Indian stock market trading in the early days is not very different from its busy modern days. In the 18th century, the East India Company needed cash to keep up with their spice business. So, they introduced the concept of owning shares. Little pieces of company ownership were offered to those interested in investing, promising higher returns when the company performed well. 

In this blog, let’s explore how it all started. 

A Brief History of the Indian Stock Market

In the mid-1800s, brokers entered the scene and conducted transactions under banyan trees. These deal negotiations and information exchanges gained popularity as more and more people wanted to own company shares. By 1875, the market became more formalised with the launch of the Native Share and Brokers Association, which later became the legendary Bombay Stock Exchange (BSE) we know now. It is one of the oldest stock exchanges in Asia. 

After India’s freedom in 1947, numerous economic reformations were made, including establishing the Capital Issues Control Act (CICA) to regulate capital issues. This act ensured fair practices in the stock market. After the Securities Contracts Regulation Act in 1956, stock trading became more formal.

Due to a lack of transparency in stock settlements, the Securities and Exchange Board of India (SEBI) was established and given statutory power in 1992. The National Stock Exchange (NSE) was formed the same year. 

The Harshad Mehta scandal exposed the limitations of the manual trading system, leading to the establishment of the NSE in 1992 with a focus on transparency and automation. In 1994, the NSE implemented a fully automated screen-based electronic trading system. Nifty 50, the benchmark of the Indian stock market index, was created with a base value of 1000. 

The most recognised stock exchanges in India are:

  1. Bombay Stock Exchange (BSE)
  2. National Stock Exchange (NSE)
  3. Multi Commodity Exchange
  4. National Commodity & Derivatives Exchange 

Role of SEBI in the Indian Stock Market

In the stock market ecosystem, SEBI is a crucial entity. It regulates and facilitates multiple trading activities. SEBI introduces many reformations from time to time to improve transparency and corporate governance. The key responsibility is to safeguard investor interests. The stock exchanges organise trades, but all the participants must seek SEBI approval to keep the stock market transparent. 

The objectives of SEBI are:

  • Investor protection –  To protect the interests of investors, SEBI has mandated all registered entities to offer accurate and timely information about security investments. This is to prevent unfair and fraudulent trade practices. 
  • Regulating securities market – SEBI develops regulations to govern multiple players like stock exchanges, brokers, and listed companies. 
  • Preventing insider trading – SEBI imposes stringent regulations on insider trading to prevent individuals from conducting insider trading with non-public information. It levels the playing field for all. 
  • Preventing fraud – SEBI takes strict actions against fraud and unfair trade practices. It can implement corrective measures to ensure market integrity. 
  • Secondary market development – SEBI creates reforms and initiatives from time to time for the secondary market to improve liquidity and efficiency. This secondary market also contributes to capital market growth. 

Conclusion

From humble beginnings under a banyan tree, the Indian stock market has blossomed into a global powerhouse. The Bombay Stock Exchange’s (BSE) 1875 founding marked the start, and today, technology and regulation guide a market facilitating long-term investment and economic growth.

FAQs

What was a major milestone for modern trading?

In 1995, the BSE introduced the BSE On-Line Trading (BOLT) system, a significant step towards electronic trading.

Is investing in the share market risky?

Yes, all share market investments are risky. Depending on your investment vehicle, the risk may be higher or lower. Remember, high-risk equities offer higher returns. Always ensure that you invest according to your risk tolerance.

Can I earn a fixed income from the share market?

No, the share market itself doesn’t offer fixed income. While companies may pay dividends, they aren’t guaranteed and can fluctuate.