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Unit 4: Indian Capital Market

Meanwhile, spectacular developments occurred all over the world in financial markets during Notes
the last decade in terms of increased integration of financial markets of different countries, rapid
pace of financial innovation, emergence of completely new type of instruments through the
process of financial engineering, growing importance of institutional investors in financial
markets, wondrous expansion of the role of financial institutions and emergence of a wide array
of specialized institutions both in developed and developing countries. Financial services
industries continue to undergo dramatic changes. Not only have the boundaries between
traditional industry sectors, such as commercial banking and investment banking broken down
but competition is becoming increasingly global in nature.
Taking cognizance of the above developments and burgeoning opportunities in emerging markets
coupled with high risk exposure due to volatile environment, different countries undertook
several policy measures in recent years to shore their capital markets, rendering the institutions
and instruments associated with the capital market more resilient and vibrant so as to cope with
future competitive challenges.
Governments - central, state and local - in their effort to bridge the fiscal deficit (gap between
budgetary receipts and payments) frequently resort to public borrowings. There are three sources
of public borrowings-internal borrowings, external borrowings and others. Internal borrowings
of governments are managed by the central bank of a country. Internal borrowings are made
through wide variety of instruments, collectively designated as 'Government Securities' and the
market where these securities are traded are termed as 'Government securities market'. Thus,
government securities serve as the financial vehicles of central government, state governments,
semi-government bodies and PSUs to raise funds from the market.

4.1 Evolution

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 meager 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.

By 1830s 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.
The 1850s 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.

In 1860-61 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 ` 2850 could only be sold at ` 87).
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found
a place in a street (now appropriately called as Dalal Street) where they would conveniently
assemble and transact business. In 1887, they formally established in Bombay, the "Native Share
and Stock Brokers' Association" (which is alternatively known as "The Stock Exchange "). In 1895,
the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus,
the Stock Exchange at Bombay was consolidated.

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.

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