1

Evolution of Bombay Stock Exchange along with Indian

Economy

By

Sambit Pradhan
(ME21009)

Under the esteemed guidance of

Prof. Bharatee Bhusana Dash

INDIAN ECONOMY
School of Economics

XIM University
Bhubaneswar – 752050, INDIA
April 2022
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Acknowledgement

I wish to place on record my deep sense of gratitude to all those who made
this project come alive and encouraged and guided me from the start to the
finish. I express my sincerity to the institution of the School of Economics, XIM
University, Bhubaneswar.

I would like to thank Prof. Bharatee Bhusana Dash, Asst. Professor, School
of Economics, XIM University, Bhubaneswar, for giving me this opportunity to
prove my calibre by submitting this research paper.

Finally, I would like to thank the authors whose ideas and matters have
been used again and helped me in compiling this research assignment
successfully and in time.

Thank You.

Sambit Pradhan

ME21009
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Contents
Abstract..............................................................................................................................4

Introduction........................................................................................................................5

Evolution of BSE................................................................................................................5

History of Bombay Stock Exchange...............................................................................5

Capital Market of India...................................................................................................6

Average market cap.......................................................................................................6

Reasons that led to increase in market cap...................................................................7

Growth Pattern...................................................................................................................8

Introduction to Sensex..................................................................................................8

Chronological reasons behind the growth of Sensex...................................................9

Equity as Wealth creators............................................................................................12

Economic implications and significant impacts of the BSE capital market on the Indian

economy..........................................................................................................................14

Reasons behind the compositional shift in Sensex towards IT and finance...................16

Conclusion.......................................................................................................................19

References.......................................................................................................................20
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Abstract

There has been a growing consensus among academics, politicians, and investors that

the stock market has played an important role in driving economic growth in both

developed and developing countries during the past several decades. A long-running

debate in economics centers on whether rising stock market activity influences or is a

result of rising economic activity, and this debate is still ongoing today. The entire

amount of research on the Indian capital market looks to be shamefully inadequate -

roughly 0.1 unit of study per institution per year - in light of its size, age, and expansion.

Capital market performance is evaluated in this article to see how it affects India's

economy.

This paper offers a fundamental perception about Sensex, and delves deep into the

evolution and history of Bombay Stock Exchange, along with detailed analysis about the

market capital of India and reasons that led to increase in market capital. The study also

offers in-depth information about the growth pattern and chronological reasons behind

the growth of Sensex and the economic implications and impacts of BSE on the Indian

economy. Furthermore, with evidence and statistics, the paper identifies the reasons

behind the compositional shift in Sensex and concludes that this shift is significant for

the growth of BSE as well as the Indian economy.

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Introduction

The Bombay Stock Exchange (BSE) is the oldest in Asia, presently called 'BSE Limited'.

Dalal Street in Fort is housed in the Phiroze Jeejeebhoy Towers and is home to the

world's most numerous firms. At the end of 2011, it was projected that the listed

businesses' equity market capitalization was $1 trillion, making it the world's fourteenth

biggest stock exchange by market capitalization. More than 5,133 Indian firms were

listed on the stock exchange market in March 2012. When discussing trading volume in

India and Asia, the phrase "BSE Sensex," also known as "BSE 30," is the most widely

used one. The entire market value of BSI and NSE (the National Stock Exchange) are

almost identical, while NSE has about double the number of shares traded.

Evolution of BSE

History of Bombay Stock Exchange

Five stock traders met beneath the banyan tree in front of Mumbai Town Hall in the

1850s to discuss business. As the number of brokers grew, the location of the meeting

became more and more variable. The Native Share & Stock Brokers Association was

officially established in 1874, over two decades after the modest group first convened

on Dalal Street. In 1956, the Securities Contracts Regulation Act became the Bombay

Stock Exchange (BSE), India's first officially recognized stock exchange. Sensex, which

stands for Bombay Stock Exchange Composite Index, was first introduced in 1986.
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A variety of stock derivative markets were opened in 2000 using this index, and several

futures trading contracts were executed, leading to a growth of the trading platform. In

1995, the Bombay Stock Exchange changed to an electronic trading system, which was

completed in about fifty days. BSE On-Line Trading, or "BOLT," is the screen-based

automated version of the trading platform with a daily order processing capacity of 8

million. Traders from all corners of the globe may now use the BSE platform thanks to

introduction of a centralized online trading system by BSE (Business Standard, 2022).

