The tale of two stockmarkets in the Indian subcontinent — in India and in Pakistan — tells a story in itself, which is starkly amplified on the 70th anniversary of the independence of the two countries.
The Karachi Stock Exchange (KSE), born in 1947, is the most glaring example of how Pakistan lost the regional race. India, on the other hand, saw a rapid growth in capital markets post-Partition and Independence 70 years ago.
In these seven decades, while the KSE and other capital markets in Pakistan have grown at best fitfully, their Indian counterparts have blazed a stellar trail on the world stage.
Simple facts — such as the total market capitalisation of over $2 trillion for stocks traded on the BSE and NSE this year — put the equity markets in Pakistan to shame. Across the border, the m-cap is still stuck at a little over $100 billion
Humble beginnings
On August 31, 1957, the Indian government officially recognised the ‘Native Share and Stock Brokers Association’ as the Bombay Stock Exchange (BSE). The exchange has since come a long way, from gathering brokers to trade under a banyan tree and an open outcry system, to now claiming to be the world’s fastest automated equity trading venue. But it was the NSE,which commenced equity trading in 1996, that put the country on the radar of global financial firms.
The world got a pulse of India’s economic story after the key equity index Sensex was published in 1986. This was followed by the launch of the broader Nifty 50 in 1996. The BSE’s Sensex and NSE’s Nifty, both tradable indices, now cover more than 13 sectors of the economy.
The nation’s capital market reforms got a boost in 1992, when the Securities and Exchange Board of India (SEBI) was given powers to regulate the equity markets.
Soon after SEBI became the official watchdog, India was rattled by its first widely reported equity market scandal, orchestrated by broker Harshad Mehta. However, equity trading emerged only stronger after the scandal, as the regulator tightened the noose over malpractices. The same year, on September 14, foreign portfolio investors (FPIs) were allowed to trade for the first time here.
Again, the bursting of the tech bubble at the start of the millennium and a market crash following another scam — this time by Mehta’s trainee Ketan Parekh — led to further modernisation of systems.
Derivative trading in equity markets, the foundation for which was laid in 2000, picked up pace after options were launched on individual stocks on November 9, 2001.
In 2015, the Nifty was ranked one of the world’s most actively traded derivative instruments, with a growth of 61.2 per cent to 3.03 billion contracts, second only to the CME Group in the US. Eurex of Germany took the third position. This year, the G20, in its Hamburg Action Plan, noted that “India is popularising a number of derivative instruments in exchanges or electronic trading platforms” as part of measures to enhance the resilience of its economy.
Commodity trading
India’s commodity markets first got a boost in 2003 with the launch of the Multi Commodity Exchange (MCX). It was the brainchild of Jignesh Shah, a Bombay University engineer who did grunge work for many years in the BSE before promoting broker software trading company Financial Technologies, which then spawned the MCX. The bourse was ranked among the top 20 global exchanges in 2012 based on its trading volumes.
Yet, these are early days for commodity trading in the country. After all, options which proved to be a gamechanger for the equity markets more than a decade ago, was allowed on MCX only this year