Stock Exchanges in India

Stock exchanges are organized marketplaces for trading securities in the secondary market and form the core of the stock market system. They ensure regulated, transparent, and efficient trading of shares, bonds, and other instruments. In India, stock exchanges have evolved significantly in scale, technology, and regulation, and play a central role in capital market functioning.

Role of Stock Exchanges

Stock exchanges provide a regulated platform where buyers and sellers meet to trade securities. Their key functions are as follows:

• Liquidity and Marketability of Securities: Exchanges enable easy buying and selling of securities, providing liquidity and allowing investors to enter or exit investments with ease. This liquidity encourages wider participation in the market.
• Price Discovery: Through continuous trading, exchanges determine security prices based on demand and supply. Market prices reflect available information, investor expectations, and overall economic conditions.
• Fair Trading and Transparency: Exchanges operate under standardized rules with electronic trading systems, ensuring equal access to price and trade information. Public reporting of trades enhances transparency and reduces scope for manipulation.
• Investor Protection and Regulation: Exchanges enforce listing, trading, and disclosure norms for companies and members. Mechanisms such as circuit breakers control excessive volatility, while settlement systems reduce default risk. In India, exchanges operate under the regulation of the Securities and Exchange Board of India.
• Economic Barometer: Stock exchanges, through indices like the Sensex and the Nifty, reflect the health of the economy and investor confidence. By directing capital towards efficient companies, exchanges aid optimal allocation of resources.

Major Stock Exchanges in India

India has had numerous stock exchanges historically, but today the trading activity is overwhelmingly concentrated in the two national exchanges. Here are the key exchanges:

Bombay Stock Exchange (BSE)

BSE is the oldest stock exchange in Asia, established in 1875. It began as “The Native Share & Stock Brokers’ Association” in Bombay (now Mumbai). BSE has a rich history and was the premier exchange in India for over a century.

• Location: Mumbai, at Dalal Street – which is often used as a metonym for the Indian stock market (like Wall Street in the USA).
• Recognition and Milestones: BSE was the first exchange in India to be recognized under the Securities Contracts (Regulation) Act (SCRA) in 1957, making it an official exchange. Over time, BSE modernized and in 1995 it introduced electronic trading through the BSE Online Trading (BOLT) system, doing away with the open outcry floor system.
• Listings and Market Cap: BSE has the largest number of listed companies among all exchanges in the world – around 5,000 companies are listed on BSE. These range from large multinationals to small enterprises. Because of the large number of listings, BSE provides a platform for trading in a wide variety of companies. The market capitalization of companies listed on BSE is one of the highest globally (India is among the top 5-7 markets worldwide by market cap).

Index – SENSEX

BSE’s flagship index is the S&P BSE SENSEX (often just called Sensex). It is composed of 30 of the largest and most actively traded stocks on BSE, across key sectors. The Sensex is a bellwether index and is closely watched. It was first compiled in 1986 (with a base year of 1978-79 = 100). Over the decades, the Sensex has grown multi-fold reflecting India’s growth; for example, it crossed 50,000 points in 2021 for the first time. Sensex movements are often seen as reflective of overall market sentiment.

Notable Facts:

• BSE became the first stock exchange in India to be publicly listed (BSE itself got listed on its own exchange in 2017, after demutualizing and corporatizing – meaning the exchange turned from a brokers’ association to a for-profit company with shareholders).
• BSE has diversified offerings: It allows trading in equities, equity derivatives, currency derivatives, commodity derivatives (recently introduced), debt instruments, and even new products like Electronic Gold Receipts (EGR). It also has platforms for SMEs (Small & Medium Enterprises) listing and mutual fund units (BSE STAR MF platform).
• BSE’s global outreach: BSE launched the India International Exchange (India INX) in 2017 at the GIFT City International Financial Services Centre (IFSC) in Gujarat. India INX is an international exchange that operates for longer hours and allows trading in securities in foreign currency terms, aiming to attract international investors.
• Settlement: BSE’s trades are settled through its clearing corporation (ICCL). Indian exchanges follow a T+1 rolling settlement (as of 2023-24, meaning trades settle the next trading day).

