Humble beginnings in opium trade

The Bombay stock exchange has turned 125. Ripe old age to claim your respect and mine. Being founded when our great, great grandpas were children.

Even so, all the fuss about its birthday is spurious. The only thing great about its age is just that. The comparisons notwithstanding.

The Russian revolution, which came much later, collapsed in 70 years. Says one analyst. Why only Russian revolution? The British colonial rule (of India) also is part of history. It came into being 18 years before share trading started here on 9th July 1875.

Same with Nazi Germany, the East India Company and the ever so many princely states - some tracing their origin to the time of yore. Even in Mumbai, the Admiralty House, not far away from Dalal Street survived 400 years.

What then made BSE durable? The answer is simple: joint stock companies (JSCs). As a rule JSCs are the principal business organisations to date. And they will be for a few more years till the system gives way. So, BSE, and other exchanges, will be with us for sometime. Till, it also goes obsolete.

There is nothing extra-ordinary about the exchange's birth. It was a natural outgrowth of the prevailing business activity. Mumbai was just coming up as a port. Thanks to the Suez Canal's opening in 1869. Even then it was no match for Chennai (Madras) and Calcutta. In fact, Mumbai took over from Surat which was on the decline. Incidentally, Surat was the biggest foreign exchange market in the world. During the mercantilist period.

But Mumbai had to contend with an early set-back. The end of civil war in America upended the old trading practices. The opening up of American hinterland spawned a revolution in agriculture.

Indian export items (like cotton, spices and foodgrains) lost their pre-eminence in international markets. The competition from American products became severe. For a while Indian cotton nobody wanted in Great Britain. Many traders in Mumbai were going bankrupt. Business almost dried up.

Luckily for Mumbai, opium came to its rescue. It was a thriving business. With destination China. The stuff was the alchemy that turned everyone (who touched it) rich. But the Marathi speaking people, striking high moral profile, kept themselves aloof. Like the chettiars and Bengali babus on the east cost. Refused to partake in the fortune. Derived from the forbidden fruit.

But others took to opium as the duck to the water. There was only profit. And no loss. Vasco da Gama, it is said, earned profits 64 times of his investments. On his first trip. 

In opium, it was much more. Like the brown sugar today. Many industrial houses, which since became famous, were set up then. Mark it was not an illegal trade then. Only moral opprobrium.

For the record, a major textile company, No. 1 till recently, was also the product of opium profit ploughed in. Under direct patronage of the British. Now it is run by the third generation of the promoters.

From opium to share trading, it was a short distance. A sort of diversification, to use a modern term. Not only shares and real estate but New York cotton too were traded. Till the end of sixties, many members of the exchange found thrill in betting on New York cotton closings. Till it yielded place to local 'mutka'. By then Mumbai became a flourishing business centre.

Thanks to their origin in trade, the dalals (as the brokers were called) had shown tremendous adaptability. That way, business was as usual when the country became independent. And freedom-fighters moved into the corridors of power from street rallies. 

The economic policies were confusing. Capitalism or socialism? The fact is that there was a huge tariff wall. Helping empire-building by a set of old traders. A procession of unrelated investments followed. With nil regard for modernity and professionalism. Nobody thought of world scale until Ambanis came on the scene. In the eighties. Most could not stand even the early chill of competition.

Huge investments in public sector underpinned the whole set-up. Brokers threw in their lot with the budding industrial management. And the market became of, by and for the members and their patrons from the industry houses. Nil competition rendered everyone smug. Changes in managerial style and technology never travelled to India. Only oversize limos came.

The market simply adored people with a high degree of speculative flavour. A major industrial house was on top. It laid the foundations of its future glory in speculation. Grabbing a textile mill. Which has now fallen on hard times.

Another industrial house followed the same route. To set up its textile and chemical empires - by Indian standards. Everyone did well thanks to the blend of mixed economy with protection. Now, the Sun is setting on both the once powerful
houses. A few purple patches notwithstanding.

Their proximity to BSE members encouraged the vesuvians in industry to dabble in the shares. For the whole of fifties and sixties the patriarch of a major industrial house was in command. The market jumps in the shadows of people with an yen for its control. It hero worshipped the Big Bull who came in the late eighties. The sceptre has since passed on to FIIs.

Down the years, the market fine-tuned insider trading and budget leakage into a fine art. Taking on board politicians and corporate big-wigs. RBI was out of the spectrum till the early nineties. Thereafter it also joined the party. Under its three governors. Its highly tight (and sacred) securities market was thrown open to free-wheelers from the broking community.

