The Evolution of the Share Market in India: A Historical Overview from its Inception to 2024

Introduction

The share market is a vital component of the global financial system, facilitating the exchange of securities such as stocks, bonds, and other financial instruments. In India, the share market has undergone remarkable transformations since its inception, evolving from a small, unregulated market to a sophisticated and highly regulated industry. Over the years, India’s stock exchanges, such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), have played a key role in the country’s economic development. This article provides a detailed account of the growth and transformation of the Indian share market, covering its history, major milestones, and developments up to 2024.

1. Early History of the Indian Share Market (Pre-1947)

The roots of the Indian share market can be traced back to the colonial era. The trading of stocks in India began in the early 19th century when the British East India Company securities were traded in Bombay (now Mumbai). However, the first organized exchange, which marked the birth of India’s formal stock market, was established in 1875.

• 1875: Bombay Stock Exchange (BSE) Formation
  In 1875, the Bombay Stock Exchange was founded by a group of stockbrokers in Mumbai. Initially, it was an informal gathering of brokers who transacted business under a banyan tree near the Town Hall. The exchange grew in importance over the next few decades, becoming the nucleus of securities trading in India. By 1956, it became a recognized stock exchange under the Securities Contracts (Regulation) Act, 1956, and was officially recognized by the Government of India.
• The Evolution of Other Exchanges
  Other major exchanges were established during the British colonial era. For example, the Calcutta Stock Exchange was established in 1908, followed by the Madras Stock Exchange in 1937. These exchanges were primarily focused on trading British companies’ shares and later began including Indian businesses as well.

2. Post-Independence Developments (1947-1980s)

After India gained independence in 1947, the stock market was seen as a tool for fostering economic growth and capital formation. However, during this period, the Indian economy was largely controlled by the government, with a focus on heavy industries, public sector enterprises, and protectionist policies. The stock market remained relatively underdeveloped during the early years after independence.

• 1956: Securities Contracts (Regulation) Act (SCRA)
  In 1956, the Securities Contracts (Regulation) Act was passed, establishing a legal framework for the operation of stock exchanges in India. This act provided the foundation for regulating and developing the securities market, making stock exchanges subject to government oversight.
• 1960s-1970s: The Era of State-Controlled Economy
  During the 1960s and 1970s, India’s economy was largely controlled by the government through state-owned enterprises and protectionist policies. Stock market activities were somewhat limited during this period, with trading volume being low and the investor base being restricted to wealthy individuals and institutional investors. The government focused on sectors such as agriculture, energy, and infrastructure, while the private sector had limited participation in the stock market.
• Stock Market Scams and Speculation
  In the 1970s and early 1980s, the Indian stock market faced problems like rampant speculation and stock market manipulation. Prominent stock market scams, such as the Harshad Mehta scam in the early 1990s, exposed the vulnerabilities in the system and led to a series of reforms to enhance transparency and protect investors.

3. Liberalization and Growth (1991-2000)

The economic liberalization in the early 1990s was a watershed moment for the Indian stock market. India’s decision to open up its economy and embrace market-driven reforms significantly impacted the capital markets, driving growth in the share market.

• 1991: Economic Liberalization
  In 1991, India embarked on a series of economic reforms, including reducing trade barriers, privatizing state-owned enterprises, and opening up the economy to foreign investments. This liberalization led to an increase in domestic and foreign investments in the Indian stock market.
• 1992: Establishment of National Stock Exchange (NSE)
  A major turning point in the development of the Indian share market was the establishment of the National Stock Exchange (NSE) in 1992. The NSE was set up to introduce more advanced and transparent trading practices to India. It was the first exchange in India to introduce electronic trading, eliminating the need for physical floor trading and offering a more efficient, transparent, and fair marketplace. The NSE quickly gained popularity and overtook the BSE in terms of trading volume.
• 1991-1999: Stock Market Reforms
  The Indian stock market also saw a series of regulatory reforms during this period, aimed at improving transparency and investor protection. The Securities and Exchange Board of India (SEBI) was established in 1992 to regulate the securities market, protect investor interests, and ensure fair market practices. SEBI introduced several measures, including:
  • Dematerialization of shares to replace paper-based trading with electronic records.
  • IPO regulations to ensure transparency in public offerings.
  • Corporate governance norms to prevent fraud and manipulation.

