Indian Stock Market Origins - Cont.. II

The American Civil War ended and the highs in market was followed by the slump, and market soon crashed in the year 1865

American Civil War

The share prices fell to their all time lows and several companies collapsed as the business which came from the US stopped suddenly.

At the same time land reclamation companies failed because of proposal sidelined by the Government and postponed for indefinite period. Along with the companies, huge amount of money from the investors 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 could never reach the same pinnacle. 

Indian Stock Market Origins - Cont..

As far back as the 1860s there used be rain gambling or 'barsaat-ka-satta'. This form of gambling was prevalent during the monsoon months and was generally at Pydhonie area in Mumbai where a house was rented for this purpose. This was in two forms - Calcutta Mori and Lakdi Satta.

In Calcutta Mori, wagers were laid as to the amount of rain filtering in a certain fixed time through a specially prepared box filled with sand and the speculators settling on the rates of the wager depending on the signs of rain in the heavens.

While in Lakdi Satta, the winning or losing of the wager depended upon whether rainfall within a certain period was sufficient to fill the gutter of a roof and overflow.

By 1865, the demand for Indian cotton reached a new zenith to 70 million pounds. The increasing business activities led to more speculation and there were about three dozen banks, two dozen insurance companies, five dozen stock companies and eight land reclamation companies in Bombay.

In midst of hectic business activities, the market saw the rise of Premchand Roychand, a young man who came to Bombay in search of employment but went on to become the undisputed cotton and bullion king. He made a fortune during cotton boom and founded Bank of Bombay.

The secret behind Premchand's success was his method of making market conditions suitable to speculators and in the process realizing money from business community through buying and selling shares. His modus operandi was simple, borrow money from banks against the government and public companies securities by promising them quick and substantial 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 the start of 1865, for the first time a proposal for developing housing scheme, marketing complex, educational buildings and recreation center in southern Bombay came for which the land was to be reclaimed as Bombay is an island city. This proposal witnessed opening up of various land reclamation companies with a very high share value. The proposal was sidelined because of indecision of British Government and took almost a century in completion. This area is known as Backbay Reclamation.

See what happens afterwards !

Stock Exchanges - The Origin !

Brief about the Stock Market 
A stock market or share market is a public market for the trading of company stock and derivatives at an agreed price. These securities are generally listed on a stock exchange. It also brings the financial institutions together to make money.

Origin
The real origin of stock market is obscure. The New York Stock Exchange better known as 'Wall Street' can be considered the mother of all 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 stock against the Native American invaders.

The actual Stock Exchange on Wall Street can be traced back to 1800 AD, 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 a billion dollars are traded everyday. 

The size of the world stock market is estimated to be more than $54.6 trillion while the derivatives market is estimated to be more than US $ 1200 at its face value.

History of Indian Stock Market
The history of the Indian Stock Market is about 200 year old. Prior to this the hundis and bills of exchange were in use especially in the medieval period, which can be taken as a form of virtual stock trading but it was certainly not an organized trading.
The recorded history can be traced only after the incoming of the East India Company. Still one cannot be certain about the actual time of beginning of the Stock trading, as there is no record for the same.

First recorded recorded stock trading could be marked when East India Company started stock broking by floating term papers (a type of promissory note or in other terms a debt instrument) way back in 18th century for their speculative activities in India. The start of 18th century was largely dominated by East India Company because its securities were floated in the market mostly for transaction.

During 1830s, the banks and cotton pressing business thrived and stocks and shares of these two trades came into the limelight this is where one can see the start of actual brokering business in the market. By 1850 there were only 6-7 brokers recognized by the banks and businessmen. The second half of this century witnessed brisk growth on the commerce and brokering business and by 1860 there were more than 50 brokers. Then came American Civil War (1860-61).

The Old BSE Building 

During this war, the supply of cotton from United States to Europe was disrupted, and the value of Indian cotton soared. This was the first boom in the Indian stock market history. The number of brokers crossed the 250 mark. This whole drama was taking place only in the western part of India. The trade started in Bombay (now Mumbai) then spilled over to Ahmedabad market.

To be continued...

Introduction !!

Investments in Indian Equity Markets is still in its very budding stage. The general public is cautious and risk averse. As a percentage of the total population, the retail investor participation is just 1.3%, whereas in the US and China it is 27.7% and 10.5% respectively (source: Bimal Jalan Committee report). 

Around 50% of the cash market transactions on the National Stock Exchange (during April-June 2010) came from a shockingly low 451 investors, of whom 156 were proprietary traders, while 50% of the trading in NSE's derivatives segment came from just 106 investors of whom 58 were proprietary traders. Only 6% of client accounts contributed to 90% of the trading in the cash segment. 80% of turnover came from just 41,654 investors. In other words, 1,50,546 investors (78%) accounted for just 10% of trading turnover (source: Union ministry of State for Finance)

But then, if Investing in Stock Markets and Dieting were easy, we all would be wealthy and fit. Just like implementing a diet plan, Investing does requires the knowledge, discipline, patience and commitment !
Any one can be a successful investor with above qualities given the right education and tools.

Now the moot question here is, why a layman is so afraid of Stock Markets ! 
May be the answer lies in lack of knowledge, therefore the purpose of this blog is to educate and make it easier for the investors to go ahead and create wealth out of one of the world's most preferred emerging markets - India !!
Know more about the origins of Indian Stock Market !