The budget leakages began with India's first budget. Presented by an Indian finance minister. The interim government was in saddle. Just before independence. Headed by Pundit Nehru. Liakat Ali Khan held the finance portfolio. A product of Allahabad University, Liakat would have ended up an economist of repute. But he entered politics, joined the Muslim League and became the first Prime Minister of Pakistan.

Sorry for the digression. Coming back to the theme, the market traded on inside information on the first Indian budget. The post-war inflation still had its effects. And the economy was in a trauma. The budget was expected to retain the harsh features of the war-time years. And it was never on the cards that the interim government would come out with radical changes in fiscal policy.

But a few operators (mainly one) knew better. Everything went in text-book style. There was a week-long bear - raid before the budget came. Shares listed then were few. And active shares fewer still. The market was also sullen. With no news on line to cheer it up. So, the short sales were well in order. Even covering and fresh purchases evoked only a lukewarm response. Making it possible for huge chunks cornered.

Then the radio flash. The bomb exploded. Liakat withdrew the excess profit tax. Imposed during the war. A shot in the arm for the market. Which hated the abominable tax. Share prices spiralled up. Enabling the leading bull to reap a rich harvest.

As old hands put it, he collected enough to set him up as an industrial house. With several textile companies in his fold. Textiles were the back bone of Indian economy those days. Earlier he was known for manipulating (fixing in modern lingo) New York cotton closings from Mumbai. As a member of an international syndicate.

Since then, budget leakages were routine. Brokers/traders were nicknamed after the type of information they brought. There were court cases too for budget leaking. What startled all was the exact figures of additional taxation in Morarji Desai's second union budget.

The budget was to be presented against the backdrop of the border war with China. Increased defence expenditure upset the union finances. Heavy taxes were taken for granted by all. The question, however, was how much.

There was no consensus. For, in his first budget, the late Desai had projected for INR 500 million in new levies. A soft one at that. All were pleased. Though FICCI said tax proceeds were under-estimated. A Shanker's Weekly cartoon featured the finance minister being "attacked" by feather-wielding FICCI office-bearers.

At one stage, there was a hint at INR 1150 million. (One dollar then fetched Rs.3.50) More than double the previous year. No scribe was ready to take it at face value. Lest it should read wild, it was modified to around INR 1000 million. None had gone beyond INR 1050 million.

But the market got it correct the previous day. INR 5000 million. The sources were 'pucca'. Known for close ties with leaders of two generations. Dalal Street was crowded through the day and long into the night. Not much trading was reported. Not that all were bearish. LIC was under instructions to keep the market steady then. 

Finally the ticker broke the news. INR 4150 million in net taxes. In a full year, it could top INR 5000. So not far from the figure fetched by the market veterans. Even so none was in a mood to cash it on. For bulk of the additional revenue was to come from petroleum and chemicals. Then a preserve of the central government. Another reason for the little incentive for active trading earlier.

In the late seventies and eighties, the work style changed. No one had to go to Delhi or tap the wires for inside information. Deep pockets in Mumbai caught bureaucrats and their political masters in Delhi. Policies and programmes were dictated from the new citadels. Nothing moved before due consultations. Even stock market instruments changed in shape and content.

Everything went off board with the Big Bull overplaying his cards. The normally water-tight securities market was drained for speculative operations. The mesmeric spell of the 30 pieces of silver was indeed great. None in Delhi (or Mint Road) conceded things were going wrong. All even feigned a lack of brain power. The finance minister said he was not losing sleep. For RBI it was only question of balancing the books.

A semblance of discipline came only with SEBI. Though high-powered SEBI had to reckon with pulls and pressures. The dismissed bull behaved like absentee landlord. While the market authorities looked away. The members were 'obediently yours'. Till the SEBI again put its foot down.

The exchange's clannish character comes to the fore in dealings with investors. The market (and its members) were always promoter-friendly. Short changing the investing public is its motto. Investors are discarded the moment a boom peaked out. Worst hit are small ones. Investment counselling has never been the forte of the BSE broking community. Its responsibility ends with the collection of cheques for brokerage/underwriting fees.

That way the Bombay Stock Exchange killed the (new) investment market in India. The saga of deception began with Synthetics and Chemicals in the early sixties. The public issues were manipulated to serve the interests of (often) unscrupulous promoters. And the exchange let the nation down when the people were ready to invest money in great measure.

