Independence Day Celebrations: Indian Stock Markets’ Journey From Banyan Tree To Modern Milestones

India is celebrating its 76 years of Independence on Tuesday. The country has come a long way since its independence from British rule, and so have its stock markets. However, the journey was not smooth, and there have been several ups and downs. Many scams that shocked the markets, from the Harshad Mehta scam to the latest colocation scam, have threatened to hurt the credibility of the stock investing ecosystem, but market participants and regulators have learned from the past to strengthen the rules and trading processes to create a strong market ecosystem.

History Of Stock Trading In India

The history of stock trading in India goes back to the 18th century, when the East India Company started trading in loan securities. In the 1830s, corporate shares began trading in Bombay with the stock of banks and Cotton presses.

Stock exchanges in India started informally in the 1850s, when 22 stock brokers started trading opposite the Town Hall of Bombay under a banyan tree. The formal market for trading stocks started when the Companies Act, 1850 was passed.

In 1875, the group of traders, that had been informally trading formed the Native Share and Stockbroker’s Association, which later went on to become the Bombay Stock Exchange.

From 1890 to 1947, several other regional stock exchanges (RSEs) were established in Ahmedabad, Calcutta, Madras, Indore, Punjab, Uttar Pradesh, Nagpur, Hyderabad, and Delhi. In 1980s, other regional exchanges such as Cochin, Kanpur, Nagpur, Pune, Ludhiana, Guwahati, Mangalore, Patna, Jaipur, Bhubaneswar, Rajkot, Vadodara, and Coimbatore were also recognised. These exchanges were required to serve companies and investors in specific regions due to a lack of communication technology.

Indian Stock Markets Since 1947

Bombay Stock Exchange (BSE) is the first ever stock exchange in Asia, established in 1875. In 1957, it was granted permanent recognition under the Securities Contract Regulation Act, 1956.

After independence, the BSE dominated the volume of trading in Indian markets. However, the lack of transparency and unreliable clearing and settlement systems increased the need for a financial market regulator.

The Stock Exchange Sensitive Index, or Sensex, was launched in 1986, and the BSE National Index in 1989.

The Securities and Exchange Board of India (SEBI) was established in 1988 as a non-statutory body. It was granted statutory status by passing the SEBI Act on 30 January 1992.

In 1994, the National Stock Exchange (NSE) was launched to bring transparency to the stock market and compete with the BSE.

NSE started operations in the Wholesale Debt Market (WDM) space in 1994, equities in 1994, and the derivatives segment in 2000.

The BSE moved to an electronic trading system from an open-floor system in May 1995. However, the central government did not give it permission to expand nationwide until 1997. During these two years, NSE forged ahead to become the largest stock exchange in the country.

Post-independence, 23 stock exchanges were launched apart from BSE. Considering the pan-India operations of BSE and NSE since 1990s, regional stock exchanges became redundant and saw a shift of investors to larger exchanges. In 2012, SEBI finally introduced an exit plan for RSEs, bringing an end to their reign. Currently, there are seven recognised stock exchanges, including BSE, NSE, Calcutta Stock Exchange Ltd, Magadh Stock Exchange Ltd, Metropolitan Stock Exchange of India Ltd, India International Exchange (India INX), and NSE IFSC Ltd.

For more than two decades, the NSE has ruled the Indian stock market, accounting for 100 per cent of equity derivative volumes and around 80 per cent of cash trading volumes.

BSE is one of the world’s largest stock exchanges by market capitalization, with an estimated market cap of Rs 301 trillion as of July 2023.

However, while the recent collocation scam raises concerns over governance at the exchange, it cannot ignore the fact that the NSE has played a very crucial role in the growth of Indian stock market since 1993.

SEBI was merged with the Forward Markets Commission (FMC) in 2015 to reinforce commodities market regulation facilitate domestic and foreign institutional participation, and launch new products.

Recently, the BSE Sensex touched its new all time high of 67,619 and the NSE Nifty reached the brink of 20,000 level, touching 19,991.