Introduction Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).Let us take an example for a better understanding of how market forces determine stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. More and more people would want to buy this stock (i.e. high demand) and very few people will want to sell this stock at current market price (i.e. less supply). Therefore, buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its price will fall down. In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investors dont have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.
History of the Indian Stock Market - The OriginOne of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.
18th Century
East India Company was the dominant institution and by end of the 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 - 90's
Sharp increase in share prices of jute industries in 1870's was followed by a 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"
Post Independance ScenarioThe depression witnessed after the Independance led to closure of a lot of exchanges in the country. Lahore Estock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act were:
Bombay
Calcutta
Madras
Ahmedabad
Delhi
Hyderabad
Bangalore
Indore Many more stock exchanges were established during 1980's, namely:
Cochin Stock Exchange (1980)
Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
Pune Stock Exchange Limited (1982)
Ludhiana Stock Exchange Association Limited (1983)
Gauhati Stock Exchange Limited (1984)
Kanara Stock Exchange Limited (at Mangalore, 1985)
Magadh Stock Exchange Association (at Patna, 1986)
Jaipur Stock Exchange Limited (1989)
Bhubaneswar Stock Exchange Association Limited (1989)
Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
Vadodara Stock Exchange Limited (at Baroda, 1990)
Coimbatore Stock Exchange
Meerut Stock Exchange At present, there are twenty one recognized stock exchanges in India which does not include the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL). Government policies during 1980's also played a vital role in the development of the Indian Stock Markets. There was a sharp increase in number of Exchanges, listed companies as well as their capital, which is visible from the following table:
S. No.
As on 31st December
1946
1961
1971
1975
1980
1985
1991
1995
1
No. of Stock Exchanges
7
7
8
8
9
14
20
22
2
No. of Listed Cos.
1125
1203
1599
1552
2265
4344
6229
8593
3
No. of Stock Issues of Listed Cos.
1506
2111
2838
3230
3697
6174
8967
11784
4
Capital of Listed Cos. (Cr. Rs.)
270
753
1812
2614
3973
9723
32041
59583
5
Market value of Capital of Listed Cos. (Cr. Rs.)
971
1292
2675
3273
6750
25302
110279
478121
6
Capital per Listed Cos. (4/2) (Lakh Rs.)
24
63
113
168
175
224
514
693
7
Market Value of Capital per Listed Cos. (Lakh Rs.) (5/2)
86
107
167
211
298
582
1770
5564
8
Appreciated value of Capital per Listed Cos. (Lak Rs.)
358
170
148
126
170
260
344
803
Trading Pattern of the Indian Stock MarketIndian Stock Exchanges allow trading of securities of only those public limited companies that are listed on the Exchange(s). They are divided into two categories:
Types of TransactionsThe flowchart below describes the types of transactions that can be carried out on the Indian stock exchanges:
Indian stock exchange allows a member broker to perform following activities:
Act as an agent,
Buy and sell securities for his clients and charge commission for the same,
Act as a trader or dealer as a principal,
Buy and sell securities on his own account and risk.
Over The Counter Exchange of India (OTCEI)Traditionally, trading in Stock Exchanges in India followed a conventional style where people used to gather at the Exchange and bids and offers were made by open outcry.This age-old trading mechanism in the Indian stock markets used to create many functional inefficiencies. Lack of liquidity and transparency, long settlement periods and benami transactions are a few examples that adversely affected investors. In order to overcome these inefficiencies, OTCEI was incorporated in 1990 under the Companies Act 1956. OTCEI is the first screen based nationwide stock exchange in India created by Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services.
Advantages of OTCEI
Greater liquidity and lesser risk of intermediary charges due to widely spread trading mechanism across India
The screen-based scripless trading ensures transparency and accuracy of prices
Faster settlement and transfer process as compared to other exchanges
Shorter allotment procedure (in case of a new issue) than other exchanges
National Stock ExchangeIn order to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others. NSE provides exposure to investors in two types of markets, namely:
Wholesale debt market
Capital market Wholesale Debt Market - Similar to money market operations, debt market operations involve institutional investors and corporate bodies entering into transactions of high value in financial instrumets like treasury bills, government securities, commercial papers etc.Trading at NSE
Fully automated screen-based trading mechanism
Strictly follows the principle of an order-driven market
Trading members are linked through a communication network
This network allows them to execute trade from their offices
The prices at which the buyer and seller are willing to transact will appear on the screen
When the prices match the transaction will be completed
A confirmation slip will be printed at the office of the trading member Advantages of trading at NSE
Integrated network for trading in stock market of India
Fully automated screen based system that provides higher degree of transparency
Investors can transact from any part of the country at uniform prices
Greater functional efficiency supported by totally computerized network
History of the Indian Stock Market - The OriginOne of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.
