Bulls, Bears, and Bharat: Exploring India's Stock Market History.
With the year nearing its end, the market seems to be losing its momentum. After a brief rally, both major indices, Nifty 50 and Sensex, ended Wednesday’s trading session in the red, each dropping by around 0.5%.
The main reason?
Key private banks like ICICI, HDFC, and Axis Bank faced losses, which put pressure on the market. Adding to this, global uncertainties, the closely fought US elections, and poor quarterly results have kept investors cautious.
Foreign investors are also pulling their money out of India and shifting to China, where new economic policies are driving market gains.
But today, we’re not here to focus on why the markets are down. Instead, let’s look back at the Indian stock market’s journey and explore what the future holds.
Trading Under the Banyan Tree
Our story starts not with the flashy stock exchanges of today but under a modest banyan tree on Bombay’s Dalal Street in the 1850s. Back then, brokers would meet informally to trade stocks of cotton textile mills, which were booming due to the American Civil War.
What began as casual meetings eventually formalized, and by 1875, these brokers established the Bombay Stock Exchange (BSE)—the first stock exchange in Asia.
For many years, trading was done in person. Brokers used hand signals to make deals, and prices were written on blackboards.
The brokers on Dalal Street were like a close-knit group with their own set of rules and traditions.
The BSE later came to be known as Dalal Street, named after the area that became synonymous with stock trading.
The First IPO and Birth of Equity Culture
In 1977, something monumental happened that forever changed the Indian stock market: Reliance Industries held its Initial Public Offering (IPO).
Before this, investing in shares was largely a playground for the wealthy, but Reliance's IPO opened the door to retail investors.
It was Dhirubhai Ambani’s brilliance that helped popularize stock market investments among ordinary Indians. He was a master at building trust with common people, inviting them to be part of his company's growth journey.
Reliance’s IPO was not just about raising funds—it marked the birth of a true equity culture in India. With an initial issue price of ₹10, Reliance’s share price multiplied several times over the years, turning early investors into millionaires. The IPO attracted over 50,000 retail investors—a record at the time—highlighting how Ambani changed the investing landscape.
The Era of Market Manipulation:
In the late 1980s, a powerful network of brokers worked behind the scenes, shaping the Indian stock market through something called "badla financing."
This was an informal lending system that allowed brokers to trade stocks without paying upfront, giving them the power to take huge financial risks and influence stock prices.
One of the most influential figures was Manu Manek, who became known for targeting large companies like Bombay Dyeing. By short-selling their stocks, he could drive down prices, impacting the entire market.
During this time, over 70% of trades were funded by badla financing, leading to high daily trading volumes. Despite this, regular investors were mostly left out, with only a handful of brokers truly controlling the market.
The 1990s: Liberalization and the Big Bull
The biggest shift in India’s economic landscape came in 1991 when Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh introduced economic reforms.
This move opened up the Indian economy to the world and brought an end to decades of socialist policies. Foreign Institutional Investors (FIIs) began to invest in Indian stocks, injecting new life into the markets.
The 1990s also saw the rise of Harshad Mehta, the original "Big Bull."
Mehta’s aggressive tactics and manipulation of banking loopholes led to a market boom in the early 90s, but it all came crashing down in 1992.
When his financial scams were exposed, it shook the market to its core and led to the creation of the Securities and Exchange Board of India (SEBI) to regulate the market and prevent such fraudulent practices.
The Importance of SEBI: Taming Dalal Street
In the aftermath of the 1992 Harshad Mehta scam, SEBI’s role became critical. It was introduced to curb insider trading, prevent fraud, and regulate the market more effectively.
SEBI began enforcing rules on insider trading and market manipulation, disallowing badla in the early 2000s, and introducing rolling settlements in 2001.
By 2003, market transparency had increased significantly, with the average settlement period reducing from 14 days to just 2 days.
This built trust among investors and increased market liquidity.
Changing Sectors on Dalal Street
Different decades favored different sectors. In the 1990s, the information technology (IT) sector emerged as a market favorite, with companies like Infosys and Wipro delivering stellar IPOs.
Infosys, which went public in 1993, became the poster child of India’s IT boom. Its co-founder, Narayana Murthy, showed the world that a small tech startup in Bangalore could turn into a global giant.
As the IT sector rose, other sectors like pharmaceuticals also caught the market's eye. Sun Pharmaceuticals, Lupin, and Dr. Reddy’s Laboratories surged in the 1990s and 2000s as they tapped into the global demand for generic drugs.
The early 2000s brought another wave—the real estate and infrastructure boom. Investors were optimistic about India’s rapid urbanization, and companies like DLF and Unitech saw their market values soar.
However, the 2008 Global Financial Crisis burst the real estate bubble, leading to a sharp correction in the market.
The Market Between 2011 and 2020: A Decade of Transformation
The period between 2011 and 2020 was transformative for India’s stock market. The global financial crisis of 2008 left a lasting impact, but by 2011, the Indian markets had started recovering.
From 2011 to 2020, the BSE Sensex grew from around 18,000 points to over 41,000 points, nearly doubling in value. This period saw the rise of new sectors, a boom in consumer-driven companies, and the deepening of market participation.