Capital Market of India

The Bombay Stock Exchange is now decentralized, and the management teams of the

exchanges are made with a group of directors. In addition to the Managing Director, the

board members of this corporation include representatives from numerous trade

organizations and other specialists. The members of this committee are involved in

formulating the rules, regulations, and procedures that govern the exchange process.

417 Indian cities and municipalities are represented on the Bombay Stock Exchange.

During the fiscal year FY04-05, BSE saw tremendous growth, and the exchange reaped

the benefits of that expansion (Mumbai, 2022).

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Average market capitalisation

Average Market Cap

250000.00

200000.00

150000.00

100000.00

50000.00

0.00
17 18 19 20 21 22
- 94 -95 -96 -97 -98 -99 -00 -01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13 -14 -15 -16 16- 17- 18- 19- 20- 21-
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 20 20 20 20 20 20
19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Market Capitalization – Bombay Stock Exchange Report

Reasons that led to increase in market capitalization.

Risk management, clearing, settlement, market data, and education are just a few of the

services offered by the BSE. Customers from all around the globe use it, and it has a

nationwide presence. Market integrity is protected by BSE procedures and processes,

which also help to expand India's stock exchange and encourage new entrants to the

market. ISO 9001:2000 accreditations were awarded to BSE as the first in India and the

second globally. Online trading has been certified to the Information Security

Management System Standard BS 7799-2-2002 for the first time, making it the second

exchange in the world (BOLT). It runs one of its most respected financial education

centres (the BSE Institute Ltd.). BSE's Central Depository Services Ltd. (CDSL) arm

also offers Depository services. Equity benchmark S&P BSE SENSEX is India's most

widely followed index from BSE. European and BRCS countries' top stock markets also
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provide trading opportunities for EUREX (Brazil, Russia, China and South Africa)

(Fincash, 2022)

It has been a major contributor to the growth of India's capital markets, notably the retail

debt market. The BSE is the first stock exchange in Asia to provide a stock exchange-

traded fund component (SME) for small and medium-sized businesses. The BSE has

expanded its services to include clearing, settlement, and risk management in the

capital markets. More than 7.2 million investor accounts, 4,700 listed firms, and over

USD 3 trillion in equity market capitalization demonstrate the success of BSE's efforts.

Chauhan, the CEO and MD of BSE, remarked that "BSE has been able to develop the

confidence and comfort within the investor community that would assist India to achieve

double-digit yearly growth." For decades, Asia's oldest stock exchange has been a

corporation with a wide shareholder base that includes the world's biggest stock

exchange, Deutsche Bourse (DBS).

The BSE is also home to a specific platform for trading in small and medium-sized

businesses (SMEs) and BSE Star MF, distributing mutual funds to investors. The

exchange introduced the Oman Crude Oil Guar Gum, Guar Seeds and Turmeric

derivatives were also introduced in October 2018 by the exchange. There are several

additional services offered by the exchange for market players, such as risk

management, clearing and settlement, and data and education services.

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Growth Pattern of Sensex

Introduction to Sensex

Sensex serves as the industry standard for India's Bombay Stock Exchange (BSE). A

basket of 30 equities reflecting India's biggest and most financially healthy BSE-listed

firms was introduced on January 1, 1986.

Stock market specialist Deepak Mohini invented the name "Sensex," which is a

combination of the phrases "Sensitive" and "Index." The Sensex is a gauge of the Indian

stock market's performance. It is often a barometer of the Indian stock market's overall

performance. BSE, formerly known as the Bombay Stock Exchange, boasts that its

index is the country's oldest, with data going back to 1979. The bellwether index acts as

a gauge of market mood and a comparison point for fund managers (Business

Standard, 2022)

The Sensex index represents Indian stock markets. In a nutshell, if the Sensex value

rises, it signifies that the values of stocks are rising as a whole. However, when Sensex

falls, it indicates that the real value of the stock market has fallen as well. Sensex is a

true barometer of the Indian stock market since it includes firms from all major economic

sectors

Until recently, setting up a shop in India was very difficult. A flood of billion-dollar

enterprises has emerged in the recent two decades; nevertheless, many promising new

fields like financial and educational technology. There is a significant churn in India's

business environment because these new enterprises have no ties to the conventional
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well-established corporate conglomerates.

Chronological reasons behind the growth of Sensex

As seen by a slide on the "Journey of Sensex" that BSE CEO Ashish Kumar Chauhan

tweeted on Friday, markets have seen much uncertainty over the years, from seeing the

Harshad Mehta fraud in 1992 to the bombings in Mumbai and the BSE building in 1993,

Kargil war (1999), terror strikes in the USA and Indian Parliament (2002), Satyam scam,

global financial crisis, demonetization, PNB scam, and Covid-19 (Business Line, 2021).

