share market history

History of stock exchange in the world. Indian Share Market History

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How did the stock market start?

A brief history of the Stock Market and How it started

What was the reason and how did the companies benefit from this? We have to understand how the trading started?
It all started in the 16th century. When European countries were colonizing and when they were looking for luxurious products. Which they couldn’t have had found in the European Countries. So they began to import and export from the colonies or started trading.

They had three options

Roadways: This was a costly option and looking at the cost of the fuel and the conditions of the tolls can’t be trusted.
Railways: This was a good option but again not cost-efficient. As the steam engine, what was not invented.
Waterways: This was a cheap option. In a faster one as well so they opted for the waterways.

World First Stock Exchange

How did the stock market start 
While shipping was a good and a cheaper option. They’re lifeless these were pirates and natural calamities like storm cyclones etc. This led to losses for the merchants. So they decided to start asking for money from the investors or the public. This led to the first stock exchange of the Board. That is Amsterdam Stock Exchange

Amsterdam-Stock-Exchange
Image Source: Wikipedia

This was the first stock exchange and this Stock Exchange was the most valued company to date. 
The East India Company this company is said to be valued at around eight trillion dollars. If it exists today, that’s the GDP of England, Germany and India combined. 

east india company
Image Source: Wikipedia

Indian Stock Market History
How did the Indian stock market start?
History of BSE

In between 1861 to 1865 American Civil War took place. Which resulted in an acute global shortage of cotton. All the Langsam Mills had to turn to other sources including India as cotton was exported from India in very large quantities, Its price soared. Surat cotton for example went from a price of 3 pence per pound to 20 pence per pound. That’s more than six times.

civil-war-america
Image Source: Wikipedia

Hence between 1861 and 1865 export of cotton resulted in an unusual influx that fell in the form of bullion, amounting to 850 million rupees. Which landed in the beginning shows of Bombay. Naturally, this brought in massive investment opportunities. Such an opportunity rank up spontaneously and brought with them a new generation of entrepreneurship. Being in the right place at the right time played an important role.

You Can Also Read: What is an IPO? How to invest in an IPO?

History of BSE

Established in 1875 as the native share and stockbrokers Association. The BSE is the oldest Stock Exchange in Asia. The history of the BSE is the history of its people. The many men who founded the exchange and the many people who took the torch forward and built it into the premier institution that it is today. There aren’t many institutions in the country that can boast of having a 125-year-old history, Over this lifespan. 

The BSE has had good times and bad times. Adversity and the way those at the helm of affairs coped with it is what makes BSE today. An institution that is vibrant and dynamic. The passing of the Companies Act 1850 paved the way for stock trading in India. But this activity could not pick up in the absence of a large basket of stocks available for trade. 

The number of shares available was few and people didn’t really have large investable funds for trading in stocks. Brokers were a handful of only six. There was no trading hall or Stock Exchange building. Whatever little trading that took place was carried out in the open under the balmy shade of a banyan tree.

Premchand Roychand is infamously known as the cotton king.

Premchand_Roychand
Image Source: Wikipedia

Who by virtue of being the first Indian broker to read and write in English found himself suited to lead the equity markets in Mumbai. He then floated helped float several companies with sought equity investment With increasing investment, there was increased inactivity and the number of brokers increased to between 200 to 250. When things cooled down at the end of the American Civil War the organization buildup of the BSE started. At first, an informal association was created in 1875. The brokers formalized the arrangement through an indenture spelling out articles of association of the native share and stock brokers Association in July of 1875.

318 persons became on payment of a princely sum of one rupee as entrance fee members of the Stock Exchange Mumbai.

1875. They first started trading under a banyan tree where they would allow people to buy and sell shares of companies. They passed a resolution resolving to form an association for protecting the character status. An interest of natives shares in stockbrokers and of providing hall or building for the use of the members of the Association. It wasn’t until 1887 however that they could formalize their resolution by the trust deed. Which was the foundation of the present Bombay Stock Exchange.

What is Sensex and Nifty
How many companies are listed in Nifty and Sensex?

In India, the NSE (National Stock Exchange) & the BSE (Bombay Stock Exchange) are two major stock exchanges.

The stock exchange is a meeting place for buyers and sellers of stocks to make a deal. Nifty and Sensex are both indices. The Bombay Stock Exchange’s major index is the Sensex, while the National Stock Exchange’s primary index is the Nifty.

There are more than 5000 companies listed on the Bombay Stock Exchange. The National Stock Exchange has roughly 1600 businesses listed. It’s difficult to keep track of various companies in order to understand the market’s state, which is why the index was created.

bull bear fight

How Nifty and Sensex Work?