National Stock Exchange (NSE)

NSE was established in 1992 and started operations in 1994. It was set up by leading financial institutions under the government’s behest to bring transparency, efficiency, and modernization to the Indian capital market after some notorious scams in the early 1990s. It was the first demutualized electronic exchange in India, meaning it separated ownership from the right to trade (brokers trade on it but do not necessarily own it, unlike older exchanges historically).

• Technology and Impact: NSE introduced a fully automated, screen-based electronic trading system (replacing the open outcry system). This allowed nation-wide access; anyone from any location could trade on NSE through computers, which was revolutionary in mid-1990s India. As a result, NSE quickly gained trading volumes and became the largest exchange in India by turnover within a few years of launch.
• Market Share and Importance: Today, NSE accounts for the majority of equity trading volume in India (often over 90%). It has become one of the world’s largest exchanges by trading volume. NSE is often ranked among the top exchanges globally for derivatives trading as well (in terms of number of contracts traded, NSE’s index options and stock futures markets are among the biggest).
• Listings: NSE has slightly fewer listed companies (around 1,800+ as of mid-2020s) compared to BSE, but they include almost all large and mid-size companies (most companies have dual listing on NSE and BSE). Being listed on NSE is generally considered important for liquidity.

Index – NIFTY 50

NSE’s flagship index is the NIFTY 50 (officially the Nifty 50, formerly CNX Nifty). It comprises 50 of the largest and most liquid stocks across sectors that are listed on NSE.

• Background of Nifty: Launched in 1996 with a base date of 3 Nov 1995 = 1000. It’s maintained by NSE and is used as a benchmark for many portfolio and fund performances.
• Many exchange-traded funds (ETFs) and index funds track the Nifty 50, making it an important market index.
• Innovation: NSE is known for several firsts in India – it introduced derivatives trading (index futures in 2000, options in 2001 for the first time in India), internet trading, direct market access, etc. It also set up the first dedicated debt platform and has platforms for wholesale debt (for institutional trading of bonds), currency derivatives, interest rate futures, and more.
• Corporate Structure: NSE is currently not a publicly listed company (unlike BSE). It is owned by various financial institutions, banks, and foreign investors. There have been plans and attempts for an IPO of NSE, but regulatory issues (like a co-location scandal in mid-2010s) delayed it.
• Settlement: Trades on NSE are settled by NSCCL (NSE Clearing Ltd.) on T+1 basis.

Other Stock Exchanges

While BSE and NSE are the dominant exchanges, other stock exchanges are as follows:

Calcutta Stock Exchange (CSE)

One of the oldest exchanges (established 1908 in Kolkata). It still exists as a recognized exchange but has very limited trading activity today. It has a few listed companies, some of which are also listed on BSE/NSE. CSE faced decline after NSE emerged and many regional exchanges lost business.

Metropolitan Stock Exchange of India (MSEI)

Formerly known as MCX-SX (initially started as a currency derivatives exchange by the commodity exchange MCX group). MSEI got permission around 2012-13 to operate in equities and other segments. Despite being active, MSEI has minimal volumes and is much smaller compared to NSE/BSE.

Regional Stock Exchanges (RSEs)

In the past, many cities had their own exchanges (Delhi, Bangalore, Madras, Ahmedabad, etc.). Most of these have been shut down or derecognized in the 2000s and 2010s, particularly after SEBI mandated corporatization and net worth requirements which many could not meet due to low volumes. SEBI provided an exit policy for stock exchanges; many regional exchanges opted to exit. For instance, the Delhi Stock Exchange, Madras Stock Exchange, etc., all ceased operations by around 2015-2017. A few RSEs like Jaipur, Bangalore, etc., similarly exited. A handful like CSE remain but with negligible activity.

India International Exchange (India INX) and NSE IFSC

These are two newer exchanges located at GIFT City (Gujarat International Finance Tec-City) IFSC. They allow trading in international products (like global stocks, commodities, currencies in USD) and cater to foreign investors with virtually 22-hour trading. India INX (by BSE) started in 2017, and NSE’s IFSC exchange also started operations around the same time. These are regulated by the International Financial Services Centre Authority (IFSCA) rather than SEBI for their IFSC operations.

