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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 Origin
One 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
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 Scenario
The 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:
1. Bombay
2. Calcutta
3. Madras
4. Ahmedabad
5. Delhi
6. Hyderabad
7. Bangalore
8. Indore
Many more stock exchanges were established during 1980's, namely:
1. Cochin Stock Exchange (1980)
2. Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
3. Pune Stock Exchange Limited (1982)
4. Ludhiana Stock Exchange Association Limited (1983)
5. Gauhati Stock Exchange Limited (1984)
6. Kanara Stock Exchange Limited (at Mangalore, 1985)
7. Magadh Stock Exchange Association (at Patna, 1986)
8. Jaipur Stock Exchange Limited (1989)
9. Bhubaneswar Stock Exchange Association Limited (1989)
10. Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
11. Vadodara Stock Exchange Limited (at Baroda, 1990)
12. Coimbatore Stock Exchange
13. 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