We people are living in the modern age of advanced technological developments in various fields, enjoying comforts. Usually all the common people, while the First time hearing about the word, Stock Market, would feel disgusted, as if it is a Gambling Market.
It is not like participating in “Horse racing” a type of Gambling. Naturally Gambling involves some tricky methods unknown visually for making a success. Here Stock market contains many Scientific Analytical concepts with Historically recorded data’s varying time to time.
After obtaining some knowledge anyone can realize that in no way it is related with gambling is prudent.
Many people to acquire profitable money gains would desire to enter the Stock Market. But difficult to understand is the main problem, creating an Impediment in the minds of several common people.
Even a school student with basic knowledge of Mathematics can be able to understand and enter the Stock market as termed by Warren Buffett.
What is a Stock Market ?. What is happening day-by-day ? It’s a Million Dollar question in the minds of Common People.
STOCK EXCHANGE :-
We buy Vegetables in the Market, likewise to buy and sell Shares or Stocks a place is required namely “Stock Market”. Simply saying STOCKS OF, NUMBER ( 1000’s) OF COMPANIES LISTED IN THE STOCK MARKET, WHOSE STOCKS WOULD BE BOUGHT AND SOLD BY PEOPLE FREQUENTLY ( Intra-day – Daily, BTST – Buy Today sell Tomorrow, Weekly, Monthly, Yearly, etc…, ) is called Stock Market.
In the Vegetable market we purchase in kilograms whereas stocks are purchased in No’s and Lots etc…
Moreover a Stock Exchange, can also be detailed as an Organized place or market where listed securities are traded .The securities contracts (regulation) Act, 1956 defines it as an Association, Organization or Body of Individuals, whether incorporate or not, established for the people of assisting, regulating and controlling business in buying, selling, and dealing in Securities.
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 ).
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 don’t have to gather at the Exchanges, and can trade freely from their home or office over the phone, mobile phones or through Internet.
Let us take an example for a better understanding of how market forces determines 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.
# What is the purpose of Stock Market ?
To acquire Profitable Monetary Gains, possible, than all other type of Investments.
# Why people should enter the Stock Market ?
Today Indian Economy is rapidly growing. Due to its rapid growth the Gap between the Productivity and Consumption increases more. Cost of Food products, home rental, Residential plots, all necessary ingredients are rising day-by-day.
For example last year a material costing Rs.10 today costs Rs.11. i.e. 10 % increase in cost. This is called Inflation. If a person is investing in any type of Scheme he should expect a return beating the Inflation.
For example Rs.1,00,000/- is deposited in a Bank as Fixed Deposit. Annual interest 8 % will be given. While compared to 10 % Inflation a loss of 2 % occurs. If 12 % interest is assured, then subtracting from 10 % inflation, 2 % gain may be obtained. But more or less no Banks are offering 12 % interest. ( More than 12 % interest are fixed for various types of Loans in Banks, but not for Savings.)
Beating the inflation a better investment can be Share linked Investment, recognized all over the World. Investing in Right Stocks for Long Term investments can truly produce a growth than the inflation. This is the main reason to enter Stock market.
BRIEF HIGHLIGHTS OF THE ORIGIN HISTORY OF INDIAN STOCK MARKET
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, business 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)
BRIEF HIGHLIGHTS OF ESTABLISHMENT OF DIFFERENT STOCK EXCHANGES BEFORE INDEENDENCE
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 with100 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"
Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was closed during partition of the country and later migrated to Delhi and merged with Delhi Stock Exchange.
Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.
Most of the other exchanges languished till 1957 when they applied to the Central Government for recognition under the Securities Contracts (Regulation) Act, 1956.
Only Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hyderabad and Indore, the well established exchanges, were recognized under the Act. Some of the members of the other Associations were required to be admitted by the recognized stock exchanges on a concessional basis, but acting on the principle of unitary control, all these pseudo stock exchanges were refused recognition by the Government of India and they thereupon ceased to function.
The depression witnessed after the Independence led to closure of a lot of exchanges in the country. Lahore stock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange.
Bangalore 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.
Thus, during early sixties there were eight recognized stock exchanges in India (mentioned above). The number virtually remained unchanged, for nearly two decades.
During eighties, however, many stock exchanges were established:
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)
and of later established exchanges were –
1. Coimbatore and
2. Meerut.
Thus, at present, there are totally twenty one recognized stock exchanges in India excluding the
1. Over The Counter Exchange of India Limited ( OTCEI ) and the
2. National Stock Exchange of India Limited ( NSE ).
Government policies during 1980's also played a vital role in the development of the Indian Stock Markets.
