The Hindu Business Line : BSE — from banyan tree to the biggest bourse

Its current status as the country's biggest bourse in terms of corporate listings and market capitalisation has roots in more than a century of landmarks and milestones in Indian financial markets.

A unique thing about the BSE is that perhaps it is the one domestic institution that was always pioneering and on par with the international standards. Mr Shapurjee Burjorjee Bharucha, during the inauguration of the Native Brokers Hall on January 18, 1899 addressing a huge gathering of European and native brokers said,

"India being the original home of the option, a native broker would give a few points to the brokers of other nations on puts and calls."

About its prominence and importance he noted, "Without doubt this is the largest rupee paper market in India, whether as regards the volume of business or the extent of the fluctuations."

India itself was on even keel with the world trends and its indigenous enterprise and initiative was at its best in the mid-1800s when the securities markets shot up to significance as the most important business at the time, though the sentiment was largely fuelled by the speculative boom. A little bit of history before the formation of the BSE might be interesting.

The American Civil War (1860-61) led to the sudden surge in demand for cotton from India, which resulted in a number of joint stock companies coming into being with issuance of securities. Suddenly there was a share mania that gripped the city of Bombay with the market functioning from three different places; between 9 a.m. to 7 p.m. at the junction of Medows Street and Rampart Row; from day break till 9 a.m. and from 7 p.m to the early hours of next morning at Bazargate.

Sugar Market at Mandvi was another place. Between March 1864 and July 1865, speculation was so rife and rampant that the market consisted of more than 1,000 brokers. Share price rose sharply; a share of Coloba Land Company rose from Rs 10,000 at par to Rs 1,20,000 and that of Backbay Shares went up from Rs 2,000 to 54,000. Bombay was a major financial centre even as early as in 1865; it had 31 banks, eight land reclamation companies, 16 cotton-pressing companies, 20 insurance companies and 62 joint stock companies.

"During the years 1864-65, the whole community of Bombay from the highest English officials to the lowest native broker utterly demoralised and abandoning business, gave themselves up to the delusion that they could all succeed in making fortunes on the stock exchange," noted a newspaper of that time, which prompted the then Governor, Sir Bartle Frere (1862-1867) to forbid all civil servants to indulge in speculation and refused to promote those who disobeyed the order. A few found it more rewarding to disobey. J.M. Maclean (1835-1906) a high-ranking British official was reported to have said, "I have made more money out of these shares than I have saved during all my service in India and I don't mean to give up."

Two thirds of the banks in Bombay changed their managers in the light of the share mania.

All the trappings of a rising market were in evidence; tips-rumours-astrological forecasts-press interview. People gambled on any thing; stocks, silver, and even rainfall. The newspaper, Bombay Guardian, reported in 1872 an interesting incident of betting on the rain or Barsat Ka Satta. "The rage of speculation of people in this country is extraordinary. It finds vent in the chances of a day being rainy or otherwise. Over a hundred people, most of them Marwaris assemble, it is said, in a chawl near Khetwadi daily to bet on the probability of the rainfall." There were a few Nick Leesons too. Chunilal D. Saraiya (1862-1913), manager of India Specie Bank bet so heavily on silver, which made the bank to lose one and quarter million leading to its closure. The original Big Bull was Premchand Roychand who was also well known as the Cotton/ Bullion King. When he was on a visit to companies or banks, hordes of people used to follow him for either a tip or an insight. He could persuade banks to lend huge sums of money for share business that further buoyed the boom market at the time. An ordinary broker around 1865 earned about Rs 200 per day, a huge sum in those days.

The party, however, did not last long. On July 1, 1865, when hundreds of "time bargains" had matured which buyers and sellers alike defaulted that lead to the burst of the bubble. " Never had I witnessed in any place a run so widely distributed nor such distress followed so quickly on the heels of such prosperity," thus wrote Sir Richard Temple, who served as the Governor of Bombay.

A share of Bank of Bombay which touched Rs 2,850 at the peak of the market slumped to Rs 87 in the aftermath of the bust. Despite the intensity of the crisis, most of the brokers met their commitments.

Banks, on whose building steps brokers used to hover around for tips and trades, found it a big nuisance in the aftermath of the crash and drove them away out of their premises, which forced them to find a place of their own, which later turned out to be Dalal Street. Beginning with doing business under a banyan tree, a group of 318 persons, formed the stock exchange in July 1875, which led to the formation of a trust in 1887 known as "Native Share and Stock Brokers Association".

In 1895, it acquired premises on the same street and the new Native Brokers Hall was inaugurated in 1899.

The burst of 1865 share mania did not deter India finance to explore new opportunities. Following the collapse of 1865, there were several booms led by surge in the growth prospects of several key industries such as jute (1870), tea (1880 and 1890s), coal (1904 and 1908).

The mid-1970s once again witnessed sudden interest in the stock markets following the introduction of FERA which forced multinationals to dilute or divest their equity. Entry of Reliance Group in the early 1980s heralded a new thrust in the growth of equity cult and a new optimism was generated during the first phase of economic liberalisation in the early 1990s latter to be followed by yet another big boom on the back of technology and Internet companies.

The establishment of stock exchange in Bombay was quickly followed by other major centers; Ahmedabad in 1894, Calcutta Stock Exchange in 1908, Madras Stock Exchange in 1937, Uttar Pradesh and Nagpur Stock Exchanges in 1940, Hyderabad Stock Exchange in 1944.

As chequered and exciting its more than a century of existence has been, equally swift and smooth was the transformation of the BSE into one of the most modern stock exchanges in the Asian region. It has several firsts to its credit even in the intensely competitive environment.

First to introduce concepts such as free float indexing, obtain ISO certification for surveillance, establish huge infrastructure to enhance knowledge and know-how, put in place a trading platform that works on a sub-second response time and capacity of four million trades a day, export of trading platform technology to other stock exchange in Middle East, report highest delivery ratio among the major exchanges, lowest transaction costs, a record of lowest defaults, offer highest compensation for investor in cases of valid and approved claims. The most important change of BSE has been on the governance side which now consists of a rich and balanced mix of professionals and industry experts and the entire administration steered by professionals.

Once demutualised, it would become the first exchange in the country to become truly demutualised by offering stake to a wide range of institutional and individual investors.

The corporatisation plans, which are on the cards would enable it to further professionalise and expand the scope of business and pursue further innovations on products and processes.

Drawing from its rich past and its equally robust performance in the recent past, BSE will continue to remain an icon and an indicator of the Indian securities markets.

Picture by Paul Noronha

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