Developments In the Indian Capital Market
The Capital Market of any country is one of the principal drivers of economic growth and development and the Indian Capital Market has witnessed a remarkable transformation both in qualitative and quantitative terms. During the last decade and a half we have reached a stage where many Indian brands have been successful in positioning themselves on a global with efficient uses of physical as well as intellectual resources and the Indian corporate brigades are ready to take on the global challenges. As a result we have a slew of big -ticket acquisitions worth several billion dollars signalling the cross-border expansion of Indian companies. These companies have made good use of the vibrant capital market which exists today. And it is time to take a good look at the progressive development of our capital market.
The Indian Capital Market has grown tremendously in every sphere- be it the amount of capital raised through Initial Public Offers (IPOs), exchange trading turnovers, the market indices, market capitalizations, access to foreign market to mobilize resources, listing of securities at overseas bourses or foreign institutional investment. It has been a phenomenal development. The Indian Capital market has come a long way by developing an efficient regulatory infrastructure towards ensuring conduct of securities transactions in an efficient and transparent way. Trading of stock, what started under the banyan tree , now has travelled to a click of a mouse!
But what was the scenario like a century and a half back? The trading in the early days was confined to the securities of the East India Company and Bombay (Mumbai) and Calcutta (Kolkata) were the two major trading places. The market was unorganized and small and limited to not more than a dozen of brokers. In 1875 Native Shares and Stock Brokers Association came into existence and Bombay Stock Exchange was recognized in 1927.
In the initial phase of the post-Independence years did not witness any significant growth in terms of the size of the market and CCI (The Controller of Capital Issues was the only supervisory authority overseeing the issues like timing, composition, interest rates, pricing, allotment and flotation of new public issues. In 1957 The Securities Contract Regulations Act was enacted for the establishment of a network for the development of financial institutions. The Unit Trust of India was set up in 1964. The 'badla' trading which provided a system for carry forward positions as well as as borrowing of funds, was abolished in 1969 to be resumed once again 1974. During the early seventies the government took the significant step of compelling the multinational companies to dilute their stakes in favour of the Indian public which added to the buoyancy to the market.
In the eighties the capital market of India was characterized by the developments in the form of greater participation small investors, speculation, ban and resumption of badla. Emergence of convertible bonds created a new avenue for mobilization of resources for the corporates. Launch of successful mega IPOs by the private sector companies and introduction of public sector bonds were the other highlights of this decade. It also registered notable growth in the number of stock exchanges, listed companies, their paid-up capital and market capitalization.
Perhaps the decade nineties would go down in the history of the Indian capital market as the most momentous one. In a significant move the government abolished the office of the CCI and its place was taken by the Securities Exchange Board of India (SEBI) which was set up as the new regulator. This decade witnessed the advent of foreign institutional investors, euro-issues, free pricing of issues, new trading practices, new stock exchanges, entry of new players like such as private sector mutual funds and private sector banks. An unprecedented use of new technologies added depth and wider reach of the transaction of the securities. With the participation of the major public sector financial institutions a new de-mutualised electronic stock exchange National Stock Exchange (NSE) was formed in 1992 which introduced a modern market infrastructure with fully-automated, screen-based trading system and settlement system which conforms to the global standards.
The decade also saw significant changes in the functioning of Bombay Stock Exchange (BSE) which faced tremendous competition from NSE . In 1982 BSE, which was owned by its members traded for only two hours a day with an open outcry system with a market capitalization of a very modest size, touched a whopping figure of rupees 5,876107 crore in October 2009 with its modern infrastructure.
The Indian capital market truly entered the 21st Century with discontinuation of badla and introduction of rolling system in all categories of scrips, internet trading, and derivatives trading. The systems established by both BSE and NSE significantly contributed to augmentation of speed , efficiency , transparency and reduction in market systemic and settlement risks.
The Indian Capital looks more organized, mature and modernized with adoption of advancement of computer and communications technology it has been possible to change the demographic profile of the investors. Now it is possible to trade in stocks of the overseas markets sitting in India with a laptop with internt connection.
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