The Indian stock market which in economic terms is called equity market is the oldest and third biggest stock exchange in Asia. India is one of the fastest growing economies in the world and there are lots of investors who keep a keen watch on the Indian stock exchange.
The Indian stock market is well known for its uncertainty, risk and speculation. These factors have increased the number of investors in the stock market. The main reasons for the volatility are firstly the political changes which could change policies and rules and regulations, secondly any economic crisis like scams and scandals and thirdly any natural calamities which could change the world
There are 22 stock exchanges all over India. The oldest is the Bombay stock exchange. The stock market is controlled by the regulations of the Securities and exchange board of India [SEBI].
A brief history of Indian Equity Market:
The first trading was in the 18th century when the securities of East India Company were traded. The whole system was totally disorganised and it really took sometime before things changed. There was no office or place to do trading. It was only at the ending stages of 19th century that trading centres were opened in Bombay and Calcutta.
Trading activities increased and prospered with Bombay becoming the major source of cotton supply during the American civil war between 1860 and 1861 but the prosperity was not for long. Prices fell sharply in 1865. Since there was no proper office, the traders used to meet under a banyan tree. All this did not deter the traders. The number increased and so did the meeting places. Ultimately in 1874-75, “Native Shares and Stock Brokers Association” was formed by the brokers and this organisation was recognised by the Bombay Stock Exchange in 1925. Dalal Street became the official address of the organisation since 1875 and the Bombay stock exchange still continues to operate from there. Though there was an office, things were still disorganised and this continued till the independence of India.
It was only after independence that the Indian equity market was organised with some rigid rules. Timings were set for the stock exchange, pricing, floating costs, interest rates etc were maintained and controlled by the Controller of Capital issue [CCI]. In the fifties, the Bombay stock market gained the name “Satta Bazaar” due to heavy speculations. The Government of India brought the Securities Contracts (Regulation) Act, 1956 into implementation. The year also saw other financial institutions and state finance corporations come into existence.
India’s involvement in wars with China and Pakistan and the drought saw the market in a bearish trend in the sixties. “UTI” was established in 1964. Badla, forward trading transactions were banned. But it again rose in the form of “hand delivery contract” in the seventies. The government came out with an ordnance in 1974 wherein the dividend was fixed at 12 % of face value or 1/3 rd of profits. This created a chaos and the stock market closed down for a fortnight. Multinational companies pulled out of India and overall there was nearly a 20 % drop in market capitalisation at the Bombay stock exchange.
There was a growth in the Indian equity market in the eighties due to some liberalized policies of the government. Stock exchanges opened in many cities. Early 1990 have exposed the loopholes in the Indian capital market with two major scams: one where bankers and brokers were involved which forced many investors to leave the market, second was the securities scam calling for urgent reforms in the Indian equity market. SEBI was formed in 1992. National Stock Exchange (NSE) and Over the Counter Exchange of India (OTCEI) too were established giving BSE a stiff competition in the same year. In 1995-96, there was a amendment to the Securities Contracts (regulation) Act by introduction of the option trading. The late 90′s saw the emergence of Information Technology scrips like Wipro, Satyam, and Infosys in trading. BOLT was established in 1995 and was expanded in 1997 throughout the country.
The 21st century saw the Ketan Parekh scam in Calcutta stock exchange. Badla was again banned. Online trading became a success and umber off investors has increased and the Indian market has become a major force in the international market.