The Table given below portrays the overall growth pattern of Indian stock markets since independence. There was a sharp increase in number of Exchanges, which is visible from the given table:
It is quite evident from the Table that Indian stock markets have not only grown just in number of exchanges, but also in number of listed companies and in capital of listed companies.
The remarkable growth after 1985 can be clearly seen from the Table, and this was due to the favoring government policies towards security market industry.
GROWTH PATTERN OF THE INDIAN STOCK MARKET
Sl.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
|
HISTORY OF STOCK MARKET :
The real Origin of stock market is obscure. In 11th Century Cairo ( Capital of Present Egypt ) situated in Africa the Transactions between Jude’s and Mohall Traders may be the root cause of Stock market. Majority of the information’s indicates that 12 th Century in France would be the formation of Stock market.
During that period the Loans given to the Farmers were regularized by appointing some people in Commission basis. They were called “Brokers”. Brokerage business started in this manner.
In 1309 at Belgium in Western Europe, several Traders gathered in a House of a person named “Van Derbures”. The news spread throughout in other countries and meetings in various places taken place, for trade.
In middle of 13 th century, Banking People bought and sold Government Debt Instruments. By 14 th century buying and selling of Government Debt Instruments spread throughout parts of Italian Countries.
Later Dutch people introduced a company named “JOINT STOCK”. The Investors bared the Profits and Loss occurred in those companies. In 1602 Dutch East India Company published the First Stock in Amsterdam Stock Exchange( Holland – Western Europe).Stocks and Debt Instruments were also introduced by the same stock exchange.
The New York Stock Exchange known as the “Wall Street” can be considered as the mother of stock exchanges. The name Wall Street is originated from the Wall constructed in the same place by the British in 1650,s for the defense of their stocks against the Native American invaders.
Further it is said that in 17 th century the Amsterdam stock exchange introduced Trading continuously. Dutch people were the forerunners for Options trading, Short selling and various present Trading methods especially for Stock market.
The Actual stock Exchange on Wall Street can be traced from 1800 A.D. when a group of New York Merchants created the Exchange Board which took Inspiration from the Philadelphia Exchange which was founded in 1790.
From this humble beginning, Wall Street has now reached to become a place where stocks worth Billions of Dollars are Traded everyday. The size of the World stock market was Estimated at about US $ 40 Trillion, while the Derivatives market is estimated at about US $ 800 Trillion face or nominal value.
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meagre and obscure. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century.
Before this period (18 th century ) itself Hundis and Bills of Exchange were in use. First recorded stock trading was started by East India Company in 18 th Century with a type of Promissory note, a type of floating the papers.
During 1830,s the Banks and Cotton pressing Business thrived and these stocks were transacted in the Stock Market.
By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850.
In Asian Continent our Stock market is the very oldest. During 1850 s, beneath the Banyan Tree in front of Town Hall our stock market started its journey, where Mumbai’s present “Harriman Circle” is situated.
Beneath the banyan tree our brokers started the Trading. By 1850,s there were only 6 – 7 brokers recognized by the Banks and Businessman and by 1860 there were more than 50 brokers.
The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60.
During the American Civil War (1860 – 61 ) due to the disruption of cotton from United States to Europe the value of Indian cotton soared. Later the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun.
The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began ( for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87 ).
This was the first boom in the stock market history. More than 250 Brokers were present. This drama was taking place in the Western part of India. The trade started in India and then spilled over to Ahmedabad Market.
After some years they moved to a place where many banyan trees were situated in the present Mahatma Gandhi road. As the no: of brokers increased they migrated frequently.
By 1865, the demand for Indian Cotton reached a New Zenith to € 70 million. Due to the increasing activities there were about 3 Dozen banks, 2 dozen Insurance companies, 5 dozen stock companies, and 8 land Reclamation companies in Bombay.
In the midst of hectic business activities, the market saw the rise of “PREMCHAND ROYCHAND”, a young man who came to Bombay in search of Employment and made a fortune in undisputed cotton and Bullion King. He founded “Bank of Bombay”
The secret of Premchand’s success was to borrow money from banks against the government and Public Companies and promising them a quick and sustainable return and using the fund in the market to increase the share rates of the same banks. He used his own bank for the same. In between he started, a Land Reclamation company called “ Backbay ”.
In 1865, the American Civil War ended, and the market high was trailed by the slump. The Share rates plunged to an all time low and several companies collapsed as the business coming from U.S stopped.
At the same time Land Reclamation companies failed because of proposal sidelined by the government and postponed for indefinite period. Along with companies, vast amount of money of common investors also went down the drain and the profession of Brokers hit the rock bottom.