Key Events and Market Moves of Sensex throughout the years

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Since its inception in 1972, the S&P BSE Sensex has served as a reliable indicator of

the health of the Indian economy. This benchmark's reputation, integrity, and track

record highlight indices' important role in today's financial market. The S&P BSE Sensex

has seen several milestones in the Indian economy over the past 40 years and is a

testament to its progress.

The Sensex has risen from a low of 100 points to a high of 39,000 points in the previous

40 years. It fluctuated between times of rapid expansion and periods of consolidation. In

1990, the Sensex took 11 years to reach 1,000 points, but in less than a year, it reached

3,000 points. There was a cloud over the market due to the Harshad Mehta scandal, but

it also resulted in considerable changes to trading and settlement procedures.

Liberalization of investment and trade regimes ushered in a new age of competitiveness

and efficiency for the economy.

In the mid-1990s, the services sector, including financial services, telecommunications,

and others, became a more prominent part of the original composition, which included

stocks of firms in the industrial, material, and consumer discretionary sectors.

The Sensex took seven years to climb from 4,000 to 5,000 points, and it did it in 1999.

Knowledge-based industries like information technology, such as Infosys Ltd and TCS

Ltd, took centre stage during this time, and these companies became the most closely

monitored and followed components of the Sensex (Business Line, 2021).

Information technology, finance, consumer discretionary, healthcare, and even energy

were key parts of the Sensex in early 2000.

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Commodity prices surged worldwide in 2006, leading to an increase in the Sensex

index. Global liquidity helped Sensex reach 20,000 in December 2007. As soon as the

subprime crisis erupted in early 2008, the Sensex fell to 8,500 points in October of that

year, losing 64% of its value.

As India's economy recovered and a new wave of reforms was implemented in 2012,

this market gradually increased over the following five years. Following Indian economic

reforms since 2014, the market has benefited from ample global liquidity as central

banks maintain a helpful attitude. The Sensex slowly rose to 30,000 before hitting a new

record high of 39,000.

It closed above 30,000 for the first time in 2017 after crossing the 20,000-point barrier in

2007, according to S&P Dow Jones Indices South Asia head Koel Ghosh (Business

Line, 2021).

In the initial quarter of 2020, international stock catalogues announced extensive losses

that were prompted by the outburst of COVID-19. Specifically difficult was the duration

from March 6 to 18, where numerous stock catalogues lost more than 20 percent of

their price (Statista Research Department, 2022). Additionally, in 2020, the global

commodities boom increased international monetary liquidity, and the distribution of the

Covid-19 vaccine have all contributed to the market's upward trajectory. Since the

beginning of the year 2021, the benchmark BSE index has increased by nearly 25%.

The stock market had a banner month in August, with numerous new highs. In

September, the BSE indices rose by more than 9%. It's been a good year for the

benchmark index, with a gain of 12,297.14 points or 25.75% (Business Line, 2021).
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Nonetheless, the second half of 2021 saw a steady level of money for emerging COVID

variants, supply chain disruptions, and IPOs. The Sensex reached an increase of

58,409, and finished with a profit at 58,254 with 460 points. During the procedure, for

the entire week, the benchmark of Bombay Stock Exchange was at 1,130 points. The

August of 2021 reached a gain of 62,245, which was a record breaker, while 2021

ended with a strong profit of 10,503 points with 22 percent (SI Reporter, 2021).

Equity as Wealth creators

Between 1979 and 2019, Sensex's CAGR (compound annual growth rate) was 16.1%.

Using the total return index, this is more than 17%. Over the same period, gold provided

a 10% return in rupees to investors. Sensex has produced the best return of any asset

class in India during the previous 40 years, with a compound annual growth rate

(CAGR) of over 17%. Over the years, India has grown tremendously," Chauhan added

(Andrade, 2019).

Assuming one has put ₹10,000 in a container of stocks addressing the Sensex and the

equivalent was rebalanced each time the Sensex went through a change, then, at that

point, their amount for the day will be more than ₹45 lakh. A similar measure of cash put

into gold for a similar period will have the value ₹4 lakh right now, and in fixed deposit of

the bank, it will have increased to somewhat above ₹2.5 lakh, without considering in the

expense. With these amounts, there is no contention that upholds a range that is

searching for development not having satisfactory openness to value investments

(Andrade, 2019).
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However, the process is difficult and people must finish what has been started to bring

in cash from stock exchanges. After the 2008 worldwide monetary crisis, for the

consecutive five years, the Sensex increased 150%, a CAGR of 20%. The person who

had decided to remain safe and hauled their cash out would have missed the rally.

