The Tug of War: NSE vs. BSE

The Bombay Stock Exchange Ltd. (BSE) was established in 1875 and is the oldest exchange in

Asia and was the only exchange for investors in India to trade in stocks (equity shares) till 1995. In 1995, National Stock Exchange Ltd. (NSE) promoted by financial institutions was established. Within a short span of time the NSE with remarkable product innovations, use of technology and professional management was able to overtake BSE and emerge as a leading stock exchange in India. NSE introduced avenues for tangible differentiation to set itself apart from BSE. Major investors shifted their main operations from BSE to NSE to trade and invest. In 2005, BSE had a market share of 31.11%1 in the cash segment2 and 0.63% in the derivatives segment3, Corresponding to NSE’s 68.39% (cash) and 99.37% (derivatives) respectively.

In 2005, BSE converted into a corporate entity (earlier an association of brokers) to compete with

NSE operations. The ownership and management of the BSE were separated from the trading rights. The brokers (associated with BSE) were skeptical about the restructuring exercise and were worried about the future of BSE.

Would BSE be able to gain its lost pride with its new identity?

BSE

Bombay Stock Exchange Limited (popularly known as "BSE") was the oldest stock exchange in

Asia (Exhibit I). It was established in 1875 when 318 individuals contributed Re.1 each and became members to form "The Native Share & Stock Brokers Association". It was the first stock exchange in India to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.

BSE a voluntary non-profit association of broker members emerged as a premier stock exchange

after the 1960s. The increased pace of industrialization caused by the two world wars, protection to domestic industry and government’s fiscal policies aided the growth of new issues which in turn helped the BSE to prosper. BSE dominated the Indian capital market with over 60% of the total turnover of shares traded.

In 1986, the exchange came up with an index called SENSEX, comprising of 30 representative

stocks. The stock were selected on the basis of their market capitalization, number of trades, average value of shares traded per day (as a percentage of total number of outstanding shares), balanced representation of industry, leadership position in the industry, continuous dividend paying record and track record of promoters. This index subsequently proved to be the barometer of the Indian stock market. Sensex emerged as a prominent brand in the country. Sensex was scientifically designed and based on globally accepted construction and review methodology. The base value of Sensex was 100 taken as on 1978-79.

The carry forward system or badla (Exhibit II) was a unique selling proposition of the BSE.

Badla provided the facility for carrying forward the transaction from one settlement to another. It was the postponement of delivery or payment for the purchase of securities from one settlement period to another. This facility of ‘carry forward’ provided liquidity and breadth to the market.

By bringing in outside money to fund the carry forward of long positions, badla acted as a bridge

1www.sebi.gov.in2Cash is a market that involves the immediate delivery of a security or instrument for cash.3A security whose price is dependent upon or derived from one or more underlying assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market

indexes. Derivatives segment includes futures contracts, forward contracts, options and swaps.

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between the money market and the stock market. But this trading was uncontrolled and unregulated and enhanced market risk. However, with the securities scam (Exhibit) outburst in 1992 Securities Exchange Board of India (SEBI) (Exhibit III) took over the control of the stock market and banned the badla system in 1993.

Until March 1995, BSE had an open outcry system of trading. With the entrance of NSE – the

country’s first modern, computerized and professionally managed stock exchange in 1994, BSE had to change its system of trading and operations. In 1995, BSE adapted itself to the BSE online Trading System (BOLT), an electronic trading system through which brokers traded using computers. The introduction of BOLT helped BSE significantly reduce the spread between buy and sell orders, better trading in odd lot shares, fixed income instruments and dealings in the renunciation of rights shares. The surveillance, clearing and settlement functions of the exchange were ISO 9001:2000 certified.

Following the ban on badla trading , a steep decline was experienced in volumes in specified

groups of stocks. , the system was later revived and resumed in 1996. However, the BSE had to face a serious scam in 2001 in which Ketan Parekh was involved. He operated through his three broking outfits and 40 satellite brokers and invested heavily in Information Technology, Communication and Entertainment (ICE) industry scrips. He operated with badla payments and used funds of NRIs and new private sector banks (who accepted shares as collateral).The Sensex rose from the figures of 3378 to 6100. In 2001, due to the sharp fall in the prices of ICE scrips across the globe and the recession in the global economy resulted in a significant erosion of market capitalization of stocks on the NASDAQ and at other leading stock exchanges around the world , the value of the Sensex fell to 3788. This compelled brokers and banks to ask for their money. Being unable to meet the demand for payments Ketan Parekh defaulted and the resultant scam snowballed to a large amount of Rs1,500-2,000 crores. The aftermath of this scam led to SEBI banning badla once again and possibly for ever.

