History of the Indian Stock Market - The Origin

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure. The
East India Company was the dominant institution in those days and business in its loan
securities used to be transacted towards the close of the eighteenth century. By 1830's
business on corporate stocks and shares in Bank and Cotton presses took place in
Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers recognized by banks and merchants during 1840 and 1850.The 1850's witnessed
a rapid development of commercial enterprise and brokerage business attracted many
men into the field and by 1860 the number of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United
States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of
brokers increased to about 200 to 250. However, at the end of the American Civil War, in
1865, a disastrous slump began (for example, Bank of Bombay Share, which had touched
Rs2850/-, could only be sold at Rs.87/-).

At the end of the American Civil War, the brokers who thrived out of Civil War
in 1874, found a place in a street (now appropriately called as Dalal Street) where they
would conveniently assemble and transact business. In 1887, they formally established in
Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively
known as “The Stock Exchange"). In 1895, the Stock Exchange acquired a premise in the
same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was
consolidated.
 Following is the snap shot of History of Indian Stock Market

18th East India Company was the dominant institution and by end of the
Century century, busuness in its loan securities gained full momentum

1830's Business on corporate stocks and shares in Bank and Cotton presses
started in Bombay. Trading list by the end of 1839 got broader
1840's Recognition from banks and merchants to about half a dozen brokers
1850's Rapid development of commercial enterprise saw brokerage business
attracting more people into the business
1860's The number of brokers increased to 60
1860-61 The American Civil War broke out which caused a stoppage of cotton
supply from United States of America; marking the beginning of the
"Share Mania" in India
1862-63 The number of brokers increased to about 200 to 250

1865 A disastrous slump began at the end of the American Civil War (as an
example, Bank of Bombay Share which had touched Rs. 2850 could
only be sold at Rs. 87)

Pre-Independance Scenario - Establishment of Different Stock

Exchanges
1874 With the rapidly developing share trading business, brokers used to gather at
a street (now well known as "Dalal Street") for the purpose of transacting
business.
1875 "The Native Share and Stock Brokers' Association" (also known as "The
Bombay Stock Exchange") was established in Bombay
1880's Development of cotton mills industry and set up of many others
1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"
1880 - Sharp increase in share prices of jute industries in 1870's was followed by a
90's boom in tea stocks and coal
1908 "The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock Exchange" was
transacted with 100 brokers.
1923 When recession followed, number of brokers came down to 3 and the
Exchange was closed down
1934 Establishment of the Lahore Stock Exchange
1936 Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange
1937 Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.)
Limited led by improvement in stock market activities in South India with
establishment of new textile mills and plantation companies
1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited
was established
1944 Establishment of "The Hyderabad Stock Exchange Limited"
1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks
and Shares Exchange Limited" were established and later on merged into
"The Delhi Stock Exchange Association Limited". And also government

Post - Independence
1970 The only biggest names available in the market were TATA,

CAPITAL MARKET

Markets for long-term loan able funds and is different from money
market (short term funds).
The capital market consists of no. of individuals and institutions
that chanalise the demand and supply for long term capital
requirements.

The stock exchanges, commercial banks, co-operative banks,

development banks, insurance companies, investment trusts are
important constituents of Capital Market.

CAPITAL MARKET

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Suppliers of loan able Borrowers Intermediaries who
Funds deal with the lenders
and borrowers.

Demand of Fund Supply of Fund

Agriculture Individual Savings

 Industry Corporate Savings
Trade Institutional Investors
Government Government Surplus

Business firms can raise funds from the capital market by issuing
shares and credit instruments.

CAPITAL MARKET STRUCTURE

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 | | |
Recognized Stock Over the counter National Stock
Exchanges with Exchange of India Exchange
Trading Floors (Computer aided |
| trading with no \/
\/ trading floor) Over the counter
| Electronic Trading
\/ On a National
Principal Exchanges Trading in Network System
/\ Equity and
/ \ Debentures of
/ \ Selected
Attached Licensed companies.
Trading Dealers
Floors or
Sub-brokers
Trading in
Bonds, debentures,
equities.

RECENT DEVELOPMENTS

Stock Exchange, Investor Protection and SEBI

Stock Exchange:

A Market in which securities are bought and sold and it is an

essential component of a developed capital market.

It brings together large amounts of capital necessary for the

economic progress of the country.

Features :

1) Organized securities market which can provide sufficient

marketability and price continuity for shares.

2) Provides reasonable measure of safety and fair dealing in the

buying and selling of securities.

3) Helps in a reasonably correct evaluation of securities in terms

of their real worth.

DEALING ON STOCK EXCHANGE

Two types of Trading in Stock Exchange

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Ready Delivery Contract Forward Delivery Contract

Cash trading or |
Cash transactions \/
(Immediately or a Fixed settlement days
period up to 7 days)

Immediately ------
Spot delivery
contract.

SPECULATIN ON THE STOCK EXCHANGE

Stock Exchange transactions are made either for the purpose of
investment or for speculation.

Speculators
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Bull Bear Stag
Basically plays on IPO’s

INVESTOR PROTECTION AND SEBI

SEBI ------ To monitor and regulate Capital Market activities and

to promote healthy development of the market.
----- Constituted in 1988.

OBJECTIVE OF SEBI:

To protect the interests of investors in securities and to promote the

development of the securities market.

ROLE :

1) To regulate the business in stock exchanges and other

securities market.
2) Registering and regularizing the working of stock brokers,
sub-brokers, share transfer agents, merchant banker,
underwriters, portfolio managers, investment advisors and
other intermediaries who are associated with securities
market.
3) Registering and regulating the working of mutual funds.
4) Prohibiting fraudulent and unfair trade practices in securities
market.
5) Prohibiting insider trading in securities.
6) Regulating substantial acquisition of shares and take-over of
companies.
7) Conducting audits of the stock exchanges and self-regulatory
organizations in the securities market.