in 1999-2000.

The stock exchange has about 6,000 listed companies and an average daily
volume of about a billion dollars
Many new instruments have been introduced in the markets, including index futures, index
options, derivatives and options and futures in select stocks.
Origin and Development of the industry
The Bombay Stock Exchange (BSE) is known as the oldest exchange in Asia. It traces its
history to the 1850s, when stockbrokers would gather under banyan trees in front of
Mumbais Town Hall. The location of these meetings changed many times, as the number of
brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in
1875 became an official organization known as The Native Share & Stock Brokers
Association. In 1956, the BSE became the first stock exchange to be recognized by the
Indian Government under the Securities Contracts Regulation Act.
The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to
measure overall performance of the exchange. In 2000 the BSE used this index to open its
derivatives market, trading Sensex futures contracts. The development of Sensex options
along with equity derivatives followed in 2001 and 2002, expanding the BSEs trading
platform.
Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an
electronic trading system in 1995. It took the exchange only fifty days to make this transition.
Capital market reforms in India and the launch of the Securities and Exchange Board of India
(SEBI) accelerated the integration of the second Indian stock exchange called the National

Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the
largest stock exchange in India.
Three segments of the NSE trading platform were established one after another. The
Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market
(CM) segment was opened at the end of 1994. Finally, the Futures and Options segment
began operating in 2000. Today the NSE takes the 14th position in the top 40 futures
exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior
Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50
stocks from 25 different economy sectors. The Indices are owned and managed by India
Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with
Standard & Poors.
In 1998, the National Stock Exchange of India launched its web-site and was the first
exchange in India that started trading stock on the Internet in 2000. The NSE has also proved
its leadership in the Indian financial market by gaining many awards such as Best IT Usage
Award by Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP
magazine (1999).
The National Stock Exchange of India was promoted by leading Financial institutions at the
behest of the Government of India, and was incorporated in November 1992 as a tax-paying
company. In April 1993, it was recognized as a stock exchange under the Securities Contracts
(Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM)
segment in June 1994. The Capital Market (Equities) segment of the NSE commenced

operations in November 1994, while operations in the Derivatives segment commenced in

June 2000.
Since the early 1950s till the early 1990s, Indian policy makers had been nourishing the goal
of Socialist pattern of society. They had been following the development planning strategy of
the former Soviet Russia in a mixed economic framework. From July 1991, in the face of an
unprecedented foreign exchange crisis, Indian economy started experiencing an IMF-World
Bank dictated regime of liberalisation.
One aspect of this is financial liberalisation. There is a move towards privatisation of
nationalised banks these banks are selling their shares in the stock market. Transnational
banks are encouraged to operate in the Indian banking sector. Attempts are made to attract
foreign direct investment in different sectors. There is an increasing entry of foreign portfolio
capital due to stock market liberalisation. People are encouraged to invest in stocks through
income tax benefits and abolition of capital gains tax. There is a move to develop a national
pension fund which will be invested in different stocks to get returns out of which pension
will be provided to retired people. It is expected that boosting up of stock market will
accelerate the process of capital accumulation and growth.
Stock market development has been an important part of financial liberalisation in the less
developed countries (LDCs). In the pro-liberalisation circle, stock market is assigned to play
an important role in the capitalist development of LDCs.
There are many studies supporting the positive link between stock market development and
growth. Let us mention some of the recent studies. One important study was undertaken by
Levine and Zervos (1998). Their cross-country study found that the Development of banks
and stock markets has a positive effect on growth. In another study Levine (2003) argued that

although theory provides ambiguous relationship between stock market liquidity and
economic growth, the cross-country data for 49 countries over the period 1976-93 suggest a
strong and positive relationship (see also Levine, 2001). Henry (2000) studied a sample of 11
LDCs and observed that stock market liberalisations lead to private investment boom.
Recently, Bekaert et al (2005) analysed data of a large number of countries and observed that
the stock market liberalisation leads to an approximate 1 % increase in annual real per capita
GDP growth.
There are some economists who are sceptical. Long time back Keynes (1936) compared the
stock market with casino and commented: when the capital development of a country
becomes the by-product of the activities of a casino, the job is likely to be ill-done.
Referring to the study of World Bank (1993) , Singh (1997) pointed out that stock markets
have played little role in the post-war industrialisation of Japan, Korea and Taiwan. He
argued that the recent move towards stock market liberalisation is unlikely to help in
achieving quicker industrialisation and faster long-term economic growth in most of the
LDCs.
In this perspective this study examines the nature of relationship between stock market and
growth through capital accumulation in India.
Growth and Present Status of the industry
The ever-growing and fast-maturing 'India Market' is a lucrative business destination for
developed countries. With 7-8% of GDP growth, huge analytical, young and English
speaking work force the 'pull' for opportunities are luring. The bandwidth of 'India Market' is
enviably wide and very deep.