It was Premchand’s Land reclamation company, which eventually led to his downfall to near bankruptcy. He took almost 8 years to Re-establish himself but never reached the same pinnacle. It took almost 10 years for the retrieval of Brokering trade, when brokers realized, that the business should be done in an Organized manner.
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, lastly they reached a permanent place in a street (now appropriately called as Dalal Street) ( Broker Street ) where they would conveniently assemble and transact business.
The stock Exchange was formed in 1875 named as ‘ The Native share and Stock Broker Association” a voluntary and non-profitable Institution. (which is alternatively known as " The Stock Exchange "). In 1875, with 318 members BSE, was formed known as the Asia’s very oldest Stock Exchange.
In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange of Bombay was consolidated.
The credit for the formation of rules and regulations went to Premchand. In 2002, “THE STOCK EXCHANGE” Mumbai, transferred its name as “BOMBAY STOCK EXCHANGE” ( BSE ). Changed as company in the year 2005. In 1994, “NATIONAL STOCK EXCHANGE” ( NSE ) was formed.
BOMBAY STOCK EXCHANGE - 1875 :-
The Bombay Stock Exchange (BSE) is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai’s Town Hall.
The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as ‘The Native Share & Stock Brokers Association’.
In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act.
The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the exchange.
In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts. The development of Sensex options along with equity derivatives followed in 2001 and 2002, expanding the BSE’s trading platform.
Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition.
Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated the integration of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India.
Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994.
Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India.
CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor’s.
In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many awards such as ‘Best IT Usage Award’ by Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999).
The Bombay Exchange, also known as Mumbai, claims to be the oldest stock exchange in Asia, tracing its history back to 1875. In 2010, nearly 2,000,000 shares of stock traded daily on the Bombay Exchange.
NATIONAL STOCK EXCHANGE :-
With the liberalization of the Indian economy, it was found inevitable 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:
1.WHOLESALE DEBT MARKET,
2.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 instruments like treasury bills, government securities, commercial papers etc.
CAPITAL MARKET
It is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year,
Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting.
In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.
There are two kinds of players in NSE:
(a) Trading members and
(b) Participants.
(a) Recognized members of NSE are called trading members who trade on behalf of themselves and their clients.
(b) Participants include trading members and large players like banks who take direct settlement responsibility.
Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts the principle of an order-driven market. Trading members can stay at their offices and execute the trading, since they are linked through a communication network. 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 and a confirmation slip will be printed at the office of the trading member.
NSE has several advantages over the traditional trading exchanges. They are as follows:
Θ NSE brings an integrated stock market trading network across the nation.
Θ Investors can trade at the same price from anywhere in the country since inter-market
operations are streamlined coupled with the countrywide access to the securities.
Θ Delays in communication, late payments and the malpractice’s prevailing in the traditional trading mechanism can be done away with greater operational efficiency and
informational transparency in the stock market operations, with the support of
total computerized network.
Unless stock markets provide professionalized service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major source of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market system.
TRADING AT NSE ;-
1. Fully automated screen-based trading mechanism
2. Strictly follows the principle of an order-driven market
3. Trading members are linked through a communication network
4. This network allows them to execute trade from their offices
5. The prices at which the buyer and seller are willing to transact will appear on
the screen
6. When the prices match the transaction will be completed
7. A confirmation slip will be printed at the office of the trading member
ADVANTAGES OF TRADING AT NSE
1. Integrated network for trading in stock market of India
2. Fully automated screen based system that provides higher degree of transparency
3. Investors can transact from any part of the country at uniform prices
4. Greater functional efficiency supported by totally computerized network
OTHER LEADING CITIES IN STOCK MARKET OPERATIONS
( REGIONAL STOCK EXCHANGES )
Ahmedabad gained importance next to Bombay with respect to cotton textile industry. After 1880, many mills originated from Ahmedabad and rapidly forged ahead.
As new mills were floated, the need for a Stock Exchange at Ahmedabad was realized and in 1894 the brokers formed "The Ahmedabad Share and Stock Brokers' Association".
What the cotton textile industry was to Bombay and Ahmedabad, the jute industry was to Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.
After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association".
In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached.
Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the First World War.
In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence.
In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated.
In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited).
Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936.
INDIAN STOCK EXCHANGES - AN UMBRELLA GROWTH
The Second World War broke out in 1939. It gave a sharp boom which was followed by a slump. But, in 1943, the situation changed radically, when India was fully mobilized as a supply base.
On account of the restrictive controls on cotton, bullion, seeds and other commodities, those dealing in them found in the stock market as the only outlet for their activities.
They were anxious to join the trade and their number was swelled by numerous others. Many new associations were constituted for the purpose and Stock Exchanges in all parts of the country were floated.
The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.
In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi Stock Exchange Association Limited.
