History of Indian Stock Markets
The Indian stock market traces its history back to the late 18th century when the trading floor was under the shade of a sprawling banyan tree opposite the Town Hall in Mumbai. A few people would meet under this tree to informally trade in cotton. This was mainly due to the fact that Mumbai was a busy trading port and essential commodities were traded here often.
The Companies Act was introduced in 1850 following which investors started showing an interest in corporate securities. The concept of limited liability also put in an appearance around this time.
By 1875, an organization known as ‘The Native Share and Stock Broker’s Association’ came into being. This was the predecessor of the BSE .
In 1894, the Ahmedabad Stock Exchange came into being primarily with the objective of enabling dealing in the shares of textile mills in the city.
The Calcutta Stock Exchange was formed in 1908 with the intention of facilitating a market for shares of plantations and jute mills.
It was in 1920 that the Madras Stock Exchange took shape.
In 1957, the BSE was the first stock exchange to be recognized by the Government of India under the Securities Contracts Regulation Act. The SENSEX was launched in 1986 followed by the BSE National Index in 1989.
The Securities and Exchange Board of India (SEBI) was constituted in 1988 to monitor and regulate the securities industry and stock exchanges. In 1992 it became an autonomous body with completely independent powers. In 1992, the NSE was formed as the first demutualised electronic exchange in the country with the intention of ensuring transparency in the markets. NSE began operations in the Wholesale Debt Market (WDM) segment in 1994, the equities segment in 1994, and the derivatives segment in 2000.
It was in 1995 that the BSE made the switch to an electronic system of trading from the open-floor system. In 2015, SEBI was merged with the Forward Markets Commission (FMC) with the aim of strengthening regulation of the commodities market, facilitating domestic and foreign institutional participation, and launch of new products.
Indices:
SENSEX: The base value of the SENSEX was taken as 100 on 1 April 1979 and its base year as 1978–On 25 July 2001
Calculation of SENSEX
SENSEX has adopted the market capitalization weighted method in which weights are assigned according to the size of the company. Larger the size, higher the weightage.
Now, the total value of market shares at the time of creation of index is assumed to be 100 points. This is for the purpose of logically representing the change in terms of %. So, if the market capitalization moves up 10%, the index also moves 10% to 10.
Now let’s say, there is a single stock in the market. The base value is set to 100, and let’s assume
that the stock is currently trading at 200. Tomorrow if the price of the stock is 260, the increase in
price is 30%. Hence, the index will move from 100 to 130, indicating a 30% growth. Now if the stock price comes down to 208, then that’s 20% fall from 260. Thus, to indicate the fall, the SENSEX will be corrected from 130 to 104.
For eg: SENSEX index as of 19th June was 26,625.91, which means that the change in the value of index over the previous day (18th June) was 0.38%.
#NIFTY:The Nifty 50 index was launched on 22 April 1996.The base value of the index has been set at 1000 .
Calculation of NIFTY
NIFTY is calculated using the same methodology adopted by the Bombay Stock Exchange in calculating the SENSEX. However, there are three basic differences:
The base year taken is 1995 (SENSEX is 1979)
The base value is 1000 (SENSEX is 100)
NIFTY is calculated on 50 active stocks traded in the NSE (SENSEX is calculated on 30)
Apart from this Nifty Next 50,Nifty 100,Nifty 200,Nifty500 indices give idea of broader markets.
Also to understand how each sector of the stock market is doing, there are sectoral indices such as Nifty Bank. Nifty Auto etc.
BSE has 5000+ companies listed & NSE has 2000+ companies listed on it.
Stock brokers are intermidiateries between Exchange & customers.
There are over three hundred stockbrokers in India registered with SEBI and different stock exchanges. Even on National Stock Exchange (NSE), there are 120 registered stockbrokers in India as of 30th April 2020 .
In a latest development exchanges are thinking of giving DMA(Direct Market Access) facility to retail customers.
In global context ,the entire global market capitalization is around $86.99 Trillion* , US stands at $29.34 Trillion .India’s contribution to the total world market cap is currently at 2.18% while it was 2.97% in beginning of 2019 and slipped to the eighth rank among the top equity markets by m-cap after recent correction. So ‘miles to go ..’ for Indian equity market.
*source: Live mint(25 Apr 2020 )
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