The history of the Indian Stock Markets can be retraced to the days of the American Civil War. The opening of the Suez Canal gave a huge impetus to the exports to United Kingdom and United States and several Indian companies were born. Many of these companies registered under the British Companies Act. This gave birth to the earliest form of the Bombay Stock Exchange in 1875. It was actually a group of stockbrokers who were doing business under a Banyan tree. Since its very inception the stock Market saw the rise of kingpins like Sir Premchand Roychand and Sir Phiroze Jeejeebhoy.
Towards the beginning of 1950s the restructuring process began to make to give more defined form. The Securities Contract Regulation Act of 1956 was passed in 1956 which was seen a major step in this direction.
In the year 1957 the imposition of the wealth and expenditure tax saw negative sentiment in the investors and the markets witnessed a blood bath. The Indo-China War of 1962 also gave rise to a bear phase in the market.
The markets too had their share of good times. In the late 1970s the markets saw a bull run as it was made compulsory of the multinational companies in India to reduce the foreign shareholding. The retail investors got an opportunity to buy the stocks of these companies at a real low price as free pricing was not there and this was a really like a lottery for them.
The next things the markets witnessed was a phenomena called Dhirubhai Ambani, who is also known as the father of modern capital markets. The public issue of his company- Reliance was perhaps the first one to create public awareness of the public issue process. The issue was also seen as a major step to educate people about stock markets on the whole.
In 1984 the National Stock Exchange was established. India now had two stock exchanges - BSE and NSE. From the latter half of the 1980s the Indian economy was slowing seeing the era of economic liberalization. The 1991 budget of Mr. Manmohan Singh was the biggest breakthrough in this regard. The economic liberalization focused on areas like Industrial de-licensing, Tariff reduction, Deregulation of capital and financial markets and Fiscal reforms. The economic liberalization lead to the unlocking of potential of the Indian economy and it set the stock markets into a bull phase. Then began to flow significant foreign investments flowed into the country. On the back of capital market reforms which eased the norms for equity issues the corporate sector found increased the opportunities for to raise equity capital. However, there was also excessive bullishness due to the pushing up the market by the operators between 1991 to 1994. The market was highly manipulated by a coterie of manipulators who exploited the strong sentiments created by widespread reforms and over-exposed themselves in the market by funding through fraudulent diversion of funds from money markets. As a result the entire markets got pushed up to unrealistic levels.
In 1992 the Securities and Exchange Board was established. It was a big step to make stock markets more efficient. SEBI was to be regulatory body which was to ensure the proper functioning of stock markets. Another major advancement was the introduction of online trading in 1995.
When the scam got exposed it created a major upheaval in the Indian markets with people like Harshad Mehta being put behind bars. It created panic selling in the markets and the markets turned a bear hunting ground hub for a long time. It prompted the SEBI to bring in major reforms of the Indian capital markets. By 1995, the Indian stock markets were witnessing major restructuring their systems.
In the beginning of 2000s, the dot-com bubble set a period of euphoria on the markets. Eventually this bubble burst and the markets crashed. During this period another scam got exposed. At the centre of things was a man called Ketan Parekh. These two factors dragged the entire markets with them and the markets became the bear’s paradise.
However, by 2003 things turned around. The government began to act on strengthening the fundamentals of the economy. A long list of reform measures was taken and this was aimed to make the economy stronger.
The economy growth began to accelerate gradually. The real GDP began to grow at 7 to 8% in 2004 and 2005. India emerged as the hottest developing market. FII funds poured in. With a lot of money chasing few stocks, the markets swelled. The Sensex crossed the 10,000 point mark for the first time ever on Feb 7, 2006. This euphoria went on as funds continued to pour in and returns and pushed the markets up.
On the 26 September 2007 the Sensex crossed the 17,000 mark on announcements of the rate cut by the Fed chief Ben Bernanke. During this period the Sensex for the first time zoomed ahead of the Nikkei of Japan. On 15 October 2007 the Sensex crossed the 19000.
On 16 October 2007, the SEBI proposed curbs on participatory notes. P-notes accounted for roughly 50% of FII investment in 2007. This lead to a knee-jerk reaction and on following day the Sensex crashed by 1744 points.
The markets kept on falling for the next few days. After detailed clarifications from the then SEBI chief, the market recovered and made a 879-point gain on 23 October, thus signalling the end of the PN crisis.On 29 October 2007, the Sensex crossed the 20,000 mark in intraday for the first time with a massive 734.5-point gain but closed below the mark. On 5th November 2010, the SENSEX closed at 21,004.96, for its first close above the 21,000 mark.