You don’t need to track all of India’s businesses to learn about the state of a few. Only by observing Nifty & Sensex, you can figure out whether the market is up or down. When the Sensex or Nifty is rising, i.e. when they are green, we say the stock market is rising. When Sensex or Nifty displays a red color or signal, the stock market is said to be in decline.

As I previously stated, just as blood reports explain a patient’s health, Nifty and Sensex define the current state of the stock market.

Nifty & Sensex are green in color, which implies that they are trading at prices higher than yesterday. This means that the Nifty and Sensex are trading above the trading point where they closed yesterday. The Nifty and Sensex are in red, indicating that they are trading at prices lower than the previous trading day’s closing value.

How did Sensex get its name?

The term Sensex is a combination of the words ‘Sensitive’ and Index.

The Sensex is created by combining the letters ‘Sens’ from Sensitive and ‘ex’ from Index. In Sensex, 30 well-established companies from different sectors having excellent track records are present. This means that the movement of the Sensex is entirely dependent on the share price movements of these 30 companies

How did Sensex get its name?

The term Sensex is a combination of the words ‘Sensitive’ and Index.

The Sensex is created by combining the letters ‘Sens’ from Sensitive and ‘ex’ from Index. In Sensex, 30 well-established companies from different sectors having excellent track records are present. This means that the movement of the Sensex is entirely dependent on the share price movements of these 30 companies

Why is nifty called Nifty?

The word “Nifty” is created by combining the words “National” and “Fifty.”

Fifty is present because the Nifty contains 50 companies. Nifty contains 50 well-established companies from various sectors with proven track records. This means that the Nifty movement is heavily influenced by the share prices of these 50 companies.

The Nifty is the NSE’s main index, also known as the Nifty 50.

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Difference between Sensex and Nifty

In simpler terms, Sensex’s movement depends on the performance of 30 companies present in Sensex. While the Nifty movement is determined by the performance of the Nifty’s 50 constituent companies.

The Nifty generally includes large, well-known, and well-established companies in their respective sectors, and these companies are drawn from a variety of other industries.

This way Nifty and Sensex covers companies from different sectors. As a result, the Nifty and Sensex indexes reflect the performance of the stock exchanges.

Other indices are available on stock exchanges. Almost all indices are available on the NSE and BSE. Sectoral indices include well-established companies from a specific industry.

So, if you only want to monitor the banking sector and see how it is performing? Then you can look at the indices by looking at BANKEX on the BSE or BANK NIFTY on the NSE.

Small-cap and mid-cap companies have separate indices on the stock exchange. S&P BSE Small-Cap, S&P BSE Mid-Cap, Nifty Mid-Cap Fifty, and so on.

To know the condition of large-cap, mid-cap, and small-cap.

Benchmarks include the Nifty, Sensex, and other indices. It means that you can figure out through Nifty and Sensex whether your investment has provided you with better returns or not.

For example, in 2014, Nifty provided a return of 31.43%. This means Nifty rose by 31.43% in 2014 and Sensex in 2014, providing 29.58% return. This means that the Sensex increased by 29.58 percent in 2014. So, if your investments gave you more returns than this, then you can say that your returns on investments were amazing. If your investments gave you a lower return, you can say that your investment returns were poor.

Similarly, if you have invested in a banking stock, you can compare your returns at the BSE’s BANKEX and the NSE’s BANK NIFTY. If you have invested in mid-cap stocks, you can compare your returns to those of mid-cap indices. The Free Float Market Capitalization method is used to calculate the Sensex and Nifty.

The Sensex is the Free Float Market Capitalization weighted average of the 30 companies listed on the Sensex.

The Nifty is the Free Float Market Capitalization weighted average of the 50 companies that comprise the Nifty.

Difference between Sensex and Nifty
How nifty is calculated?
How Sensex is calculated?

You don’t need to go into detail about the calculation of Nifty and Sensex. You only need to pay attention to whether the Nifty and Sensex are rising or falling.

If a stock on the Nifty/Sensex is consistently underperforming. The stock exchange can then replace it with a well-known and consistently high-performing stock.

The stock exchange is the sole decision-maker in this matter.For instance, in 2016, NSE replaced Cairn India, Vedanta, and PNB with Aurobindo Pharma, Bharti Infratel, and Eicher Motors. The way you discover the current situation of Stock Market India through Nifty & Sensex. Similarly, you can know the stock market conditions of foreign countries by viewing major indices of stock exchanges.

For example, if you want to learn about Japan’s stock market, you can look at the NIKKEI, the Tokyo Stock Exchange’s index.

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