In 1999, BSE set up the Central Depository Services India Ltd. (CDSIL) co-sponsored by the

State Bank of India, Bank of India, Bank of Baroda and HDFC Bank. CDSIL improved the overall functioning of the stock settlement process, eliminated paperwork that impacted service delivery, shortened the book closure period and effected immediate payment on sale of shares by investors.

By 2005, the network of BSE spread across 417 cities, with over 800 members and 14,426

terminals. It registered about 1.4 million transactions per day, and an average daily turnover of about Rs.25 billion.

Restructuring

In 2005, the BSE was de-mutualized and was registered as a corporate entity under the provisions

of the Companies Act, 1956. Until 2005 the exchange was an association of brokers. After demutualization the trading rights and ownership rights were separated. The Exchange was professionally managed under the overall direction of the Board of Directors. The Board comprised eminent professionals, representatives of trading members and the Managing Director of the exchange.

The Board formulated policy issues and exercised overall control. The Managing Director

assisted by a team of professionals who handled the day-to-day operations.

According to experts, BSE was expected to have better commercial orientation and

accountability as a ‘for profit’ company than before. Moreover, segregation of ownership and management was expected to encourage greater confidence among the regulators and the

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investors, and flexibility in decision-making would bring about speedy response to emerging business opportunities.

In 2005, BSE along with Federation of Indian Stock Exchanges launched a national trading platform called BSE Indonext, for small and medium enterprises. This platform helped SMEs to raise capital and trade through BSE Online Trading and its website trading system.

NSE

The National Stock Exchange of India Limited (NSE); promoted by leading financial institutions

(Exhibit IV) was incorporated in 1992 as a tax-paying company (unlike other stock exchanges in the country). NSE was incorporated as a demutualised stock exchange where the ownership and management were deprived of the trading rights. A report from High Powered Study Group on Establishment of New Stock Exchanges instituted financial institutions to promote NSE and provide equal access to investors across the country (India).

Though the driving force behind its inception was the policy makers in the country, it was set up

as a public limited company and owned by leading institutional investors in the country. The Board comprised of senior executives from promoter institutions, eminent professionals in the field of law, economics, accountancy, finance, taxation, public representatives and nominees of the SEBI (Securities Exchange Board of India - the regulating body of the Indian capital market).

In 1993, NSE was recognized as a stock exchange under the Securities Contracts (Regulation)

Act, 1956. The exchange commenced operations in 1994 with the Wholesale Debt Market (WDM) and achieved various milestones (Exhibit V).

NSE provided fair and transparent services in the securities market to investors with the help of

screen based electronic trading systems. It allowed a member to feed into the computer the number of securities and the prices at which he would like to transact; the transaction was executed as soon as matching order from a counter party was found. This technology-oriented mechanism ensured transparency, shortened settlement cycles and book entry settlement systems and thereby matched the global standards of securities markets. The market practices and technology standards set by NSE later on emerged as benchmark and were followed by other participants.

In 1996, the exchange came up with an index called NIFTY, comprising of 50 large, liquid and

representative stocks representing 24 sectors of the economy and 77% of traded value of all stocks on the NSE. The stocks were selected on the basis of low impact cost4, high liquidity and market capitalization. The base is defined as 1000 as of November 1995. The index was professionally maintained and reviewed every quarter.

In 1998, NSE commenced Automated Lending and Borrowing Mechanism for lending and

borrowing of securities (ALBM). ALBM was the answer to BSE’s badla. ALBM facilitated borrowing/lending of securities/funds at market determined rates to meet immediate settlement requirements or payment obligations at a reasonable cost and low risk. ALBM was a security lending and borrowing mechanism while badla a pure financing mechanism.

NSE members were connected to the exchange from their work stations to the central computer

located at the exchange through a satellite using VSATs (Very Small Aperture Terminals). By 2005, NSE had installed over 2,829 VSATs in over 345 cities across the country. NSE pioneered

4Impact cost is the cost of executing a transaction on stock exchange.

