The Indian stock market had a humble beginning, with five people in 1875, who would trade by the Town Hall in Bombay. At that time, the East India Company has a looming presence. There were hundreds of brokers in various places of Bombay trading in their own small, till all of them formed a group and joined the five traders to create 'Native Share & Stock Brokers Association' in 1875 which later became 'Bombay Stock Exchange.'
Following the creation of the 'Native Share and Stock Brokers Association', 'Ahmedabad Shares and Stock Association' came into existence in 1894. The Calcutta Stock Exchange Association later came about in 1908. The Punjab Stock Exchange was created in 1936 two years after Lahore Stock Exchange was set up, which eventually merged with PSE. The Madras Stock Exchange was formed in 1941; it was called "The Madras Stock Exchange Association Pvt. Ltd." The UP Stock Exchange and Nagpur Stock Exchange came into existence in 1940, and four years later, the Hyderabad Stock Exchange was incorporated. The Delhi Stock Exchange Association Ltd was organized in the year 1947.
After the independence, many stock exchanges closed down or were restructured. For instance Lahore Stock Exchange was shut and then merged with Delhi Stock Exchange. The Securities Contracts (Regulations) Act of 1956 gave industry recognition to many stock exchanges in 1957. Some of them that were recognized under the Act were stock exchanges of Bombay, Madras, Delhi, Calcutta, Hyderabad, Bangalore, Hyderabad and Indore.
In the 70, the Foreign Exchange Regulation Act (FERA) created a thrust toward retail investing. By the early 1980s, the equity culture crept in, in the form of Reliance and other such companies. During the 80s, there were many stock exchanges established like the Cochin Stock Exchange, the Pune Stock Exchange Ltd(1984),the Kanara Stock Exchange Ltd (Mangalore, 1985) and the Vadodara Stock Exchange of 1980.
A landmark event in the Indian stock market happened in the form of the Sensex, the most actively traded 30 stocks that were to be an indicator of the health of the stock exchange market in the year 1986, the base year chosen as 1978-79. These 30 stocks were of established, big companies across different sectors. Due to liberalization and entry of Foreign Direct Investment and Foreign Institutional Investment in the 1990s, the share market got a formidable push and the BSE crossed the 1000 mark. It went on to cross 4000 marks by 1992.
The feel good mood of the Indian stock exchange was interrupted by the Harshad Mehta scam The "big bull" of the Indian stock market, Mr.Mehta was reported to have diverted crores of rupees from banks through deceptive means. Millions of small-scale investors were stranded and faced heavy losses as the Sensex plunged to a dismal 570 points.
Taking into account this kind of fraud that hit the market badly, the Government of India created SEBI, The Securities and Exchange Board of India through an Act in 1992. SEBI is the statutory body that regulates and controls the functioning of the stock market, stocks, brokers, sub-brokers, investment advisors, mutual funds, portfolio managers. It immediately bans a fraudulent company if it finds out that a particular company or person is indulging in deceptive trade practices.
The Indian stock exchange had numerous stock exchanges but lacked one on a national level that could keep it on level with global standards. Taking into account the recommendations of the esteemed Pherawani Committee, the National Stock Exchange came into existence in 1992 through the efforts of huge financial institutions like IDBI(Industrial Development Bank of India), ICICI(Industrial Credit and Investment Corporation of India), IFCI(Industrial Finance Corporation of India), leading insurance companies, leading commercial banks and other financial institutions.
NSE led to faster and better trade through its computerized network. It started Internet trading in 2000 and initiated the first electronic LOB or Limited Order Book exchange to trade securities in India. It also floated Gold Exchange Traded Funds and created institutions like Clearing Corporation and Depository that started derivatives trading. Bombay Stock Exchange on the other hand in 1995, replaced the floor based outcry trading system with automatic trading in the form of BSE Online Trading or BOLT, which was spread across the country by 1997.
In the last few years, there have been numerous stock exchange reforms that have brought in a lot of professionalism in the way trade has been conducted. The corporatization of stock exchanges has proved so beneficial that Indian stock markets are ranked among the top 5 markets in the world for stock futures and index futures.