Why are stock prices different on BSE and NSE? All you need to know

With the recent listing of many IPOs on the bourses, many wonder why prices on the BSE are generally higher as compared to the NSE. For instance, let’s see this data of the recently listed IPOs:

This shows that while the listing price on the stock exchanges differs from their issue price, the price at which the shares are listed also varies on the NSE and the BSE. What are the possible reasons behind this?

Price discovery

Price discovery is the process through which the fair value of an asset is determined through factors such as demand, supply, liquidity and market sentiment. It reflects the actions of buyers and sellers who act on information like company performance and future expectations. The process aligns the stock price with its perceived value.

Liquidity, demand and supply

The Bombay Stock Exchange (BSE), established in 1875, is Asia’s oldest stock exchange and the 10th oldest in the world. It is one of the largest stock exchanges in terms of the number of companies listed on it. Even with its rich legacy and long-standing presence, the BSE usually experiences lower trading volume as compared to the National Stock Exchange (NSE).

This means that because the NSE has higher trading volume and liquidity, prices are more competitive and thus are lower than the BSE. Factors like advanced technology and higher efficiency drive more traders towards NSE, increasing its trading volume.

NSE is also the preferred choice for high-frequency traders and institutional investors due to its greater liquidity and advanced technology. Founded in 1992, NSE has grown to become the largest stock exchange in India by market capitalisation.

Additionally, demand and supply for shares are different on the stock exchanges and this drives up the prices on one exchange and lower on the other.

Higher liquidity on the NSE means more buyers and sellers for a stock, which can lead to a lower price on the NSE as compared to the BSE. Furthermore, with high trading volume, price discovery is more efficient, keeping prices aligned with demand and supply for the stock. On the other hand, in some cases, prices are lower on the BSE when lower demand for a stock, weak trading volumes and lower liquidity lead to reduced prices.

For example, the Tata Consultancy Services Ltd scrip is currently trading at ₹4,185 apiece on the BSE and ₹4,182 on the NSE. The Infosys stock is trading at ₹1,915.95 on the NSE and ₹1,915 on the BSE.

Many other factors also contribute to the price differences between the BSE and NSE sometimes. Investor sentiment, arbitrage opportunities, different trading platforms, technical factors, listing and other corporate actions also play a role.