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Top 10 most impactful events in the history of markets

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Top 10 most impactful events in the history of markets

Global markets have been influenced by key events as have Indian markets. Let us look at 3 global events and 7 domestic events that have had a substantial impact on Indian markets over the years. Of course, this list is largely illustrative and not exhaustive.

1.      Wall Street crash of 1929 and the recession

This remains one of the oldest and the most impactful of the events that impacted not only the US markets but the world markets. The Crash of 1929 happened on the back of too much speculation but when asset prices imploded it led to a full-fledged recession. This event led to the formation of the SEC and the passage of the Glass Steagall Act to keep commercial banking and investment banking separate. Indian markets were not really active at that point of time but the big boost to Indian equities came from the RIL IPO, almost 48 years later in 1977.

2.      Reliance IPO and the FERA companies’ episode (1977)

Reliance IPO in 1977 was amazingly successful and has since created tremendous wealth. But it was the first time that retail investors were invited to invest in direct equity in a big way. That was the start of the big equity cult in India. Towards the end of 1970s, foreign companies were asked to dilute their stake in India. Sensing state interference, they sold their shares at low prices and exited. Investors who bought these FERA shares minted money. The equity cult had well and truly begun in India. Eighties was the era of solid market returns in India but the missing link was regulation. That came about in 1992.

3.      Statutory powers  given to SEBI in 1992

The early 1990s were marked by the first big bull runs in the stock market which started after the end of the First US-Iraq war. However, it soon emerged that stocks had been pushed up artificially using bank funds and soon the story imploded. A newly liberalized India realized that it was give statutory powers to a central stock market regulator. Regulation was inadequate and the idea of nodal capital market regulator was born. SEBI had been constituted in 1988 but got statutory powers only in 1992. SEBI has been the fulcrum of capital markets ever since.

4.      Infosys IPO and the birth of Indian IT (1993)

The Infosys IPO got a lukewarm response and was barely bailed out. But it went from strength to strength and by 1999 it was the most powerful sector in the Sensex. Over the next 20 years IT created billions of dollars in wealth and TCS is India’s most valuable company in terms of market cap. The rise of technology as a differentiator soon had its impact on the capital market with the first technology driven stock market; the NSE.

5.      Technology driven trading at the NSE (1994)

When NSE started trading, it looked almost impossible to break the formidable hold of the BSE. But then technology made all the difference. By 1995, BSE gave up on its open-outcry system and jumped into online trading. But NSE managed to build on the leadership position, which it has held on to ever since. However, NSE soon realized that capital market growth would continue to be constrained as long as we operated on physical settlement mode. It was time to take custody of securities into electronic mode.

6.      Demat and the end of the paper era (1997) 

Prior to 1997, dealing in shares was a cumbersome process. You had to deal in minimum lots, then send the share certificates to the registrar for transfer and wait to get the certificates back. In the meantime you ran the risk of loss of certificates, mutilation, signature mismatch, bad delivery etc. Demat solved all these problems in a jiffy and India has been one of the fastest to adopt and adapt to demat. Today, demat accounts for 100% of all clearing and settlement and IPOs are done seamlessly through the demat process. Eventually, demat would also facilitate the smooth launch of derivatives on stocks.

7.      Rolling settlements and derivatives (2001)

By early 2000, the US tech frenzy was all but over. As the tech rally imploded, Indian IT companies saw their values falling sharply. At this time, Kolkata Stock Exchange was on the brink of default and SEBI had to move in. It was time for the next big leap. The weekly settlement was replaced with rolling settlements while Badla and ALBM were replaced with futures and options. SEBI also introduced the concept of a trade guarantee fund so that all trades on the exchange could be guaranteed by the clearing corporation. Finally, markets were much safer than ever before.

8.      Enron and the Sarbanes Oxley Act 2002

One of the most powerful energy companies crumbled under the weight of loss making electricity derivatives position. The fall of Enron raised serious questions on corporate governance, role of auditors and management accountability. It led to the passage of the Sarbanes Oxley Act in 2002 calling for tighter regulation of fiduciary functions.

9.      Fall of Lehman and the recession (2008) 

This is the most recent in public memory when global markets gave up nearly 50-60% of their value in the aftermath of Lehman. It began with an implosion in real estate and derivatives positions only compounded the problem. Governments responded with unprecedented infusion of liquidity. That trend has continued till date and the rally post 2009 was entirely liquidity driven.

10.      Technology and the rise of Discount Broking (2012)

This has been an enduring influence but in the last 10 years this trend has been very obvious. First it was the rise of internet trading for retail customers. Then institutional investor and proprietary traders were allowed to use algorithms and low latency trading. With the rise of smart phones, app based trading has also picked up in a big way. The result was the rapid proliferation of discount brokers offering trading online and through Apps at a fraction of the normal cost.

In the midst of all this evolution, one thing has certainly happened. The customer is now the nucleus of the capital market.

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