Under the Banyan Tree

Mumbai is a city of extremes, a place where people sing disparate tunes, and yet, are in harmony. Here, the differences not only co-exist but allow people and businesses to thrive. Nothing captures this essence better than Dalal Street - a place where fortunes are made and lost on a daily basis.

A trundle down the famed Dalal Street has never failed to quicken my pulse or imbue a general sense of elation and excitement. Effortlessly pedestrian, and fairly unassuming, Dalal Street is unlikely to invoke the glamour of its famed American counterpart. Yet, there is something to it that is hard to describe but easy to experience. The vicinity is the quintessential lofty old-world charm mingling with the plebeians. On the one hand, there is the majestic State Bank of India building with its bold Roman numerals, and on the other, there are a splattering of primarily Udipi restaurants that work with astounding speed and efficiency. At the ground level you will either see people jostling about with a sense of urgency or observe them sipping a cup of cutting-chai at the tapri while exchanging stock tips. Slightly higher than eye level, the electronic ticker, oblivious to the flurry of emotions it is causing, keeps moving languidly - one number after another from 9:15am to 3:30pm. And then there is the curved façade of the BSE building or Phiroze Jeejeebhoy Towers or simply, the stock exchange. This is where I feel like I have finally found my pulse.

The roots of the banyan tree

It is well-known that the Indian stock market dates back to the 19th century and is one of the oldest stock markets in Asia and the world. Its history is colourful, just like its present, and makes for an interesting story.

Stock markets in India and in the world have their roots in trading (not the stock kind). When trade started flourishing in the New World, merchants wanted to start large scale businesses to capitalize on emerging opportunities. However, this required a substantial amount of capital, which was challenging for standalone merchants to raise. So they decided to do the next best thing, i.e., pool their savings and conquer the world together.

As a result, merchants became business partners and co-owners with individual shares. This led to the creation of joint-stock companies. A concept established by the Dutch, joint-stock companies served as a viable business model even for struggling entities. In 1602, the Dutch East India Co. issued the first paper shares which enabled shareholders to conveniently buy, sell, and trade their stock with other shareholders and investors.

Almost two centuries later, somewhere in the neighbourhood of the 1830s, Indian corporate stocks and shares of banks and cotton press began trading in Bombay. In the two decades that followed, barely half a dozen brokers set up shop. However, activity picked pace, and in 1850, an unofficial group of 22 stockbrokers started trading under a banyan tree opposite the town hall of Bombay, each investing a (then) princely amount of Re. 1. However, it is interesting to note that this growing group of stockbrokers was a mobile lot, failing to lay roots at any one particular place and operating from various locales in and around its current home.

The first boom and bust

In 1861, the American Civil War broke out and with that, began the ‘share mania’ in India. Share prices of companies that didn't exist till a few years ago started rising astronomically. The Back Bay Reclamation share, with face value of Rs 5,000, traded at Rs 50,000, while the Bank of Bombay's Rs 500 share touched Rs 2,850.¹ The Civil War choked the traditional source of cotton for the British who then turned to India to meet their demand for cotton. What followed was a sharp jump in the price of cotton and a period of unprecedented gains for those engaged in cotton trade in India. Correspondingly, stocks of companies producing and exporting cotton saw their prices skyrocket.

People flocked to the stock market like moths attracted to a flame. The number of brokers increased as there was a rush of investors looking to capture these gains. There was plenty of money to go around as cotton traders invested their profits back into stocks in an attempt to make higher profits. By 1865, the Civil War ended. This inevitably led to a decline in the demand for cotton. India witnessed its first stock market crash.

By the 1870s, the Indian stock market had witnessed its first boom and its first bust. It now needed a formal presence.

Finally, this informal group of stockbrokers organised itself as the Native Share and Stockbrokers Association which, in 1875, was formally organised as the Bombay Stock Exchange (BSE).

While not many people might know this, it certainly won’t come as a surprise that amongst its illustrious founding fathers was Mr. Purbhoodas Jeevandas Kothari- DSP Group’s Founder & Chairman, Mr. Hemendra Kothari’s great grandfather!

BSE’s first home was in an old building near the town hall. A few years later, the plot of land on which the BSE building now stands (at the intersection of Dalal Street, Bombay Samachar Marg, and Hammam Street) was acquired and the BSE finally found a permanent home.

(To be continued…)

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Author’s note: The Indian stock market comes from humble beginnings. Yet, over the centuries, it has evolved into a formidable force as it saw its fair share of highs, lows, scams and more, over time evolving to meet the demands of the changing economic and technology landscape. The journey of the stock market, from the open outcry system to the BOLT and beyond can hardly be captured in a single piece. So, to do it true justice, this new series on the History of the Indian Stock Market will attempt to map its birth and evolution. Hope you enjoyed this first piece and are looking forward with bated breath to the upcoming ones!