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commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community.

By 2004, NSE was known as the third best exchange across the world (Exhibit VI). Also, NSE

won the Wharton-Infosys Business Transformation Award in the Organisation-wide Transformation category for the Europe and Asia Pacific region for harnessing technology to create a world class exchange and bringing a revolution in the industry as a whole.

In 2004-2005, the NSE had a trading value of Rs.1,140,072 crore from Rs. 1,805 crore in 1994-

95. The Futures5 &Options6 segment (Box I) had a trading value of Rs. 2,547,053 crore during 2004-05.

Box I

Source: www.nseindia.com

Group Companies

NSDL

In order to solve the problems associated with trading in physical securities, NSE along with the Industrial Development Bank of India (IDBI) and the Unit Trust of India (UTI) promoted dematerialisation of securities and set up National Securities Depository Limited (NSDL) the first depository of India in 1996. NSDL established a national infrastructure of international standard to handle trading and settlement in dematerialised form.

NSCCL

The National Securities Clearing Corporation Ltd. (NSCCL), the first clearing corporation in India, was incorporated in 1995. NSCCL sustained confidence in clearing and settlement of securities (equity and derivatives), promoted short and consistent settlement cycles, provided counter party risk guarantees and operated a tight risk containment system. It also operated a Subsidiary General Ledger (SGL) for settling trades in government securities.

These steps brought Indian financial markets at par with international markets.

5Futures is a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Future contracts detail the quality and quantity of the underlying asset. They are standardized to facilitate trading on a futures exchange. 6Options is a privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy or sell a security at an agreed upon price during a certain period of time or on a specific date. The primary difference between options and futures is that options give the holder the right to buy or sell the underlying asset at expiration, while the holder of a futures contract is obligated to

fulfill the terms of the contract.

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NSE.IT Ltd.

NSE.IT Ltd. was the 100% subsidiary, information technology arm of NSE. NSE.IT provided products and services in areas of broker front end and back-office, clearing and settlement, web based training, risk management, treasury management, asset liability management, banking etc.

IISL

In 1998, Indian Index Services and Products Limited (IISL) was set up by the joint venture of NSE and CRISIL Ltd. (Credit Rating Information Services of India Limited).IISL provided variety of indices and index related services and products for the Indian capital markets.

DotEx International Limited

DotEx provided world class Internet trading platforms to members of NSE to further provide it to their customers. DotEx provided products in two modules: Equity Trading Module and F&O Trading Module.

Competitive Landscape

NSE with approximately 860 stocks listed on its exchange provided stiff competition to BSE

(Exhibit VII) which had around 8,500 stocks listed on its exchange. According to brokers, a large proportion of BSE's cash market turnover (Exhibit VIII) was contributed by arbitrage opportunities between the NSE and BSE and from small and medium sized stocks that were not listed on NSE.

Around 50% of BSE's cash market turnover came from the stocks other than those in the 'A'

group. On the other hand top 100 stocks on NSE contributed approximately 80% of its cash segment turnover.

Investors in India traded without any computerization at the BSE for many years. The quality of

this market was widely considered as poor with respect to transparency, liquidity and market efficiency. After a serious scam in 1992, Finance Ministry and SEBI sought reforms in the equity markets with the introduction of screen based trading and promotion of NSE.

BSE Sensex suffered from hedging effectiveness, higher impact cost and immense political

hiccups. NSE within a short period of time overtook BSE due to its administrative improvements

and less systemic costs7 which attracted a lot of investors to NSE.

NSE on the other hand with the help of robust IT infrastructure became strongly associated with

derivatives. NSE has a good global perspective. International investors and NRIs with an interest to hedging India risk knew about derivatives and started trading in the NSE.

Earlier the governing board of BSE was an elected body and therefore its members were worried

about broker sentiments; but with the changes that took place and with competitive pressures from NSE. broker members (who earlier were considered to be roadblocks) no longer questioned the regulatory bodies. The brokers brought about reforms and greater transparency to sustain the competition from NSE. While NSE was not exposed to such external pressures. Most members in NSE unanimously accepted the decisions taken by the top authorities and were happy to be a part of the country's leading stock exchange.

