Daulat Ram College, University of Delhi
The stock market or the share market represents the ownership claim of a business. This can be done through securities and stocks that are shares of private companies being sold to investors through platforms of equity crowdfunding. This is mostly done through stock brokerages and electronic trading platforms.
The stock exchange is nothing but an exchange market where traders and stockbrokers can buy and sell equity stock, shares as well as other securities. Companies list their stock in the exchange and hence this makes trading more liquid and easy for the investors. The two main exchange markets are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The BSE was founded in the year 1875 and the NSE was founded in the year 1992.
The history of security trading in India takes us to the 18th century when the East India Company began trading in loan securities. In the 1830s corporate shares were started in trading along with cotton presses. It was a very simple and kind of informal beginning for the stock exchange in India as it started under a banyan tree in Bombay (Mumbai) with only 22 stock brokers. A decade later it shifted to Meadows Street Junction and the shift continued to take place as the number of stockbrokers increased and settled in Dalal Street. This was known as the Native Share and Stockbrokers Association and in 1875, it was renamed the Bombay Stock Exchange. It is the oldest in Asia and is also the first one which got permanent recognition by the Securities Contract Regulation Act 1956. After BSE, Ahmedabad Stock Exchange was founded in 1894 which mainly focused on the trading of shares of textile mills. Then, the Calcutta Stock Exchange began operations in1908 and it focused on the trading of shares of plantations and jute mills.
After independence, the volume of trading was dominated by the BSE. But there was a high need for market regulators because the BSE being the sole body had a very low level of transparency and undependable clearing systems and other important factors. This was when The Securities and Exchange Board of India (SEBI) was founded in the year 1988 as a non-statutory body and it was made statutory in the year 1992.
After the Harshad Mehta Scam in the year 1992, it was realized that there is a need for another stock exchange that is large enough to compete with the BSE and which can bring clarity and transparency in the stock market. This gave rise to the National Stock Exchange (NSE) in 1992. It got recognized as a stock exchange in the year 1993 and thereafter trading began in 1994. NSE was the first stock exchange to perform trading electronically. In response to this initiative, BSE also introduced an electronic trading system, and it was called BSE On-Line Trading (BOLT) in the year 1995.
The Sensex was first introduced in 1986 by the Bombay Stock Exchange as the sensitivity index and it had an index of 30 companies. It measured the overall performance of the exchange. Equity Derivatives was launched in the year 2000 and Index as well as stock options in 2001. Also India’s first free float index, BSE Teck was launched in the same year 2001.
The National Stock Exchange introduced its exchange milestone as the CNX Nifty, which is now known as the Nifty 50, in 1996. NSE has 50 stocks registered and it functions as the overall performance measure of the exchange.
The BSE and the NSE are not the only stock exchanges in our country. After the independence, there were about 23 stock exchanges registered but at present, there are only 7 stock exchanges that are recognized by SEBI. Apart from NSE and BSE, there are Calcutta Stock Exchange Ltd, Magadh Stock Exchange of India Ltd, Metropolitan Stock Exchange of India Ltd, India International Exchange (India INX), and NSE IFSC Ltd. All the others that were once functioning were granted exit by SEBI.
At the initial stage, the East India Company had floated shares through a very small group of sharebrokers. Eventually, the number increased and the Bombay Stock Exchange became the leading and organized stock exchange in India. Due to certain developments in the political field, the share investment grew drastically afterward. Calcutta (now Kolkata) also became one of the major trading hubs. Due to the epic industrial development after the independence, there was drastic growth in the number of investments undertaken and that was when two more stock exchanges, one in Hyderabad and the other in Delhi were established.
There were differences in the pattern of investments in the pre-independence and post-independence eras. Before independence, the managing system in the country was not so reliable and transparent in its actions. There were a limited number of companies and the Britishers were mostly interested in the growth of companies in London. There was also no guiding agency for the common mass that would have helped in promoting investments. The public was most interested in investing gold and ornaments than any company securities. After independence, the Indian government took up measures to promote investments. Two important acts were passed- Indian Companies Act 1956 and Securities Contract and Regulations Act 1956. Hence there was a steady growth in the Indian capital market. The risk of the investors was also safeguarded through the acts.
The stock market enables different companies to trade and raise capital and promotes investments. The raising of capital enables the companies to undertake investments and expand their business operations and henceforth create employment in the economy. Stock ownership mostly helps in monetary growth. In the long-run period, there is a benefit of investing in stocks than holding money in lower return assets. Trading in a variety of stocks helps the investors to spread the risk through different assets and hence give a positive return in the portfolio.