People need to comprehend the unstable idea of business sectors as well as its

capacity to increase in value over the long run as monetary cycles turn. This will assist

everyone with being contributed so that their portfolio can profit from the upswing when

it works out (Andrade, 2019).

Economic implications and significant impacts of the BSE capital market on the

Indian economy

Legitimate channelization of Capital Creation - With the improvements of monetary

arrangements, there is an appropriate design set up where the assembled capital is

conveyed to associations where the proprietors think that they would be able to procure
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productive returns from here on out. So as to address the actual value of economic

mechanisms, the stock exchange rushes to acclimate to market unpredictability, which

assists both companies and clients by either drawing in or putting capital inflows down.

Enrollment of Investments - The capacity to group reserve funds from various areas is

straightforward in a suitable capital business sectors scenario. The member in these

business sectors is empowered by the reasonable profit and liquidity of capital market

mechanisms. Reserve funds might be consumed in less effective, noticeable spending

and wasteful mechanisms on the off chance that there is no successful capital market

component.

Increasing Capital - Capital business sectors empower organizations to gather

permanent capital. A few proprietors cannot hold assets for a lengthy timeframe,

permitting offers to permit various purchasers to buy and sell stocks, permitting the

company to safeguard stable money. Notwithstanding domestic resources, stock

exchanges draw in assets from international environment as states of bonds, shares,

and other monetary instruments. Alongside the cash of global financial investor,

innovations from different nations can be presented, which is valuable to the monetary

development of the nation (Chinthapatla & Chandra, 2021).

Liquid and Permanent Market - the capital business sectors are the spots where the

dealers and purchasers of the safeties are transferred to one spot to play out the

exchanges. The possessions can be effectively changed over into money as these

merchantable safeties are more liquid in comparison with different instruments.

Establishment of differentiated administrations - capital business sectors empower the

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monetary foundations to perform different administrations, for example, giving aptitude

counsel, giving award of advances to business people, advancement of associations,

guaranteeing offices, direction towards support in the value markets, specialized help

and so forth. Likewise, they help during the planning of attainability reports, preparing to

the corporate, recognizable proof of development possibilities in the area.

Recovery of backwards locations and sick units - capital business sectors furnish

debilitated units with ideal monetary help to restore their tasks. The assets gained

through capital business sectors can be used for the drawn out undertakings to be

executed in the country and in reverse regions. This assists the financial advancement

of the provincial and backwards regions (Chinthapatla & Chandra, 2021).

Consolation for investment and constancy of costs - Capital business sectors permit

those who save to partake in companies, political associations, and different initiatives

across an assortment of monetary mechanisms. While spending develops and financing

costs fall, capital establishment and dissemination become more compact. Markets are

productive in their cycles and configuration, bringing about monetary instrument

dependability and a decrease in security cost unpredictability. The soundness of the

mechanisms is accomplished by the inventory of financing at a low pace of interest, the

redirection of assets to productive endeavors, and the end of hypothetical tasks, in

addition to other things.

Advancement of dependable industrial development - capital market surveys the

monetary status of the corporate which advances proficiency and urges the financial

backers to put resources into useful modern area. The assets are assembled towards
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corporate protections for investments. This cycle fuels the business development

followed by the area and monetary improvement of the country.

Reimbursement to the financial backers - Capital business sectors guarantee venture

marketability by broadcasting the progression of monetary instruments, permitting

financial backers to screen their portfolios and change their investment decisions to

additionally alluring lines if vital. The economy is adequately well-equipped that the

privileges of purchasers are safeguarded by the production of a Stock Exchange

Compensating Fund in case of a disaster or burglary by banks or organizations.

Designation of Risk - capital business sectors offer returns to the financial backers in

view of their hunger for a challenge. Higher risk mechanisms offer exceptional outputs

and simultaneously higher failures to the financial backer. There is an insight that the

new dangers are contrarily connected to the high-risk mechanisms (Chinthapatla &

Chandra, 2021).

