Monday, 5 December 2011

Stock Market Index in India (Part I)

My early retirement plans are heavily reliant on a strategy that involves significant investments in equity linked products.  The bulk of my portfolio is invested in stocks and equity MFs, with the fundamental belief that in the long run, equity based investments will outpace all other forms of investment.  However, over the last few days I have realised that I have never really tried to understand the basics of the Indian stock markets.  I do not have an appreciation for the history of the stock exchanges, and some time spent researching on this front, will stand me in good stead while picking my future investment strategies.

India boasts the first ever stock exchange established in Asia, from as early as 1875.  (In contrast, the Tokyo Stock Exchange began formal operation in 1878)  However, the earliest documented meetings of stock brokers was even before this in the 1850s in front of the Town Hall, Elphinstone Circle, now called Horniman Circle.  Some of the earliest participants at that time were from the Gujarati and Parsi communities.  In those days, Elphinstone Circle was a favourite hangout of the Parsis, which probably explains the choice of location.  Here is a picture of Elphinstone Circle courtesy

You can see the Town Hall building in the picture (the one with the triangular roof, and Greek style columns in front)  Over time the meetings moved to a few different locations, before settling in at Dalal Street (literally Brokers Street) in 1874, and in 1875 becoming an official organisation known as "The Native Share and Stock Brokers Association".  (Notice the propensity during the colonial days to refer to all things primarily Indian as Native) Since then for the last 135+ years the Bombay Stock Exchange has been based on Dalal Street.  The BSE is currently housed in Phiroze Jeejeebhoy Towers, at Dalal Street, Fort Area, Mumbai, India.  As recently as 2002, the exchange was simply called "The Stock Exchange, Mumbai". 

The BSE SENSEX which most of you are probably more familiar with was established in 1986, with the base value taken as 100 on April 1st, 1978, and base year as 1978-79.  In contrast, the Dow Jones Industrial Average or DJIA in the US was established as early as 1896, with representation of 12 stocks from leading American Industries.  So clearly on a comparative basis, the SENSEX is still in its infancy as a stock index.  The SENSEX is a weighted average of 30 component stocks representing large, well-established and financially sound companies across key sectors.  In my next post, I will drill down a little into the components that make up the SENSEX, and how they have evolved over the years.


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