The National Stock Exchange of India (NSE) is the leading financial exchange in the country. The headquarters of NSE is located in Mumbai and was incorporated in the year 1992. NSE became the first dematerialized stock exchange of India and was also the first exchange in the country to provide a fully automated, modern screen-based electronic trading system offering easy trading services to the investors spread across the country.
History of NSE
After the outbreak of 1992 scam in which Harshad Mehta, the member of BSE was exposed to manipulate the market. The Government of India decided to establish NSE based on the recommendations made by the High Powered Study Group on establishing new Stock Exchanges in the country. The aim was to provide equal access to investors across the nation and ease out participation in the stock market.
NSE was incorporated in November 1992, as a tax-paying company with some major investors like State Bank of India, Life Insurance Corporation of India, IDFC Limited, Stock Holding Corporation of India Limited, and IFCI Limited. NSE was recognized as a stock exchange company under the Security Contracts (Regulation) Act,1956 in 1993 and commenced its operations in Wholesale Debt Market in 1994. In the equity segment, operations began in late 1994, followed by the operations in the derivatives segment in June 2000.
It was the first stock exchange in the country where management, trading, and ownership were controlled by 3 independent sets of people. The ownership is with various banks and financial institutions, while the management is controlled by individual professionals, who are prohibited from trading in the exchange directly or indirectly.
NSE was incorporated as the latest stock market in which debt instruments and companies securities are traded to counter the influence of BSE (Bombay Stock Exchange) and to minimize the influence of particular strong intermediaries in the stock market.
NSE uses screen-based trading with the most advanced technology. The success of the stock exchange is evident that within some years of the promotion, the value and volume of the transactions bettered the Bombay Stock Exchange. Moreover, the prices of securities prevailing in NSE has an influence on the securities traded prices in the Bombay Stock Exchange.
Major Indices of NSE
An index of the stock market is made by choosing a collection of key stocks that represent the entire market or a certain sector of it. Some of the essential broad market indices, comprising of liquid stocks listed in the NSE are:
- Nifty 50
- Nifty Next 50
- Nifty 100
- Nifty 500
- Nifty Midcap 50
- Nifty Smallcap 250
- India Vix Index
NSE also consists of other indices like thematic strategy, fixed income indices, and sectoral indices. The major companies listed in NSE are Reliance, TCS, Infosys, HDFC, Kotak Mahindra Bank, Bajaj Finance, ICICI Bank, Larsen, SBI, and Axis Bank.
Nifty 50 is the flagship index of the National Stock Exchange. It tracks the behavior of a portfolio of blue-chip companies, the most liquefied securities in India. The Index includes top 50 equity stocks from over 1600 listed on the NSE and it captures around 65% of the float-adjusted capitalizations. The index is regarded as a true reflection of the country’s stock market.
Nifty 50 covers 12 sectors of the economy including financial services, FMCG, Information technology, telecommunication, metal, automobile, cement, pharmaceutical, energy, entertainment and media, and other services. It offers exposure to the Indian market in one portfolio. Nifty 50 has been trading since 1996 and it is well suited for index funds, index-based derivatives. The index is owned and managed by India Index Services and Products Limited (IISL), a fully owned subsidiary of NSE Strategic Investment Corporation Limited.
How Nifty 50 is Calculated?
Nifty 50 is calculated using a float-adjusted market capitalization-weighted method, where the level of an index represents the aggregate market value of stocks in the index in a particular base period. This method also includes constituent changes in the index and corporate actions like rights issues, stock splits, etc. without affecting the value of the index.
The formula used for calculating the price index is:
Index value = Current Market Value / (Base Market Capital *1000)
The base capital is set to INR 2.06 trillion and base index value to 1000.
Features of NSE
NSE, like other stock exchanges, runs an order-driven market and not a quote-driven market. The completely advanced screen-based system of NSE is known as National Exchange for Automated Trading (NEAT). Here are some of the major features of NSE:
The identity of the trading member is withheld by the National Stock Exchange. The orders and transactions are entered via the code numbers. Thus, trading member’s anonymity remains confidential with NSE.
Effective order matching
Sell and buy orders are rapidly and effectively matched using the trading software, which is selling and buying adjustments. The system also ensures the best prices for buying and selling of securities. The network system allows traders to find the best match for their order or network system to hold the order till the best match for sell or buy order is achieved.
NSE follows complete transparency in all its trading operations. The opening and closing prices of the stocks are available for the investors in real-time. The trading individuals will know when their orders are executed.
No Stable Location
Because NSE is screen-based, no floor of a stock exchange is required. And, all the NSE members can transact via their computer while sitting at their place.
National Stock Exchange (NSE) is a huge stock exchange and has access all around the country.
As trading is completely online, the order matching in realtime makes it simple and ensures that transactions are efficiently and quickly settled.
For debt instruments, the system provides a perfect match with a sensible repayment period and interest rate. It is available throughout India for the sale of debt instruments.
Functions of NSE
NSE was established to fulfill the following functions:
- Establishing a country-wide trading facility for debt, equities, and hybrid instruments.
- To ensure equal access to investors throughout the country through a suitable communication network.
- Enabling the shorter settlement cycles and book-entry settlements
- Providing a transparent, efficient, and fair securities market to the investors through an electronic trading system
- Meeting the latest international standards of securities markets
NSE has successfully fulfilled all the above functions by incorporating the first electronic stock market in India. It was instrumental in making National Securities Depository Limited (NSDL), the first central securities depository in India, allowing the investors to trade and hold securities electronically.
The creation of NSDL not only made the investing simple but it also increased transparency to NSE. The information on the price, which was only available to a handful of traders present in the exchange, was now broadcasted widely and available to all regardless of their location.
Before the introduction of NSE, investors who wanted to trade securities that were not listed on the nearest exchange had to process their orders through a series of correspondent brokers or depository participants to applicable exchange. With the introduction of NSE, the system was made simple for the investors to access the same market and order book, irrespective of the location and at the same cost for every investor.
NSE offers trading and investment across the following sectors:
Equity consists of volatile assets class that helps investors to increase returns from their investments. Equity investment consists of various asset types like Mutual Funds, Indices, Equities, Exchange-Traded Funds, Securities Lending and Borrowing Schemes, Initial Public Offering, and more.
Derivatives traded under the stock exchange includes global indices such as CNX 500, Dow Jones, etc., commodity derivatives, currency derivatives, interest rate futures, etc. The derivative trading in NSE started in 2002 with the launch of index futures. The derivatives contracts on Dow Jones Industrial Average and S&P 500 started in 2011.
The investment pool type consists of several Exchange-Traded Funds and Mutual Funds, etc., where core assets holdings consist of various short-term and long term bonds, Securitized Products, Corporate Bonds, and more.NSE is the 11th largest stock exchange of the world with a market capitalization of more than US$2 trillion. During its inception time, NSE was capable of handling 2 orders per second and the number increased to 60 orders in the year 2001. Currently, NSE can handle more than 1,60,000 orders per second with an ability to scale up as per demand.
The National Stock Exchange has been the backbone of trading in India since its inception and it continues to be so in the digital age of online trading. It has been able to withstand the age of huge corruption and scams in the 90s like the Harshad Mehta scam and has involved into playing a pivotal role continuously innovating and creating an infrastructure to facilitate the trading needs of India’s ever growing population.