology.

It shifted to ‘Free Float market capitalization‘methodology with effect from since September 1, 2003. All
major indices around the world use the free-float methodology.

What is meant by free float?

Free-float is that percentage of total shares issued by the company that are readily available for trading in the
market. It excludes shares held by promoters, government etc.

 the steps in the calculation of SENSEX.

1. The Sensex comprise of a basket of 30 stocks. First, the 30 companies are selected on the basis of
various quantitative and qualitative criteria like total market capitalisation, free float market
capitalisation, sectoral representation etc. Basically, there should be companies from all major
sectors like Banking, IT, FMCG.
2. The market capitalisation of each of the 30 companies is determined.
3. The free-float market capitalisation of each of the 30 companies is determined. The market
capitalization is multiplied by the free-float factor to arrive at the free-float market capitalization.
4. The free-float market capitalisation of the 30 companies is summed up. We get the total free-float
market capitalisation.
5. The formulae used to calculate Sensex: Sensex = (total free-float market capitalisation/ Base
market capitalisation) * Base index value.
6. We have calculated the total free-float market capitalisation. The base year to calculate Sensex is
1978-79.
7. So, base market capitalisation is calculated. It means the market capitalisation in 1978-79. The
base is a static value, but it has to be changed to account for bonus and rights issues etc. As per the
BSE website, the figure of Rs. 2501.24 crore will be used as the base market capitalisation till the
next adjustments become necessary.
8. The base index value is 100
Hence, to calculate Sensex, we will add the free-float market capitalisation of 30 selected companies, divide
the resultant figure by 2501.24 crores and multiply it by 100.