Reasons behind the compositional shift in Sensex towards IT and finance

Rivalry prompting agitation, Sensex has additionally perceived a transformation in

finance and Information Technology. A long time after liberalization, market changes

have made it simpler for new companies to start activities and risk the contemporarily

recognized companies, which are a major focus in the 2019-2020 Economic Survey

(Nair, 2021). On this stir, the overview had brought up over the two decades, the share

of IT companies and economic administrations in Sensex’s complete market

capitalization had ascended.

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"The powers of inventive obliteration after liberalization in the Indian economy have

prompted the ascent of new areas, for example, IT and financial sectors. Basically non-

existent in the Sensex of the mid-1990s, the portion of these areas in the complete

market capitalization has expanded throughout the long term, to such an extent that

these areas dominate the Sensex as of now," the study had said.

The study had recognized that this agitation has additionally prompted a more

broadened blend of organizations in with far minor grouping of market power

empowering more prominent rivalry. According to the report, "areas once recognized as

pillars of the Indian economy are being uprooted by new areas carrying with them new

innovations and products. The upper hand of well-settled companies is overall quickly

tested by new, more modest and more flexible companies. For instance, every five

years, approximately one out of three companies in the Indian economy can anticipate

to be tested in a gigantic manner by the powers of imaginative annihilation (Nair, 2021)."

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“Consumers benefit from an increased variety of goods and services, lower prices and

incessant improvement in the quality of existing products,” it had added. Likewise, the

report also states that the distinction between the spans of the biggest and littlest

companies is quickly contracting, and thus the restraining infrastructure power in the

economy is reducing and clearing a path for additional competitive business sectors.

The report concludes that the customers benefit from an expanded assortment of labor

and products, lower costs and ceaseless enhancement in the nature of existing items.
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Conclusion

The Sensex has stayed the fundamental measure for the strength of the Indian

economy and even now shows essentialness. Sensex, which has been an indicator for

the Indian economy, has given 17%+ returns throughout the course of recent 40 years.

If one takes a look at the graph of Sensex for as long as anyone can remember, they

will actually perceive that when India thrives, the Sensex thrives, and when Indian

economy declines, the Sensex declines as well. It is an observer and portrayal of India's

triumphs and battles, its expectations and stresses. Sensex is an estimation that

demonstrates India and its financial situation each second. It shows that the image of

India's yearnings will keep on directing India's future generation as it has done

previously (Andrade, 2019).

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References

Andrade, S. (2019). Sensex’s roller-coaster journey: From 100 to 39,000. Retrieved 2022, from

Mint: https://www.livemint.com/market/stock-market-news/sensex-s-roller-coaster-

history-from-100-to-39-000-1554225243494.html

Business Line. (2021). ourney of Sensex: From 1,000 to 60,000 in over 31 years. Retrieved 2022,

from Business Line: https://www.thehindubusinessline.com/news/journey-of-sensex-

from-1000-to-60000-in-over-31-years/article36645741.ece

Business Standard. (2022). What is Sensex? Retrieved 2022, from Business Standard:

https://www.business-standard.com/about/what-is-sensex#collapse

Chinthapatla, P., & Chandra, D. C. (2021). Evaluation of Indian Capital Market and its Influence

on Economic Growth. International Conference on Management, Science, Technology,

Engineering, Pharmacy and Humanities (ICM STEP), Volume 8, Issue 1, 10-14.

Fincash. (2022). Bombay Stock Exchange - BSE. Retrieved 2022, from Fincash:

https://www.fincash.com/l/basics/bombay-stock-exchange

Mumbai. (2022). Bombay Stock Exchange. Retrieved 2022, from Mumbai : Bombay Stock

Exchange: https://www.mumbai.org.uk/bombay-stock-exchange.html#:~:text=History

%20Of%20Bombay%20Stock%20Exchange&text=As%20per%20the%20Securities
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%20Contracts,of%20the%20Bombay%20Stock%20Exchange

Nair, R. (2021). Hail the rise of a 100 Indian unicorns, and no, Ambani or Adani have nothing to

do with these. Retrieved 2022, from The Print: https://theprint.in/economy/india-

notorius-for-stifling-entrepreneurship-sees-a-deluge-of-billion-dollar-companies/

629276/

SI Reporter. (2021). Sensex gains 460pts to end record-breaking year with a bang; up 22% in

2021. Retrieved 2022, from Business Standard:

https://www.business-standard.com/article/markets/market-live-sensex-nifty-cms-info-

indigo-121123100161_1.html

Statista Research Department. (2022). Change in global stock index values during coronavirus

outbreak 2020. Retrieved 2022, from Statista:

https://www.statista.com/statistics/1105021/coronavirus-outbreak-stock-market-

change/
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