18th Century
East India Company was the dominant institution and by end of the 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 - 90's
Sharp increase in share prices of jute industries in 1870's was followed by a 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"
Post Independance ScenarioThe depression witnessed after the Independance led to closure of a lot of exchanges in the country. Lahore Estock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act were:
Bombay
Calcutta
Madras
Ahmedabad
Delhi
Hyderabad
Bangalore
Indore Many more stock exchanges were established during 1980's, namely:
Cochin Stock Exchange (1980)
Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
Pune Stock Exchange Limited (1982)
Ludhiana Stock Exchange Association Limited (1983)
Gauhati Stock Exchange Limited (1984)
Kanara Stock Exchange Limited (at Mangalore, 1985)
Magadh Stock Exchange Association (at Patna, 1986)
Jaipur Stock Exchange Limited (1989)
Bhubaneswar Stock Exchange Association Limited (1989)
Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
Vadodara Stock Exchange Limited (at Baroda, 1990)
Coimbatore Stock Exchange
Meerut Stock Exchange At present, there are twenty one recognized stock exchanges in India which does not include the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL). Government policies during 1980's also played a vital role in the development of the Indian Stock Markets. There was a sharp increase in number of Exchanges, listed companies as well as their capital, which is visible from the following table:
S. No.
As on 31st December
1946
1961
1971
1975
1980
1985
1991
1995
1
No. of Stock Exchanges
7
7
8
8
9
14
20
22
2
No. of Listed Cos.
1125
1203
1599
1552
2265
4344
6229
8593
3
No. of Stock Issues of Listed Cos.
1506
2111
2838
3230
3697
6174
8967
11784
4
Capital of Listed Cos. (Cr. Rs.)
270
753
1812
2614
3973
9723
32041
59583
5
Market value of Capital of Listed Cos. (Cr. Rs.)
971
1292
2675
3273
6750
25302
110279
478121
6
Capital per Listed Cos. (4/2) (Lakh Rs.)
24
63
113
168
175
224
514
693
7
Market Value of Capital per Listed Cos. (Lakh Rs.) (5/2)
86
107
167
211
298
582
1770
5564
8
Appreciated value of Capital per Listed Cos. (Lak Rs.)
358
170
148
126
170
260
344
803
Trading Pattern of the Indian Stock MarketIndian Stock Exchanges allow trading of securities of only those public limited companies that are listed on the Exchange(s). They are divided into two categories:
Types of TransactionsThe flowchart below describes the types of transactions that can be carried out on the Indian stock exchanges:
Indian stock exchange allows a member broker to perform following activities:
Act as an agent,
Buy and sell securities for his clients and charge commission for the same,
Act as a trader or dealer as a principal,
Buy and sell securities on his own account and risk.
Over The Counter Exchange of India (OTCEI)Traditionally, trading in Stock Exchanges in India followed a conventional style where people used to gather at the Exchange and bids and offers were made by open outcry.This age-old trading mechanism in the Indian stock markets used to create many functional inefficiencies. Lack of liquidity and transparency, long settlement periods and benami transactions are a few examples that adversely affected investors. In order to overcome these inefficiencies, OTCEI was incorporated in 1990 under the Companies Act 1956. OTCEI is the first screen based nationwide stock exchange in India created by Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services.
Advantages of OTCEI
Greater liquidity and lesser risk of intermediary charges due to widely spread trading mechanism across India
The screen-based scripless trading ensures transparency and accuracy of prices
Faster settlement and transfer process as compared to other exchanges
Shorter allotment procedure (in case of a new issue) than other exchanges
National Stock ExchangeIn order to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others. NSE provides exposure to investors in two types of markets, namely:
Wholesale debt market
Capital market Wholesale Debt Market - Similar to money market operations, debt market operations involve institutional investors and corporate bodies entering into transactions of high value in financial instrumets like treasury bills, government securities, commercial papers etc.Trading at NSE
Fully automated screen-based trading mechanism
Strictly follows the principle of an order-driven market
Trading members are linked through a communication network
This network allows them to execute trade from their offices
The prices at which the buyer and seller are willing to transact will appear on the screen
When the prices match the transaction will be completed
A confirmation slip will be printed at the office of the trading member Advantages of trading at NSE
Integrated network for trading in stock market of India
Fully automated screen based system that provides higher degree of transparency
Investors can transact from any part of the country at uniform prices
Greater functional efficiency supported by totally computerized network
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