What is the Share Market? What is the history of the Indian Share Market?

The history of the Indian stock market is a remarkable journey of financial development in India. It dates back to the late 18th century when the East India Company issued bonds and shares. In the 19th century, formal stock exchanges, including the iconic Bombay Stock Exchange (BSE), were established.

The late 20th century brought transformative changes, with the inception of the National Stock Exchange (NSE) in 1992, introducing electronic trading and fostering transparency. The introduction of key indices like the BSE Sensex and Nifty 50 became vital benchmarks for monitoring market performance.

The history of stock exchange in India demonstrates that it has encountered numerous obstacles and difficulties. Scandals, such as the Harshad Mehta scam in the 1990s and the Ketan Parekh scam, underscored the need for regulatory enhancements. The 2008 global financial crisis also had a significant impact.

The Indian share market has thrived amid economic reforms, liberalization, and globalization. It continues to attract domestic and international investors, reflecting India's economic growth. Over the years, it has transitioned from a small, informal marketplace to a sophisticated, well-regulated financial ecosystem, playing a pivotal role in India's economic development.

What is the Share Market? 

A stock exchange is “a body of individuals, whether incorporated or not, constituted to regulate or control the business of buying, selling or dealing in securities.”

“Securities refers to shares, bonds, scrip, stocks, debentures stock, and other marketable securities of incorporated companies or similar, government securities, and rights or interest in securities.”

In India, the share market is a term used to refer to the two major stock exchanges in the country— the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE). There are also 22 regional stock exchanges.

History of Stock Exchange in India (18th Century - 20th Century)

18th Century: 

• The history of stock market in India can be traced back to the late 18th century when the East India Company issued bonds and shares to raise capital for its operations. This was the first share market in India where securities were informally traded among merchants in the region. 

• The trading floor was under the shade of a sprawling banyan tree opposite the Town Hall in Mumbai. A few people would meet under this tree to informally trade in cotton. his was because Mumbai was a busy trading port, and essential commodities were traded here often.

• The Companies Act was introduced in 1850, following which investors started showing an interest in corporate securities. The concept of limited liability also put an appearance around this time.

• By 1875, an organization known as ‘The Native Share and Stock Brokers Association’ came into being. This was the predecessor of the BSE.

• In 1894, the Ahmedabad Stock Exchange came primarily to enable dealing in the shares of textile mills in the city.

19th Century: 

• During the 19th century, regional stock exchanges were established in major Indian cities. 

• This was because Mumbai was a busy trading port, and essential commodities were traded here often.

• The Companies Act was introduced in 1850, following which investors started showing an interest in corporate securities. The concept of limited liability also put an appearance around this time.

• By 1875, an organization known as ‘The Native Share and Stock Brokers Association’ came into being. This was the predecessor of the BSE.

• In 1894, the Ahmedabad Stock Exchange came primarily to enable dealing in the shares of textile mills in the city.

Post-Independence (1947):

After India's independence in 1947, the stock market underwent changes to adapt to the new economic environment.

When Stock Market Started in India (1950s - 1960s)

• 1950s: Formal stock market trading continued to evolve in India, with several regional stock exchanges becoming operational. However, the market remained relatively small and primarily served the needs of British colonial authorities and their commercial interests.

• 1960s: During this decade, the Indian government introduced the Securities Contracts (Regulation) Act in 1956, providing the first legal and regulatory framework for stock exchanges and securities trading in India. This was a significant step in the development of the Indian stock market.

Who Started Stock Market in India (Late 20th Century)

• Late 20th Century: The late 20th century marked a significant transformation in the Indian stock market. In 1992, the National Stock Exchange (NSE) was established, introducing electronic trading and modern technology to the Indian stock market. It played a vital role in bringing transparency and efficiency to the market.

Nifty and Sensex (1990s)

• 1990s: The NSE introduced the Nifty 50 index, providing a benchmark for the performance of the Indian stock market. The Bombay Stock Exchange's Sensex (S&P BSE Sensex) also became a prominent stock market index tracking the top companies listed on the BSE.

Scams in Indian Share Market (1990s - 2000s)

• 1990s: This decade saw the infamous Harshad Mehta scam, which involved manipulation of the stock market using illegal funds. It raised questions about the need for regulatory oversight.

• Early 2000s: The Ketan Parekh scam was another significant event in Indian stock market history. It involved fraudulent trading practices and led to regulatory changes.

• 2008: The global financial crisis of 2008 had a substantial impact on the history of Indian stock exchange, causing a significant market correction.

Economic Reforms and Globalization (1991 - 21st Century)

• 1991: India initiated economic liberalization and reforms, attracting foreign investment, removing trade barriers, and privatizing state-owned enterprises. These reforms transformed the Indian economy and stock market.

• 21st Century: The Indian stock market continued to grow, attracting both domestic and international investors. It witnessed periods of bullish trends and corrections, reflecting economic conditions.

Demutualization and Regulatory Framework (Early 21st Century)

• Early 21st Century: Indian stock exchanges underwent demutualization, separating ownership and management. This made stock exchanges more competitive and efficient.

• Regulatory Framework: The Securities and Exchange Board of India (SEBI), established in 1988, continued to play a crucial role in regulating and supervising various aspects of the Indian stock market to ensure transparency and investor protection. In 2015, SEBI was merged with the Forward Markets Commission (FMC) to strengthen commodities market regulation, facilitate domestic and foreign institutional participation, and launch new products.

Online Trading and Technology Advancements (21st Century)

• 21st Century: The proliferation of online trading platforms, enabled by the internet and technological advancements, made it easier for investors to participate in the stock market.

Current State of Indian Stock Market

Today, the BSE’s market capitalization is likely to be around $3.8 trillion and the market capitalization of the NSE is estimated to be over $3.71 trillion.

The exchanges are still on parity in terms of share trading volumes. Nowadays, people can conduct online trading sitting in their homes. Facilities such as zero brokerage Demat and live updates are available.

Investor Education and Awareness (Ongoing)

• Ongoing: Various initiatives and awareness campaigns have been launched to educate investors about the stock market, risk management, and financial literacy.

The history of Indian stock market has come a long way from its early days as a small, informal trading platform to a sophisticated and well-regulated financial marketplace. It has played a critical role in India's economic development, providing opportunities for investors while facing challenges and setbacks that have led to improvements in regulatory and governance practices.

Frequently Asked Questions

When was the Indian stock market established?

The Bombay Stock Exchange (BSE), one of India's oldest stock exchanges, was founded in 1875. The National Stock Exchange (NSE) was established in 1992.

How has the Indian stock market evolved over the years?

The Indian stock market has evolved from open-outcry trading to electronic trading systems. It has also seen the introduction of derivatives trading, the adoption of SEBI (Securities and Exchange Board of India) regulations, and the development of more sophisticated financial instruments.

What are some of the key milestones in the Indian stock market's history?

Some important milestones include the establishment of the BSE, the liberalization of the Indian economy in the early 1990s, the introduction of NSE, and the implementation of electronic trading platforms.

Who regulates the Indian stock market?

The Indian stock market is regulated by SEBI (Securities and Exchange Board of India). SEBI is responsible for overseeing and regulating various aspects of the market to ensure transparency and investor protection.

What are some major stock market crashes in Indian history?

The Indian stock market has experienced significant crashes, including the 1992 Harshad Mehta scam, the 2000 dot-com bubble burst, and the global financial crisis in 2008. These events have shaped the market's regulatory environment and risk management practices.