These reforms helped the Indian share market evolve into a more sophisticated and transparent system.

4. The 2000s: Market Expansion and Technological Advancements

The 2000s witnessed significant growth and development in the Indian stock market, marked by increasing foreign investment, technological advances, and greater market sophistication.

• 2000: Introduction of Derivatives Trading
  In 2000, the NSE introduced derivatives trading, allowing investors to trade in futures and options (F&O) contracts. This was a significant development, as it provided new investment instruments and hedging opportunities for market participants.
• 2003: Dematerialization of Shares
  The dematerialization process, which began in the late 1990s, was completed by 2003, allowing shares to be held and traded electronically. This greatly increased the efficiency and transparency of the Indian stock market.
• 2004: SEBI Reforms
  SEBI continued its efforts to enhance the functioning of the Indian stock market by introducing several key reforms, including measures to improve corporate governance, transparency, and disclosures by listed companies.
• 2008: Global Financial Crisis
  The global financial crisis of 2008 impacted the Indian stock market, leading to a sharp decline in stock prices. However, the market quickly recovered, demonstrating its resilience. India’s banking and financial systems were less affected by the global crisis, thanks to the conservative policies adopted by regulators like the RBI and SEBI.

 

5. The 2010s: Digital Transformation and Market Growth

The 2010s saw the Indian share market become more inclusive, digital, and integrated with global markets. It was marked by the increasing popularity of retail investors, the rise of online trading platforms, and innovations in financial products.

• Growth of Retail Investors
  The 2010s saw a surge in retail participation in the stock market, particularly with the rise of discount brokers and online trading platforms. Retail investors began to actively participate in the market, driven by rising awareness, ease of access, and mobile apps that allowed for easy trading and tracking.
• 2016: Introduction of Demonetization
  In November 2016, the Indian government demonetized ₹500 and ₹1000 currency notes. While the primary objective was to curb black money, it also led to a significant increase in digital financial transactions, including trading on online platforms, making the stock market more accessible to the masses.
• 2017: SEBI’s New Initiatives
  SEBI introduced several reforms in 2017, such as stricter norms for initial public offerings (IPOs), ensuring greater transparency and corporate governance. These steps helped improve the investor confidence in the stock market.

6. The 2020s: Post-Pandemic Growth and Technological Integration

The COVID-19 pandemic and its aftermath brought about major changes in the Indian share market. The market experienced significant volatility in 2020 due to the economic uncertainties brought about by the pandemic. However, post-pandemic, the market rebounded strongly, driven by strong liquidity, foreign investment, and government reforms.

• Increased Digitalization
  The growth of fintech companies and online trading platforms made investing easier, with younger generations increasingly investing in stocks via mobile applications.
• 2020: Surge in Retail Participation
  Retail participation surged in 2020 and 2021, with millions of new demat accounts being opened. The Indian stock market became more accessible to the common man, and the popularity of trading surged during the pandemic.
• Regulatory Reforms and IPO Boom
  In 2021-2022, India saw a record number of IPOs, and the stock market continued to grow. SEBI tightened regulations around disclosures and enhanced investor protection measures.

 

Conclusion: Indian Share Market in 2024 and Beyond

By 2024, the Indian stock market has transformed into a modern, efficient, and globally integrated system. It is characterized by high participation from retail investors, technological innovations, and the growing role of institutional investors. The market has become more resilient, diversified, and transparent, with increasing foreign direct investment and an expanding investor base.

Looking ahead, the future of the Indian share market will likely be influenced by innovations in fintech, blockchain, and artificial intelligence, as well as by continued regulatory reforms aimed at protecting investors and fostering growth. The Indian share market is well-positioned to continue its role as a critical engine of economic growth for the country.