The first decade of reforms has brought four remarkable, positive initiatives in the stock market. What a pity then that economic slowdown and regulatory failure have kept these from translating into better investment returns.

• The depository system and share dematerialisation is ironing out kinks in the transaction cycle.
• The bitter battle to separate cash and forward markets is paying off. Replacing the flexible but often abused badla system with structured futures and options trading is bringing about transparency.
• The NSE brought a infotech-driven exchange with a national presence, a benefit for investors outside Bombay, especially in smaller towns. It also scared the BSE into competitiveness.
• The quality of financial disclosure by listed companies improved. Indian investors are better-served than their European or Asian counterparts.
• The regulatory body, the Securities and Exchange Board of India (SEBI) has pushed hard for such advances. Ironically, SEBI is also guilty of blocking progress; it has been slow to crack down on financial wrong doings. Some of its reluctance owes not a little to poor support from government. But institutions and other large market agents have been allowed to think they can abrogate their fiduciary responsibilities to investors with little risk.

The victims of such lapses have largely been long-term retail investors, who saw their returns dwindle in the aftermath of scam after scam. From June 1991 to date, the benchmark BSE 30-share Sensitive Index has yielded an annual appreciation of just 9 per cent. This is a figure that looks good only against the 2 per cent annual return indicated by the Reserve Bank of India share index between Independence and the first whiffs of reform in the mid-eighties.

Meanwhile institutional players had the money power that individuals lacked, and they were also generally on the right side of a market characterised by asymmetric information flows. Ideally, this means better financial decisions through superior research.

Unfortunately, too many institutions and their agents succumbed to varying degrees of cupidity (the CRB debacle in 1995, Morgan Stanley Asset Management's 'grey' issue in 1994) or stupidity (the ongoing investors' nightmare a.k.a as US-64).

Who did make money then? While long-term returns have been poor, the returns over shorter periods have occasionally been spectacular. Fifty-per cent swings each way in a year are not at all unusual.

This is ideal market behaviour for punters who fancy their chances. And speculators who understood that the relationship between demand and supply for stocks and investible funds is usually the real mover of the Indian market did extremely well.

Sadly, their business model cannot be sustained without an infinite supply of greater fools. At least five times, in 1992, 1995, 1997, 1998, and 2000, the supply of fools ran dry and stock prices tanked nastily.

In 1841, a Scottish poet, journalist, and song-writer published Extraordinary Popular Delusions and the Madness of Crowds; Charles Mackay's book remains one of the finest ever written on investment because his themes, that people sometimes abandon common sense en masse and that sharp trading practices can make such irrationality exceptionally risky, are as true in the twenty-first century as they were in the nineteenth. The successes and failures of a decade of reform haven't changed the fact that as investors, we also need to be protected from ourselves.

Stars Of The Decade

Tennyson said it, so did Dylan, and their remarks have been used ad nauseum, so we'll just say that yesterday's market favourites often become today's non-entities. And today's non-entities could well become tomorrow's stars. In the 1950s and 1960s, the stars of the Indian bourses were TISCO, TELCO, and Hindustan Motor (traded on the Calcutta Stock Exchange).

In the 1970s, Century Textiles, DCM, and Escorts (traded on the Delhi Stock Exchange) joined the ranks of the favourites. Reliance Industries' 1977 offer for a sale at par to the public, and the Foreign Exchange Regulation Act (fera)-driven dilutions in the holding pattern of MNCs saw RIL, Colgate, and HLL becoming the hot scrips of the early eighties.

The rest of the decade passed uneventfully, but the 1990s were a different ball-game altogether. As RIL's Anil Ambani pointed out while speaking at a BT-sponsored forum on leadership recently, "Almost 60 per cent of the top 100 companies by market capitalisation in India in 1991 have vanished from the list and have been replaced by new entrants. No less than five of the top 10 business houses in the country in 1991 have disappeared from the radar screen.''

The second half of the nineties belonged to India's infotech majors. Infosys, which had problems finding investors for its initial offering in the early part of the decade, became not just a successful software company with a sizeable market following, but a bellwether of the future direction of the Sensex.

Not surprisingly, eight of today's top 10 by market capitalisation were nowhere around the scene in the early 1990s. Four of them, Infosys, Zee, HCL Technologies, and Satyam weren't even listed. There's a moral in that listing, and we'll let you interpret it.

-Roshni Jayakar

BSE: Then And Now

In its 126-year history, the Bombay Stock Exchange (BSE) has seen several changes. It has moved, in terms of geography, from a shaded nook under a banyan tree in what is now Horniman Circle, to its present home, the 28-storeyed P. Jeejeebhoy Towers on Dalal Street. Today, a visitor to the 19,000-square-foot trading ring in the rotunda, located in an annexe to the main building, is likely to find the place as quiet as a library. It has been that since April 1995 when the BSE put an online trading system in place allowing brokers to trade from their offices, located on the Street, or elsewhere. Numbers paint a fairly decent picture of the changes the exchange has seen: The number of companies listed on BSE has grown from 197 in 1946 to 5,937 today. In 2000-01, the average daily volumes were Rs 4,775.8 crore. Still, the exchange has lost much of its former glory with the creation of the National Stock Exchange. Having witnessed a century-and-a-quarter of scams and crashes, BSE will have to really spruce up its act to meet the challenges posed by NSE, which has becoming the country's largest and pre-eminent exchange.

-Roshni Jayakar