Fintech refers to the application of software and hardware to financial services and processes, making them faster, easier to use, and more secure. If you thought fintech was only about well-known money transfer services such as Paytm, PhonePe, and Stripe, get ready for a surprising journey. We’re going to explore the history of the Indian share market – The Mother Of All Fintech Revolutions. It’s a fascinating story you won’t want to miss!
The Context
According to a recent study featured in Inc42, the potential market size for fintech in India is projected to hit an impressive $2.1 trillion by the year 2030. This substantial growth is estimated to be driven by a compound annual growth rate (CAGR) of 18% starting from 2022. Remarkably, since 2014, the fintech sector has managed to attract a whopping $25.8 billion in investments, resulting in the birth of 22 unicorns and nurturing 33 unicorns along the way.
Money transfer services have become so common that we often see them as typical examples of fintech. However, while big fintech players like Paytm, PhonePe, Stripe, Revolut, and Square are well-known, truly thrilling action is unfolding in the world of stock exchanges. Surprisingly, India’s stock markets are leading this financial revolution, outperforming others by a significant margin.
To give you a general idea, India boasts over 6,000 companies listed on its stock exchanges, making it the largest in the world. Every single day, these exchanges facilitate transactions totaling approximately Rs. 60,000 crores, and they accomplish this at a lightning-fast pace of less than 6 microseconds per transaction.
What’s more, they’re actively striving to make it even faster, aiming for mere nanoseconds to cater to the growing demands of high-speed algo-trading. And all of this incredible power, speed, and accessibility is just a tap away on your smartphone. The Indian share market has a long history, starting way back in 1875 when the first stock exchange was set up in Bombay, which we now call Mumbai. In the 148 years since then, it’s transformed into one of the world’s most lively and efficient markets.
In this article, we’re going to take you on a journey through the history of the Indian stock market, from its modest beginnings to its lightning-fast transactions and high-speed settlement systems we have today. We aim to keep the spirit of traditional financial journalism alive for our readers as we explore this fascinating journey.
The Tale of Financial Transformation
The inception of India’s organized stock exchange dates back to 1875 when Bombay hosted the first one, also recognized as Asia’s oldest. Later in 1894, the Ahmedabad Stock Exchange emerged, primarily focusing on textile mill shares.
Fast forward to 1995, India’s stock market made a groundbreaking shift by adopting electronic trading, revolutionizing the way securities were traded. Today, India boasts two primary stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). While the BSE had a more traditional approach, a modern player, the NSE, entered the scene in 1992, introducing tech-driven trading and enhanced transparency.
Companies in India have choices when it comes to listing their shares. Some opt for a single exchange like NSE, while others prefer dual listing for broader visibility, leading to variations in the number of listings on both platforms. As of January 13, 2023, the Bombay Stock Exchange has welcomed approximately 5,311 companies, with a combined market capitalization of approximately Rs. 2,82,13,564 crores.
On the other hand, the National Stock Exchange, as of December 31, 2022, featured around 2,113 companies, with a total market capitalization of roughly Rs. 2,75,67,268 crores. With so much happening around, the stock market landscape in India has undergone significant transformation over time that often gets forgotten under the market noise.
The Monochrome Days
Before the digital age, trading stocks felt a bit like those prehistoric folks going on a “hunting and gathering” adventure! Investors had to pick a stockbroker and usually visit their office in person. They’d share their order, specifying how many shares and which company they wanted. This order could be given over the phone or in person. The broker would hand them physical forms to fill out with all the transaction details – company name, share quantity, price, and personal info.
To pay for the shares, investors used checks or demand drafts made out to the company they were buying from. Once the order was done and payment received, the company issued a physical share certificate in the investor’s name. This piece of paper proved ownership. Investors had to keep these certificates super safe because losing them was a big hassle, and getting replacements took forever.
If they wanted to sell, a similar process happened with their broker, and those physical certificates had to be passed on to the buyer. Overall, it was a lot of paper, time, and physical stuff, which had its own safety and trading challenges.
To evoke memories, we’ve preserved some mint-condition old share certificates in our office. These valuable artifacts serve as treasured souvenirs, and we’re offering a sample to our readers to allow them to experience a journey back in time.
But in 2003, everything changed with the dematerialization of shares. Trading got easier, and paperwork was reduced significantly.
Efficiency Improvements
While ‘speed’ commonly brings to mind the swift F1 racing circuits, the Indian stock market has also achieved substantial progress in speedy settlement times similar to a racetrack.
This evolution showcases the Indian share markets as leaders in the fintech industry. From the initial 10-day settlement period to the current T+1 settlement, the market has undergone a substantial transformation.