'Markets in India' are well protected by legal guidelines and efficient administrators. With a
liberal and proactive government at the center the road ahead for 'Markets of India' is very
rosy. 'Market India' has witnessed exponential growth over past one and half decade.
Foreseeing sure and substantial returns on investments (ROI) companies are pro- actively
listing on the stock market indexes. Government agencies once much hated for red tape and
bribes has shed its image. Professionalism is their new mantra. Public Enterprises like IOC,
ONGC, BHEL, NTPC, SAIL, MTNL, BPCL, HPCL and GAIL, SBI, LIC, Hindustan
Antibiotics Limited, Air India etc. to name a few, are giving Private Indian companies a good
run for their Securities. Private giants like Reliance Industries Limited, Infosys, Tata, Birla
Corporation, Jet Airways, Ranbaxy, Biocon, Bajaj Auto, ICICI are breaking their own records
every financial years.
Indian Equity Market at present is a lucrative field for the investors and investing in Indian
stocks are profitable for not only the long and medium-term investors, but also the position
traders, short-term swing traders and also very short term intra-day traders. In terms of
market capitalization, there are over 2500 companies in the BSE chart list with the Reliance
Industries Limited at the top. There are about 22 stock exchanges in India which regulates the
market trends of different stocks. Generally the bigger companies are listed with the NSE and
the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which lists the
medium and small sized companies. There is the SEBI or the Securities and Exchange Board
of India which supervises the functioning of the stock markets in India.
Thus, the growing financial capital markets of India being encouraged by domestic and
foreign investments is becoming a profitable business more with each day. If all the economic
parameters are unchanged Indian Equity Market will be conducive for the growth of private
equities and this will lead to an overall improvement in the Indian economy.

Indian Stock Market including both NSE-National Stock Exchange and the BSE-Bombay
Stock Exchange have certainly taken a tremendous beating in the past few weeks. We are sure
most of us here knew that the correction in the trading curve was round the corner which
would be healthy, and the markets would bounce back with the help of mutual fund
investments & buying of Indian stocks again. However the anticipation went wrong, and the
US recession story along with global and Indian commodity prices have added fuel to the
global equity market turmoil on a whole.

1.5 Future of the industry

The stock market is booming in spite of the low agriculture output. The monsoon is good in
an overall sense but still the question remains who takes the credit? The answer is the karma
of the people. I appreciate the Indian politicians and the industrialists who being pawns of
destiny are doing things positive and productive. India, as a country is running a very good
period and the position of planets in the transit are giving wonderful results.
Less than one percent of population own stocks and less than 1000 individuals control the
market, the majority being the FIIs, the promoters of the company. The credit should go to
media for making stock market headlines.
In any case if you are long terms players then step-in and buy now and forget for another 10
years. You will make a killing in the Indian markets.
Most of the tech companies and the main index will do well but slightly in the lower side of
expectations.

1.6 Structure, Processes and Governance of the industry

Under this, various processes involved in the industry will be discussed. Other than this, the
bodies governing the industry will also be brief upon and and an endeavour will be made to
understand the whole structure of the industry.

1.6.1 Dematerialized Trading

Indian investor community has undergone see changes in the past few years. India now has a
very large investor population and ever increasing volumes of trades. However, this
continuous growth in activities has also increased problems associated with stock trading.
Most of these problems arise due to the intrinsic nature of paper based trading and settlement,
like theft or loss of share certificates. This system requires handling of huge volumes of paper
leading to increased costs and inefficiencies. Risk exposure of the investor due to this trading
in paper.
Some of these risks are:
1.

Delay in transfer of shares.

2.

Possibility of forgery on various documents leading to bad deliveries, legal

disputes etc.

3.

Possibility of theft of share certificates in the market.

4.

Multiplication or loss of share certificates in transit.

5.

Prevalence of fake certificates in the market.

The physical form of holding and trading in securities also acts as a bottleneck for broking
community in capital market operations.
The introduction of NSE and BOLT has increased the reach of capital market manifolds. The
increase in number of investors participating in the capital market has increased the
possibility of being hit by a bad delivery. The cost and time spent by the brokers for
rectification of these bad deliveries tends to be higher with the geographical spread of the
clients. The increase in trade volumes lead to exponential rise in the back office operations

thus limiting the growth potential of the broking members. The inconvenience faced by
investors (in areas that are far flung and away from the main metros) in settlement of trade
also limits the opportunity for such investors, especially in participating in auction trading.
This has made the investors as well as broker wary of Indian capital market. In this scenario,
dematerialized trading is certainly a welcome move.
1.6.2 What is Dematerialization?
Dematerialization or Demat is a process whereby your securities like shares, debentures
etc, are converted into electronic data and stored in computers by a Depository. Securities
registered in your name are surrendered to depository participant (DP) and these are sent to
the respective companies who will cancel them after Dematerialization and credit your
depository account with the DP.
The securities on Dematerialization appear as balances in your depository account. These
balances are transferable like physical shares. If at a later date, you wish to have these
Demat securities converted back into paper certificates; the Depository helps you to do this.
Dematerialization is the process of converting the securities held in physical form
(certificates) to an equivalent number of securities in electronic form and crediting the