The National Stock Exchange of India Limited (NSE) is a major financial exchange based in Mumbai. Established in 1992, NSE has quickly grown into a sophisticated and automated electronic system, providing trading opportunities for investors nationwide.
As of 2024, NSE ranks as the 8th largest stock exchange in the world.
What is NSE?
The NSE was launched in 1994, initiated by the Indian government to enhance transparency in the financial markets. Formed under the guidance of the Pherwani Committee and backed by leading financial institutions, NSE attracted a wide array of shareholdings from both international and domestic investors.
It was the first stock exchange in India to offer electronic trading, allowing investors from all over the country to participate on a unified platform.
As of April 11, 2023, NSE’s total market capitalisation stands at about USD 3.26 trillion, making it the ninth largest stock exchange globally.
However, the corporate sector in India contributes only 12-14% to the country’s GDP, unlike in the USA, where it accounts for about 70%. Of India’s corporate sector, approximately 7,800 companies are listed, with around 4,000 actively trading on stock exchanges. Trading on these exchanges represents just 4% of India’s GDP.
Functions of NSE
The primary goals for establishing NSE were to:
• Establish a nationwide platform for trading equities, debt, and hybrid instruments.
• Provide fair access to all investors across the country through an efficient communication network.
• Utilize electronic trading systems to ensure a fair, efficient, and transparent market for securities.
• Enable quicker settlement cycles and book entry settlements systems, aligning with international standards in the securities markets.
Features of NSE India
Like many major stock exchanges, the National Stock Exchange of India (NSE) uses an order-driven market system rather than a quote-driven one. It also utilizes a fully automated, screen-based trading system known as the National Exchange for Automated Trading (NEAT).
When an order is placed in NEAT, it receives a unique identification number. If it doesn’t immediately find a matching order, it goes into an order book. In this book, orders are arranged to be matched based on a price-time priority system.
Here’s how it works: if two orders are entered, the one offering the best price gets priority. If the prices are the same, the older order goes first.
Order matching happens by pairing the highest buy order with the lowest sell order. Essentially, sellers want to sell at the highest price possible, and buyers want to buy at the lowest price. Orders may be partially filled over time, but matching is always based on the best available price, not necessarily the price at which the match is made. This system ensures fairness and efficiency in how orders are processed and fulfilled.
Benefits of Listing with the National Stock Exchange of India (NSE)
Comprehensive Visibility
The NSE provides an efficient trading system that offers extensive trade and post-trade information. Investors can easily access details about the top buy and sell orders, as well as the total number of securities available for transactions. This quick access to information allows investors to understand market depth efficiently.
Premier Marketplace
Thanks to the high volume of trading activity on the NSE, the impact cost is reduced. This means lower trading costs for investors. Moreover, the exchange’s automated trading system ensures transparency and consistency, benefiting investors.
Largest Exchange in the Country
The NSE is the largest exchange in India in terms of trading volume, boasting a market capitalisation of over $2.25 trillion.
Fast Transactions
The NSE processes orders swiftly, enabling investors to secure the best possible prices. For example, on June 2024, the exchange handled a record 1,971 crores trades daily.
Trade Statistics
Companies listed on the NSE receive monthly trade statistics, which are crucial for monitoring their performance on the exchange.
With these advantages, the NSE stands out as a favorable venue for market transactions.
Investment Segments Offered by NSE
Equity
Equity investments on the NSE include a range of asset classes, such as mutual funds, individual equities, indices, Exchange-Traded Funds (ETFs), Security Lending and Borrowing schemes, and Initial Public Offerings (IPOs). Due to its volatility, this segment is known for its potential to maximize investment returns.
Equity Derivatives
The NSE also offers a robust platform for trading equity derivatives, including global indices like the Dow Jones and CNX 500, commodity derivatives, currency derivatives, and interest rate futures. The exchange began derivative trading in 2002 with index futures and expanded in 2011 to include derivatives on globally followed indices like the Dow Jones Industrial Average and S&P 500.
Debt
The debt segment on the NSE includes diverse products like mutual funds and ETFs, focusing on assets such as long-term bonds, corporate bonds, and securitized products. The NSE launched India’s first debt platform on May 13, 2013, providing a transparent and liquid market for debt-related products.
Listing on the NSE offers companies and investors significant benefits, from enhanced visibility to diverse investment opportunities, making it a leading choice for engaging with India’s financial markets.
Major Indices of the National Stock Exchange (NSE)
A stock market index is formed by selecting a group of stocks that either represent the entire market or a specific sector of it.
Key Broad Market Indices at NSE:
The NSE features several important broad market indices, which are composed of the most liquid stocks listed on the exchange:
• Nifty 50 Index: This includes the top 50 most actively traded stocks on the NSE.
• Nifty 100 Index: Represents the top 100 stocks.
• Nifty Next 50 Index: Includes the next 50 stocks following the Nifty 50.
• Nifty Midcap 50 Index: Focuses on 50 leading mid-cap stocks.
• Nifty Smallcap 250 Index: Comprises 250 small-cap stocks, offering a broader representation of smaller companies.
• India Vix Index: Measures the market’s expectation of volatility in the near term.
In addition to these, the NSE also hosts various other indices, such as thematic indices, strategy indices, hybrid indices, and fixed-income indices. These diverse indices allow investors to track different market segments according to their investment needs and strategies.
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