History of The Indian Stock Exchange

INDIAN STOCK EXCHANGE. A few men, started one association under a banyan tree for trading some commodity/security in 1875 !! Who knew at that time that it would grow and would become NSE/BSE? Interesting? 

Read some finest events and milestones of Indian Stock Exchange.

To study the history of the capital market in India we have to look back in eighteenth century when East India Company started security trading in India. Security trading in India was unorganised during that time. Until the end of nineteenth century, scene was same. Two chief trading centres were Calcutta and Bombay now known as Mumbai and Kolkata. (It has to be mentioned, if you do not want apologize later). Out of them Bombay was main trading port. During American civil war (1860), Bombay was at important centre where essential commodities were traded. Because of heavy supply those days prices of stocks enjoyed boom period. Probably, the first Indian stock exchange boom period. It lasted for almost 5 years. After those booming period Indian stock exchange faced the first bubble burst on July 1st 1965. 

During that time trading in stock market was just a concept, a thought, an idea. It was limited to 12-15 brokers only. There market was situated under a banyan tree in front of the Town hall in Bombay. These brokers organised an association, of course informal in nature, in 1875. Name of the association was “Native Shares and Stock Broker Association”. Very few visionary could feel that it was starting of the great history of Indian stock exchange. After 5 decades of the incidence, the Bombay stock exchange was recognized in May 1927 under the Bombay Security contracts Control Act, 1925. But still the exchange was not well organised as British Government was not willing to see India as rising nation.

After independence, 1st priority of Indian government was development of the agriculture sector and public sector undertakings. Public sector undertakings were healthier for sure but they were not listed in stock exchange. In first and second five year plan, capital market was not a goal for Indian government. Moreover, the controller of capital issues closely controlled many factors for new issues. It was one reason and big enough to de-motivate Indian corporate to stay away from the idea of going public.

In 1950s, some good companies listed in the exchange were brokers’ favourite. Some of them were Century Textile, Tata steel, Bombay dyeing, Kohinoor mills. They were favourite not because of any technical or fundamental reason. The brokers enjoyed trading in these scripts as it was operated by operators. Slowly the stock exchange was given one new name “Satta Bazaar”! But surprisingly, despite of speculation, defaults cases were very few. In 1956, the government passed the Securities Contract Act.

In 1960s, Indo China war happened. And it was starting of bearish phase in stock exchange. This bearish trend was aggravated by the ban in 1969 on forward trading and badla. Badla was technically contracts for clearing. Financial institutes helped to boost the sentiment by injecting liquidity in the market. In 1964, the first Indian mutual fund came in market, named the Unit Trust Of India.

In 1970s , badla trading was resumed again under another form of hand delivery contracts. But in 1974, 6th of July was the day when capital market got one bad news. Government introduced the Dividend Restriction Ordinance; this rule was restricting the payment of dividend by companies to 12 per cent of the face value or one-third of the profits of the companies that can be distributed. (Whichever was lower.)!! Stock market crashed again. Stocks went down by 20% and the market was closed for nearly a fortnight. The sentiment of stock market was same until the optimism came in market with when the MNCs were forced to dilute majority stocks in their company in favour of Indian public. Many MNCs left India. But 123 MNCs offered shares were lower than its intrinsic value. It was the first time Indian public had opportunity to invest in some of the finest MNCs. In 1977, Mr Dhirubhai Ambani knocked the door of Indian stock exchange and it was probably the turning point not only for Indian stock exchange but for Indian economy.

In 1980s, Indian stock exchange witnessed blasting growth period. Indian public discovered lucrative opportunities in stock exchange. It was the time when people who did not even know what is stock exchange, investing in the same. The growth doubled with the government liberalization process in mid 1980s. It was the time when convertible debentures and public sector bonds were popular in market. New stock market entries like Reliance and LNT re-defined Indian stock market scenario. Such factors enlarged volume in stock exchange. 1980s can be characterized by huge increase in the number of stock market, listed companies and market capitalisation.

The 1990s can be described as the most important decade in the history of Indian stock market. Everyone was talking about liberalisation and globalisation. The Capital Issue Act of 1947 was replaced in 1992. SEBI was emerged as a new regulator of the market. FII is coming to India and re-rating India as one of the most attractive market in world. Number of new stock exchanges was rising in county. Private sector mutual funds were welcome in market. Some very big scams of Indian scam history took place in 1990s. The impact of such incidence was very deep. Indian investors drove their money out of market for some years. Positive side , these scams opened Indian government eyes. New technology new systems were introduced in Indian stock exchange. The Bombay stock exchange had two new competitors in market. OTC was established in 1992 and NSE was established in 1994. The national security clearing corporation (NSCC) and National securities depository Limited (NSDL) were established in 1995 and 1996 respectively. In 1995—1996 Option trading service was started. Rolling settlement was introduced in India in early 1998. Number of participation in stock exchange was rising with new segments for trading, new products and new technology. 1990s is known as era of Indian IT companies too. Wipro, Infosys, Satyam were some of the favourite stocks. Telecom and Media sector also rising during the same time.

Indian market welcomed Y2K with scam of Ketan Parekh. After that scam Badla system was banned in Indian market and rolling settlement was introduced in all scripts. Future trading was started in June 2000. In February 2000, Internet trading was permitted, all these events changed picture of old stock market. In 2001, UTI suspension of sale and re-purchase of its famous scheme US-64. It created panic in market. One big incidence of VSNL disinvestment took place in February 2002. In 2003, the government took decision to privatize PSU banks and it was market buster again. In 2000s, FII money started coming in Indian market like never before. NSE volume crossed BSE volume during the same time. Global meltdown hit Indian market in late 2007 and throughout 2008. Big Satyam Scam was exposed in 2008 again and it hit investor’s spirit badly. Since 2nd quarter of 2009 we have been watching up move trend for market again, after positive election result in India. Investors are again coming in market. Same happened after Modi win.

It has been a long volatile journey for the Indian capital market. Now the capital market is organized, matured, fairly valued, nicely regulated and more global. The Indian market is one of the most attractive markets today which gives stable high rate of return compared to other countries. In terms of technology Indian equity market is one of the best in the world too. Computer and telecom sector advances and Internet is shattering geographic boundaries. Internet is giving wide range of investors and Internet is also used to provide better level of information. The best example, we can say because of Internet I am able to write this article and you are reading this article on this site.

If you like the article, do not forget to give your valuable comment for the same. Stay with us for more on Indian stock market.

Buying Strategy for Small Caps

1. Go for companies with low debt ratio (preferably less than one)

2. A high interest coverage ratio (above 3x) and a high return on equity are big advantages

3. Avoid companies with huge liabilities in the form of foreign currency convertible bonds / external commercial borrowings

4. Look at the quality of the management, its governance standards and how investor-friendly the company is.

5. Mid-cap and small-cap companies can be future market leaders, so be patient with your investments

Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run.

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years, you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up giving maximum gains to early entrants.

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies.

Concerns while Investing in Small Caps

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one should not depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

Technical Analysis Of Nifty50 (21-2-16)

Technical Analysis Of Nifty50 :

Buy Nifty For A Target Of 7405. Stoploss At Your Own Risk Levels.

DISCLAIMER:

Investing and Trading in any equity,future,gold,silver,forex and crude-oil is risky. My recommendations are technical analysis based on & conceived from charts. The information provided is not guaranteed as to accuracy or completeness. This is my personal view only.

Please consult your adviser or consultant or analysts before investing and/or trading. We assume no responsibility for any transactions undertaken by them. The author won't be liable or responsible for any legal or financial losses made by any.