Technically larger trading volumes and superior bid-ask spreads on NSE attracted a large number

of traders. More investors at NSE opened different avenues of investment- for e.g. derivatives. Due to the regulations at BSE, it merely concentrated in Mumbai, while the NSE spread along the

7Systemic costs comprised of a host of problems like inaccessibility, brokerage fees, bad paper, counterparty risk etc.

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length and breadth of the country (8,000 terminals across the country) and invited a large number of potential audiences to the exchange.

Moreover, SEBI allowed exchanges to set up trading terminals abroad with the help of Internet

trading. Internet trading consisted of two types – order driven8 trading system and quote driven9

trading system. BSE provided both these systems while NSE provided only the order driven system.

In global stock markets the size of derivative segments is five times larger than the size of the

cash segment. Rajnikant Patel CEO, BSE said, "We will be relaunching our products to be in the derivatives space".

The Road Ahead

The restructuring at BSE required the member brokers to offload their shareholding (i.e. 51%) by

2006. The various avenues considered were to offer an IPO, or enter into strategic relationship or both according to feasibility. Experts opined that if BSE entered into strategic partnerships with large private sector banks it would be exposed to a large distribution network and would also be able to promote new products like derivatives on a large scale.

How and what strategy should BSE adopt to not only preserve its historical image but also

counter the stiff competition from NSE needs to be seen in the future.

8In the order driven system, orders from all over the country are entered into an electronic system and matched directly and continuously without the involvement of a jobber or a market maker.9In the quote driven system there were market makers who continuously offered two way quotes-bull and sell quotes-and were

willing to buy and sell any quantity.

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Exhibit I Milestones of BSE

1840-50 About half a dozen brokers converge under a banyan tree near what is now called Horniman Circle.

1860-65 An the prevailing share mania, the number of brokers rises to about 250 but in the aftermath of the price crash they are hard pressed to find a place for their regular meeting.

1874 The broking community find a place in what is now called Dalal Street to conduct their dealings in securities without hindrance and an informal association of sorts comes into being.

July 9, 1875 The Native Share and Stock Broker Association with the aim of ‘protecting the character, status and interests of native share and stock brokers,’ with 3,128 members who pay an entrance fee of one rupee is set up.

1895-1930 The exchange moves into what is now known as the Stock Exchange Old Building in 1895. With more members and more trading spaces, after repeated expansion in 1920, 1928 and 1930, BSE is vastly different from the one that existed in the last quarter of the nineteenth century.

1921 The establishment of a clearing house for settlement of transactions. 1957 The Government accords permanent recognition under the Securities contracts

(Regulation) Act. Jan. 2, 1986 The BSE launches Sensex, first stock indices (with 1978-79 as base year),

comprising 30 highly liquid stocks from specified and non-specified group shares listed on the country’s five major stock exchanges – Mumbai, Kolkata, Delhi, Ahmedabad and Chennai.

July 25, 1990 The Sensex touches the four-figure mark for the first time and closes at 1,000.97 in the wake of good monsoon and corporate results.

Jan. 15, 1992 The benchmark index crosses the 2,000 mark and closes at 2,020.18 following the liberal economic policy initiatives undertaken by the then Finance Minister Dr. Manmohan Singh.

Feb. 29, 1992 Market friendly Budget by the Finance Minister, Dr. Manmohan Singh, leads the Sensex to cross the 3,000 mark.

Mar 30, 1992 Sensex, in just 30 days rises by 1,000 points and crosses the 4,000 mark (closed

at 4,091.43) on expectation of a liberal export import policy. Apr 28, 1992 The 30-stock index falls by record 570.42 points (12.77%) to close at 3,869.90

due to the exposure of securities scam. 1994 Serial bomb blasts in BSE but it begins to operate as usual despite damages to

the premises. March 1995 BSE introduces the modified carry forward system (the traditional badla had

been banned since March 1993). July 1995 All scrips are transferred to BOLT. Aug 19, 1996 Major reconstitution of Sensex with the board of BSE deciding to replace 15

stocks from the index with a new one in order to have better representation of the market in the wake of changed economic environment. For the first time, index includes companies from the finance sector such as ICICI, IDBI and SBI.

1997 Screen based trading commences. Nov 16, 1998 BSE replaces four scrips from the Sensex with new ones following investors

fancy for software, pharma and multinational stocks, which include Infosys Technologies, NIIT, Novartis and Castrol.