During this decade, significant reforms shaped the market:
In 2016, the government’s demonetization initiative removed ₹500 and ₹1,000 currency notes, leading to increased digital transactions and giving a boost to fintech companies.
In 2017, GST was implemented, simplifying the tax regime and benefiting sectors like logistics, manufacturing, and retail.
In 2018, the Securities Appellate Tribunal upheld stricter SEBI guidelines on corporate governance, ensuring more accountability for listed companies.
Retail investors also began to dominate during this period, with a surge in mutual fund investments through SIPs (Systematic Investment Plans). SIP contributions crossed ₹8,000 crore per month by 2019, reflecting a shift toward disciplined long-term investing.
Muhurat Trading :
One unique feature of the Indian stock market is Muhurat Trading, a special one-hour trading session that happens every year during Diwali. The practice dates back decades and is deeply rooted in Indian culture.
Diwali marks the victory of light over darkness and is considered an auspicious time to start new ventures.
During Muhurat Trading, the markets open for a symbolic hour in the evening. Investors place small trades as a gesture of faith in the future of the markets. Families gather, dressed in their traditional best, and celebrate not just the festival of lights but also the spirit of hope and prosperity in the financial world.
On Diwali 2023, the one-hour Muhurat session saw over ₹9,000 crore worth of shares traded, reflecting the optimism and positive sentiment prevalent in the market around this time.
You can read more on Muhurat Trading on our Instagram page.
The Road Ahead
In one of my Weekly Bazaar Talks, I discussed India’s current position on the global economic stage. While we’re now the fifth-largest economy in terms of GDP size, there’s still a huge gap between us and the largest economies like China and the U.S. Even with a population comparable to China, our economy is only a fraction of its size. But this gap isn’t just a challenge—it’s also a massive opportunity for growth. As India’s per capita GDP has crossed $2,600, rising incomes are leading to increased spending, which is a key driver of the country’s long-term economic potential.
This perspective lays the groundwork for understanding why there’s so much optimism around India’s future. Despite recent highs in the stock market and growing investor confidence, there are also a few bumps in the road. After the sharp pandemic lows of March 2020, India’s Nifty 50 index has shot up by over 200%, pushing the country’s total market cap to around $5 trillion.
Recent months have seen volatility, and for good reasons. While stocks have climbed steadily, mixed signals from the economy are causing caution. Earnings in the first quarter of 2024 didn’t quite meet expectations, and GDP growth slowed down to a 15-month low.
Adding to the concerns, unexpected weather events—like extreme heatwaves followed by floods—have impacted demand. The market has been range-bound lately, not following the bullish trend we got used to in the years following 2020.
Despite some ups and downs, the market has stayed steady, largely due to more involvement from domestic and retail investors. This growing participation has boosted liquidity, increased market visibility, and raised capital levels.
However, India is still underrepresented in global investment portfolios, and foreign inflows have recently slowed. Compared to early 2024, these inflows are now nearly half, showing a hint of caution among foreign investors.
It’s not just equities—debt investments have played a role too. India saw strong debt inflows earlier this year after being included in J.P. Morgan’s bond index. But things have started to shift with state elections coming up, and investors are likely waiting for more clarity before making big moves.
Now, while these short-term factors matter, the real story of India’s market is its long-term growth potential.
According to J.P. Morgan’s economic research, India’s GDP is expected to grow at 6.5% in 2024. And if we look ahead, the International Monetary Fund (IMF) estimates an average growth rate of 6.1% over the next five years.
By 2027, India could be the third-largest economy in the world, only behind the U.S. and China. And with a target of doubling GDP from the current $3.5 trillion to $7 trillion by 2030, the growth opportunity is massive.
This optimism is built on several factors. India’s young and growing population, the increasing wealth of its middle class, and supportive government policies are key drivers. The working-age population is set to peak around 2041, which means more people earning and spending money. That’s a big positive for economic growth.
India is also making strides in becoming a global supply chain alternative. The government’s goal of hitting $1 trillion in annual goods exports by 2030 is part of this plan.
Right now, manufacturing in India contributes less than 20% to GDP, and that number hasn’t changed much in recent years. But the focus is shifting toward not just substituting imports but also increasing exports.
While local production has helped reduce imports, India needs to step up its game in capturing a larger share of global exports. In services like IT and biotech, India is already a strong player, but the push towards becoming a manufacturing hub is crucial for the next leg of growth.
Despite these challenges, India’s lower labor costs and large workforce are strong selling points for global businesses looking to diversify supply chains away from China.
After COVID, exports have become the largest contributor to India’s GDP, with government incentives now starting to pay off.
Overall, India’s growth story is strong, even with a few challenges here and there. With a young population, helpful government policies, and a bigger role in global trade, India’s future looks bright.
There may be some obstacles to work through, but India has the potential to become one of the world’s leading economies.
If things keep moving in the right direction, India could soon be a powerful force on the global stage.
And with that, we wrap up this month’s case study! I’d love to hear your thoughts—what stood out to you, and where do you see the future of Indian markets heading?
Thanks for reading,
Happy Diwali to you and your family.
This is Parth Verma,
Signing off.
Loved it! and Happy diwali !
Question - "However, India is still underrepresented in global investment portfolios" - How do we derive at this, sir? What source data can be used to interpret and conclude aforesaid sentence?