Commodity Exchanges (though not “stock” exchanges, worth noting)

MCX and NCDEX are commodity derivative exchanges (discussed in Chapter 121 on Commodity Markets). Additionally, there was an exchange called OTCEI (Over-The-Counter Exchange of India) established in 1990s for smaller companies trading on a electronic OTC model; however, OTCEI failed to gain traction and closed by 2015.

Stock Market Indexes in India

Stock indexes are indicators that track the performance of a group of stocks, representing the market or a segment of it. The two most prominent indexes are Sensex and Nifty, as mentioned:

BSE Sensex

• Comprises 30 large, well-established companies from different sectors listed on BSE. It’s a free-float market capitalization-weighted index (meaning companies are weighted by their market cap adjusted for public float). It is considered the pulse of the Indian stock market. For example, companies like Reliance Industries, TCS, HDFC Bank, Infosys, etc., are typically part of Sensex.
• Base year and value: 1978-79 as base year = 100. Reaching Sensex 50,000 means 500 times increase from base on a weighted average basis of those 30 stocks (though the composition of the 30 changes over time).

NSE Nifty 50

• Comprises 50 large companies on NSE, also free-float market cap weighted. It covers about 13 sectors. Nifty is used globally by investors and funds as a benchmark for India.
• Base: 1995 base year = 1000. It crossing 10,000 (which happened in 2017) indicated a 10-fold increase in the representative market value since 1995.

Sectoral and Other Indices

Both BSE and NSE have a range of other indices:

• Sectoral indices (Nifty IT, Nifty Bank, BSE Bankex, BSE IT, etc.) that track specific industry sectors.
• Broader indices: e.g., Nifty Next 50 (the next 50 large companies after Nifty50), BSE Midcap, BSE Smallcap indices for mid and small-cap stocks, Nifty Midcap 100, etc.
• Strategic indices: Nifty 500 (broad market index of 500 companies), Sensex 50 (50 largest on BSE), etc.
• The indexes provide insight and are used for index funds, ETFs, derivative contracts, and benchmarking portfolio performance.

Trading Mechanism and Reforms

The Indian stock exchanges today operate on advanced electronic limit order book systems:

• Trading Hours: Typically 9:15 am to 3:30 pm (Monday to Friday) for normal equity trading. Trades are matched by the trading system automatically.
• Settlement: As of 2023-24, Indian exchanges have implemented T+1 settlement (trade date plus one business day for settlement) for most stocks, making it one of the fastest settlement systems globally. Earlier it was T+2.
• Demat System: All securities trading on exchanges are in dematerialized form (demat). This shift happened in late 1990s with the Depositories Act, eliminating paper certificates. It reduced scams like fake/duplicate shares and sped up settlement.
• Surveillance and Investor Protection: Exchanges have surveillance departments to monitor abnormal price/volume movements and prevent manipulation. SEBI and exchanges have put in place measures like price bands (daily limits on how much a stock price can move, e.g., 5%, 10% for many stocks to curb volatility), circuit breakers for indices (market-wide halt if indices move more than a set percentage), etc. Investor Protection Funds are maintained to compensate investors in cases like broker defaults to some extent.
• Listing Requirements: To list on NSE/BSE, companies must fulfill criteria (regarding paid-up capital, years of profitability or net worth, public shareholding, etc.) and adhere to ongoing disclosure requirements (like quarterly results, shareholding patterns, corporate governance norms under SEBI’s LODR regulations).

Recent Developments

Integration of Commodities

SEBI allowed stock exchanges to also offer commodity derivatives (earlier commodity exchanges were separate). Now BSE and NSE have commodity segments too.

SME Exchanges

Both BSE and NSE have separate platforms for Small and Medium Enterprises (SMEs) to list with easier norms (BSE SME, NSE EMERGE) which help smaller companies raise equity from capital markets.

Growing Investor Base

India has seen a sharp rise in retail investors. As of 2025, over 11 crore (110 million) demat accounts are open, reflecting increased public participation in stock markets, aided by online brokerage apps and ease of access.

Global Recognition

Indian exchanges are members of bodies like the World Federation of Exchanges. NSE and BSE indices are tracked by international investors, and India is often part of emerging market index baskets (like MSCI Emerging Markets index has a significant weight for India).