The annual turnover, market capitalization and BSE Sensex increased sharply by 99 per cent in 1991-92 Share markets were un-precedentedly buoyant due to the liberalization measures announced by the government to attract investments. Some important proposals announced in the Union Budget of 1992-93, such as the abolition of wealth tax on financial assets, abolition of the office of the CCI, free pricing era, permission for Indian companies to raise funds abroad and so on triggered volumes on BSE. Irregularities in the securities transactions of banks and financial institutions also added to the speculative pressure in the stock markets. These irregularities were detected in 1992-93, when the scam broke out which led to the streamlining of stock market operations by BSE authorities, sharply reducing the turnover. In 1996-97, the turnover at BSE rose by 148 per cent. Badla was revived, which led to massive rise in the turnover in the specified group of shares. Moreover, the extension of trading terminals outside Mumbai in September 1997 and rapid progress in trading in demat paperless form were some of the reasons for increase in turnover witnessed from 1996-97 to 1998-99.
During 1999-2000, the BSE turnover witnessed a sharp increase of 119 per cent. The market was driven by large FII inflows, improved corporate performance, sound macro-economic fundamentals, and upgrading of India’s international credit ratings stable to positive by international credit rating agencies. In 2000-01, the increase in turnover was 46 per cent. This was due to a slow down in FII inflows, large sell offs of new economy stocks on Nasdaq, increase in international oil prices, payment crisis at some stock exchanges, and liquidity problems with some cooperative banks.
The average share of A group in total volumes from 1990-91 to 1993-94 was around 78 per cent. In 1994-95, there was a sharp fall in its percentage as SEBI banned badla in A group shares. Then, with the resumption of badla in January 1996, the proportion of A group increased. Moreover, in 1995-96, even though the number of companies in A group was reduced sharply from 94 to 32, the group’s share in total volumes increased. This shows a very high concentration of a handful of companies in trading volumes at the exchange.
The number of listed companies rose from 2,471 in 1990-91 to 5,782 in 2001-02. The market capitalization is an indicator of the addition to the wealth of share owners. Its increase is a function of price change and supply change coming from new issues. In the first year of economic reforms, market capitalization increased by 256 per cent. It was the result of an increase in shares prices due to an announcement of liberalization measures and the listing of six PSU stocks for the first time on the stock exchange. In the subsequent year, 1992-93, market capitalization declined due to irregularities in securities transactions. Shares prices firmed up again in 1993-94 due to increased flow of foreign funds, increased investor interest, and speculative trading.
The secondary market turned distinctly depressed thereafter, as the BSE Sensex lost as many as 1382.30 points by March 31, 1995. In 1996-97, 1998-99, and 2000-01, even though the turnover increased, the market capitalization declined. This indicated that the positive impact of wealth on consumption demand was lacking. The decline in market capitalization was a result of decline in the new economy share prices and large sell offs in the global market, news about financial status of US-64, payment crisis at some stock exchanges, and withdrawal of deferral products including badla. The secondary market turnover declined sharply both at BSE and NSE in 2001-02. Global recessionary conditions, international disturbances, and domestic industrial slowdown accounted for this sharp decline.