It was in the early eighties. The investment consciousness was spreading. To middle/lower middle class families. Even villages were taking active interest in share purchases. The new issues market started sparkling with life. Company (new) prospectuses were in demand. Even studied closely. An expanded investor base was in the offing. Promising a new era in the capital market.

The stock exchange failed to nurture the budding awareness. Noted across the country. It was reprehensible. It set forth blood-hounds into the pack of investors. Justifying for the umpteenth time the old definition of the market fraternity. As sharks.

On the records, it was referred to as the leasing boom. A whole lot of cheats came into the new issue market. Mainly to convert their black money into white. All promised early dividends. Even for the first year. Brokers endorsed the false promises. Most of the companies sank without a trace. None saw even the first balance sheet.

A flicker of hope still remained. But snuffed out in the boom and bust of the early nineties. In between (and before) there was time for the exchange to put in place self-regulatory measures. But, who cared? Those at the top suffered from lack of vision. Or their ideas were different? Enough, everyone thought, the members made money. A conspiracy of sorts. With the FIs (and UTI) thrown in. To drain public money. In other words the old opium culture refused to fade away.

Even those who played ducks and drakes with the market knew its inadequacies. And the danger of leaving it free in its solitary glory. One was the late Pherwani. The market's uncrowned emperor as UTI chief. UTI never added to or created wealth. It remained the hand-maid of the market.

But Pherwani was clever. He tugged at the market. Every day. Forcing it to cough up enough money for him to service his units sales. Its ways, however, displeased him. No expansion of the base. The brokers' greed was coming in the way. So the idea of a national stock exchange was mooted. And its arrival ended, one for all, the monopoly of the Bombay Stock Exchange. In the country's capital market.

Please... The idea is not to de-bunk the 125-year old exchange. And not certainly to "emblazon forth" its frailties. As one British Parliamentarian put it. At the turn of the 19th century. When it was barely 25 years old. However, an undeniable fact remains. Its incorrigibility mainly accounted for the stunted growth of India's investment market. The oft-trumpeted claim about the huge amounts raised rings hollow. Beside the wailings of all those it swindled. Both in the primary and secondary markets. That way its was a great national disservice.

But the Bombay exchange's image is different. For the scribes who spent their formative (career) years in its precints. To them it had been (and continues to be) a store house of rustic common sense. With a powerful antenna for news. Their contacts in the exchange made the scribes a privileged lot. 

A visit to a couple of brokers or three is enough to get posted with the developments in the financial world. More then than now. A boon before the electronic media came in. Health bulletin of political leaders and top bureaucrats. Their escapades for spice. Nothing was missed.

The market's reading of monetary and fiscal policies was superb. That made the analysis of the budgets easy. For long (before the TV debut) everyone (outside the BSE orbit) waited for the briefing by the union finance secretaries. For a clear view of the budgets. And their implications. Normally, the finance secretaries met the media the day after the budget.

For the scribes stationed in Dalal Street, nothing new came from those briefings. They were thus better placed. As the finance secretaries only endorsed what they all heard echoing in the dingy rooms that made the brokers' functioning sites. Quite a few offices were there well below the staircases of the old building.

The market had its subterranean routes to the pigeon-holes of power. And they were helpful to the known scribes. Often stock market was the source for the stuff that made scoops. Before ISD and STD came into vogue. The market alerted its friends at the Free Press Journal, then located across the street, on the passing away of prime minister Lal Bahadur Shastri. At Tashkent in 1966. Giving its night desk enough time to reflong the pages for the late editions. Beating out its rivals.

Again on bank nationalisation in 1969. The market got the clue from the sudden departure of the late L.K.Jha for Delhi. On an afternoon. (By a special aircraft?) A hint came in at least the morning edition - of Free Press Journal. And flash in the evening. 14 banks were nationalised. Jha was RBI governor then.

With or without a university degree, the journalists (covering it) learn a lot more from the stock exchange. Than what they read in text books. On its old trading ring. Crowded and noisy then. Even so, they all felt thrilled being billed as the "product" of the exchange. Its ways enrich the mind.

A new building has come up. Imposing and magnificent. And durable. The market may not be the same 125 years later. Change it will.

But it will be there. Retaining its aura and majesty. More like a great seat of learning. With glory and effulgence. Best wishes.

Top