The year 2009 witnessed the introduction of T+2 settlement, reducing settlement time to two days. In 2017, the India International Exchange (INX) was launched, offering a platform for trading in global products. The most recent shift to a ‘trade-plus-one’ (T+1) settlement in January 2023 has been monumental, enabling trade-related settlements within 24 hours. What’s more, SEBI’s strong commitment to making share trade settle in just one hour in the future, along with their idea of instant settlement, shows that they’re thinking ahead.
On September 5, 2023, Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI), shared that the market regulator is aiming to reduce the time it takes for share trades to settle to just one hour by the end of this fiscal year. If this proposal becomes a reality, India will become the very first country globally to offer such a speedy settlement process.
What’s Powering the Indian Stock Market?
The evolution of the markets isn’t a spontaneous process; it’s powered by the collective efforts of millions of retail investors and institutional experts who drive this progress. Let’s explore some key factors that contribute to the remarkable success of fintech.
Average Transactions and Volume
The Indian share market’s growth is evident in the surge of average daily trading volumes. From ₹100 billion in the year 2000 to over ₹1 trillion in recent years, it underscores the market’s immense activity.
Middle-Class Rise
Let’s compare a few stats from the West. According to a recent report from The Washington Post, around 61 percent of Americans now own stocks, marking the highest ownership level since 2008. Interestingly, millennials seem to prefer traditional investments over cryptocurrencies.
Now, on the flip side, the number of Demat account holders in India is relatively minimal but gradually skyrocketing. All thanks to the persistent persuasion tactics of the promoters and the power of social media advertising! In January 2023, there were a staggering 11 crore accounts, compared to just 8.4 crores in 2022. Despite these impressive numbers, it’s estimated that only 3 percent of Indian households are actively participating in the stock market – a long way to go to beat other US counterparts.
However, there’s a silver lining on the horizon. People are beginning to realize the pressing importance of financial security in today’s overly capitalist and demanding world, and that’s a step in the right direction. India’s growing middle class is playing a significant role in expanding the market and attracting more people to start investing. This trend is bolstered by reliable financial literacy movements like ours, helping individuals make independent and learned investment decisions.
Financial Literacy
In India, just about 27% of the population can confidently say they’ve got a good handle on financial matters. In simpler terms, that means only one out of every five Indians feels ready to deal with one of life’s important aspects: managing money.
But the good news is, because there’s a growing effort to spread financial knowledge, we’re witnessing a significant change. This effort is helping the bottom 73% who might not be financial pros, and it’s also ushering in a new generation of investors who are jumping into the market. All of this is making a big impact and contributing to the slow but steady growth of Indian stock markets as time goes on.
Startup Ecosystem
The rise of India’s startup scene has injected energy into the market, catching the eyes of both local and foreign investors.
As per Statista, in 2022, the Department for Promotion of Industry and Internal Trade (DPIIT) identified over 26,000 startups in India. Since 2016, India’s startup economy has been steadily growing, with new businesses sprouting up all over the country. To support and sustain this growth, the Indian government introduced the Startup India initiative. By February 2023, DPIIT had officially recognized a total of 92,683 startups.
However, here’s the twist: according to a study by the IBM Institute for Business Value, a whopping 91% of startups don’t make it past the first five years, often due to a lack of innovation. But despite this fact and failures, many aspirants are working like busy earthworms, churning the financial soil and making it more fertile for future growth.
Data and Analytics
Access to data and advanced analytics tools has enabled investors to make more informed decisions, fostering market growth. No matter how much you struggled in your maths class in your yeaster years, the subject after all has the potential to become rich.
Foreign Investment
The Indian share market’s attractiveness to foreign investors has increased, contributing significantly to its liquidity and growth. Countless pension funds of foreign citizens are now heavily invested in Indian equities. This is owing to the amazing growth prospects that they see in our country. According to the recent CDSL data, the Data shows that the top five foreign investors in India constitute the United States, Mauritius, Singapore, Luxembourg, and the UK in the order of their net investments.
Conclusion
The Indian share market has evolved from its modest beginnings in the 19th century to become a global powerhouse. Technological advancements, reduced settlement times, and a growing investor base have all played pivotal roles in its transformation. As it moves into the era of ‘trade-plus-one’ settlement, the Indian stock market is poised for further growth and will likely remain a dynamic and attractive destination for investors from around the world.
Let’s celebrate the power of innovation and the spirit and undying dreams of countless participants that keep this money factory working nonstop stop making it the mother of all Fintechs you will ever learn about.
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