March 1999 CDSL begins operations. Oct 8, 1999 Sensex crosses 5,000 mark. Feb 11, 2000 Sensex crosses 6,000 mark but closes at 5,933.56. June 2000 BSE becomes the first exchange in the country to introduce trading in derivatives

in the form of index futures on the Bell Wether Sensex.

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Sept 1, 2003 In the line with international trends, the BSE decides to move to free-float methodology for calculation of Sensex from the full market capitalization methodology.

June 21, 2004 Sensex closes above 7,000 for the first time at 7,076.52. Sept 8, 2005 Sensex crosses 8,000 mark closes at 8,052.56.

Source: Bharti Pathak, “Indian Financial System”

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Exhibit II Badla System

Badla was allowed in the specified group of shares of BSE. This specified group was also known

as forward group as one could buy or sell shares in it without physical delivery. The carry forward session (badla session) was held on every Saturday at BSE. A contract for current settlement could be executed in any of the following three ways:

a) Delivery against a sale contract given and delivery against a purchase contract received, and payment received/made at the contract rate.

b) Squaring off of transactions wherein a reverse transaction of either buying or selling of shares squared up with the earlier outstanding position and the difference in prices settled.

c) A contract in respect of which delivery was given or taken and which was not offset by an opposite transaction during the settlement period, could be carried forward to the next settlement period at the making up price, that is, the closing quotation on the last trading and the difference between the contract rate and the making up price settled. This postponement of the delivery of or payment for the purchase of securities from one settlement period to another was referred to as carry forward.

Badla involved four parties: the long buyer – a buy position in a stock without the capacity to take delivery of the same, the short seller – a sell position without having the delivery in hand, the financier, and the stock lender.

If the quantum of delivery sales exceeded the quantum of delivery purchases, financiers came

forward to assist in completing the deal, took delivery in the current settlement made the delivery in the next settlement to the buyers and, by doing so, helped in carrying forward the transaction. The difference between the current settlement rate and the sale rate for the next settlement which they received was the interest charges.

If the quantum of delivery purchases exceeded the quantum of delivery sales, share financiers

would give delivery in the current settlement to the buyers at the settlement rate and take the delivery back in the next settlement from the seller at lower sales rates.

Badla charges were market determined and varied from scrip to scrip and from settlement to

settlement. Badla rates ranged from 15% to 36% on a yearly basis. SEBI banned badla charges for carry forward sales (short position) if the net carry forward buy (long) positions exceeded short positions. If the market was overbought (net long) there would be more demand for funds and the carry forward rates would be high; the reverse would be true when the market was oversold (net short). An oversold market would result in high demand for securities and the stock lender would get returns.

These transactions were completely hedged and stock exchanges guaranteed settlements and

conducted auctions of shares in case of defaults. However, these guarantees were not available in unofficial or parallel badla markets which existed in Kolkata and Mumbai.

Badla or carry forward facility was quite popular, accounting for nearly 90% of the trade at all

stock exchanges. Source: Bharti Pathak, “Indian Financial System”

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Exhibit III SEBI’s role and regulations

SEBI had the duty to protect the interests of investors in securities and to promote the

development and to regulate the securities market through appropriate measures. These measures provide for:

i. Regulation the business in stock exchanges and any other securities market. ii. Registering and regulating the working of stock brokers, sub-brokers, share transfer

agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisors, and such other intermediaries who may be associated with securities market in any manner.

iii. Registering and regulating the working of collective investment schemes, including mutual funds.

iv. Promoting and regulating self-regulatory organizations. v. Prohibiting fraudulent and unfair trade practices in securities market.

vi. Promoting investor education and trading of securities in securities market. vii. Prohibiting insider trading in securities.

viii. Regulating substantial acquisition of shares and takeover of companies. ix. Calling for information from, undertaking inspection, conducting inquiries and audits of

the stock exchanges and intermediaries and self regulatory organizations in the securities market.

x. Performing such functions and exercising such powers under the provisions of the Capital Issues (Control) Act, 1947, and the Securities Contracts (Regulations) Act, 1956, as may be delegated to it by the central government.

xi. Levying fees or other charges for carrying out the activities. xii. Conducting research for the above purpose and

xiii. Performing such other functions as may be prescribed by the government.

Source: Bharti Pathak, “Indian Financial System”

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Exhibit IV

Promoters of NSE

Industrial Development Bank of India Limited

Industrial Finance Corporation of India Limited Life Insurance Corporation of India State Bank of India ICICI Bank Limited IL & FS Trust Company Limited Stock Holding Corporation of India Limited SBI Capital Markets Limited The Administrator of the Specified Undertaking of Unit Trust of India Bank of Baroda Canara Bank General Insurance Corporation of India National Insurance Company Limited The New India Assurance Company Limited The Oriental Insurance Company Limited United India Insurance Company Limited Punjab National Bank Oriental Bank of Commerce Corporation Bank Indian Bank

Union Bank of India

Exhibit V

Milestones of NSE

1992 Incorporation

1993 Recognition as a stock exchange 1994 Wholesale Debt Market 1995 Became the largest stock exchange in India 1996 Launch of S&P CNX Nifty & set up National Securities Depository Limited, first

depository in India. 1997 Launch of NSE's website: www.nse.co.in 1999 Launch of Automated Lending and Borrowing Mechanism 2000 Commencement of Derivatives Trading 2001 Commencement of Futures & Options on Individual Securities 2002 Launch of Exchange Traded Funds (ETFs)

2003 Commencement of trading in Retail Debt Market

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Exhibit VI World’s leading exchanges ranked by number of transactions

Source: www.indiabudget.nic.in

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Exhibit VII Comparison of NSE vs. BSE

Source: www.sebi.gov.in

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Exhibit VIII

Source: www.indiabudget.nic.in

Annexure I Depository Statistics

Source: www.sebi.gov.in Annexure II

Source: www.nseindia.com

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Annexure III The 1991-92 Securities scam (Harshad Mehta Scam)

The economic liberalization compelled banks to improve their profitability. With liberalization

entered the free interest rate regime, which meant that banks had to face interest rate uncertainty. Coupled with this was strict enforcement of SLR requirements for banks to keep the money supply under control. Hence public sector banks were forced to undertake more trading in government securities. The increase in interest rates on government securities with a longer period of maturity meant capital loss (depreciation) on the holding of old securities. To partly offset this loss, banks began trading of a new instrument-repos or ready forward. Repo is a means of funding by selling a security held on spot basis and repurchasing it on forward basis.

Several banks, including foreign banks, were unwilling to purchase securities for maintaining

SLR because of the risk of depreciation. They preferred ready forward contracts with other banks, which were surplus in securities. These ready forward contracts were turned around every fortnight depending on the bank’s deposit figures. Moreover many banks had purchased public sector bonds which they could not sell due to the coupon rate hike.

Repos are a legal and versatile instrument but the inter bank repos in 1991-92 were based on

some inside information obtained illegally. Besides obtaining information illegally, most of the ready forward deals were dubious and facilities like Bank Receipts (BRs) and SGL forms were misused. Bank receipts which were working smoothly as a mechanism for transfer of government securities amongst banks were highly misused. There were fake bank receipts in circulation and there was double counting of BRs, which led to an accelerated growth in money supply. Most banks, with a view to increasing their profits, employed their clients funds in stocks through their brokers. This they did by offering higher returns through portfolio management. The Sensex rose by leaps and bounds. Harshad Mehta, by injecting the bank’s money into share trading, pushed up prices of selected scrips. Besides the bank’s funds, he tapped another source of money-mutual funds. The government was encouraging the creation of mutual funds. These mutual funds, in order to increase their popularity, assured higher returns which led to sizable flow of money to the stock market. Moreover, certain industrialists engaged themselves in ‘insider trading’ to raise the prices of their shares to prevent hostile takeovers. Brokers with so much money in their hands, were successful in raising the Sensex by 1,500 points in 15 days.

Between March 1991 and March 1992 Sensex rose from 1,168 to 4,285. The market price

earning (P/E) ratio was at 55, not only higher than what it was in many other developing and developed countries but was far in excess of the fundamentals. The monetary size of the securities was estimated to be Rs. 3,542 core. The Sensex dropped to 3,000 and the BSE was closed for a month when the scam to light.

Source: Bharti Pathak, “Indian Financial System”

Annexure IV

Source: www.indiabudget.nic.in

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References

1. www.sebi.gov.in

2. Bharti Pathak, “Indian Financial System”

3. www.indiabudget.nic.in 4. www.nseindia.com

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