A century and a half since the neem tree

"Money is like muck, not good except it be spread."
– Francis Bacon

Outside the stately Calcutta Stock Exchange (CSE) at 7 Lyons Range, row after row of closely packed, ramshackle cubicles buzz with activity. Hundreds of operators, all clad in white dhoti-kurtas, sit on gaddi mats, each frantically calling out numbers and talking on several phones at once. What takes place along this narrow street is just as important as what happens inside the CSE building, as these brokers are as knowledgeable as any about market trends and moves made by large companies. Even the reality of a burgeoning culture of online trading has not cut into this flourishing trading, which has long been a part of the CSE's distinct identity and history.

Share trading in colonial Calcutta actually began seven decades before the establishment of the CSE. Already by the late 1850s, share traders had begun trading under a neem tree in the area then known as New China Bazaar. Transactions could not continue for long under the now-historic neem, however, as the tree itself was felled by Chartered Bank, which set up its building there in 1905. Soon thereafter, the CSE was formally established in 1908, thus becoming one of the oldest stock exchanges in Asia.

After the CSE was established, share operators and founders leased a hall and lawn space at 9 New China Bazaar Street, a stone's throw from the present CSE hall. Babu Buldeo Dass Dudhwala, a key player in conceptualising the Exchange, then leased the first and mezzanine floors of a new house at 2 China Bazaar Street for 20 years, paying INR 1080 per month in rent out of his own pocket. Later, in June 1928, the CSE moved to its present home on Lyons Range, named after the building's architect, Sir Thomas Lyon, where it has remained ever since.

Scrips – a term used to describe any replacement for currency – first came to be used in India with the enactment of the Company Act of 1850. This Act introduced the concept of 'limited liability', whereby an individual's exposure is limited to the extent of his investment; share trading thus became protected, and gained popularity. When the CSE first opened its doors, 50 Indians, who were then the main brokers, called the shots in Calcutta, along with four European players. Soon after it raised its shutters in 1908, the bullish market weakened, largely due to the increasing likelihood of war in Europe; over the course of the following year, the CSE was on the verge of liquidation. By 1915, however, confidence in the market returned in full force, ironically in sync with the disruptions of World War I. Considering the large amounts of materials and funds required for the war, the opportunities for profit-making were great.

Three decades later, the beginning of World War II again took a toll on the CSE, in the form of business and profit taxes imposed by the colonial government to raise funds for the war. This time, the Indian markets did not recover as swiftly as they had decades earlier. This was partly due to the fact that World War II was far more pervasive, both in terms of geographic coverage and casualties. More importantly, the colonial government was desperate, exporting all of the food to its wartime soldiers, an act that contributed a famine in Bengal. Soon after the war ended, taxes were again reduced, and the economic situation began to normalise. By then, the independence movement was in full swing, and the departure of the British resulted in significant managerial changes in the CSE. Indian entrepreneurs, including Keshav Prasad Goenka and the Kanoria Group, acquired British trading houses.

Scandals and sensations
Since these changes, the CSE has experienced a rollercoaster ride. During the 1950s, the Exchange drew much attention with the meteoric rise of the Calcutta-based industrialist Haridas Mundhra, whose name has since become synonymous with the Mundhra scandal. It turned out that the chairman of the CSE had asked that the government-owned Life Insurance Corporation to buy the shares to lessen the burden on the Calcutta stock market, in which Mundhra had invested heavily. The resultant perception in financial markets that the CSE was weak had a dramatically negative impact.

Though the CSE has seen its share of controversies, inspirational stories also exist. For instance, trader Debu Bhalotia stood by the Lyons Range on the day Indira Gandhi was assassinated, buying up all the shares that were offloaded in the resulting chaos. Not only did his actions stave off an imminent collapse, they also protected many investors from bankruptcy. More recently, businessman Haldiram Bhujiawala is said to have helped the CSE to prevent a steep fall with a bailout worth some INR 2 billion, when the Ketan Parekh scam rocked the Exchange and other Indian bourses in 2002. Parekh, a Bombay-based trader, had been paying brokers at the CSE to buy scrips on his behalf, compensating them for any loss incurred by the decrease in prices. This scheme worked until the value of the scrips declined sharply, as is the norm during financial meltdowns, thus causing a liquidity crisis for Parekh even as the CSE brokers demanded payments.

While Bhujiawala's bailout helped prevent the immediate downfall of the CSE, the scandal, coming at a time when the CSE was already performing poorly, resulted in the plummeting of trading volume, as many companies delisted themselves from the Exchange. In a bid to reverse its declining fortunes, the CSE started trading on the platform of the Bombay Stock Exchange (BSE) in 2007. That the CSE can now deal stocks listed on the BSE has increased the volume of scrips traded by the formerly beleaguered body. Interestingly, while the Haridas Mundhra and Ketan Parekh scandals, as well as a similar case involving broker Harshad Mehta, also affected the BSE, it did not suffer the kind of decline experienced by the CSE.

Trading in scrips also has a long history in Bombay, where stockbrokers used to assemble under the banyan trees in front of the city's Town Hall. The BSE, the oldest exchange in Asia, originally known as the Native Share & Stock Brokers Association, officially came into being in 1875, more than three decades before the CSE was established. But it was only in the 1930s that it began edging out the CSE, a process that picked up more steam post-Independence. This can be attributed to the fact that industrialisation in Bombay was based on companies owned by Indians, while the companies in Calcutta were owned by British citizens. As a result, when Mohandas K Gandhi called for a boycott of foreign goods and capital, the CSE suffered.

Though the CSE is far from experiencing the kind of success currently enjoyed by the BSE, there was definitely a sense of optimism as the exchange celebrated its centenary in June. The weeklong series of high-profile events was inaugurated by West Bengal Chief Minister Buddhadeb Bhattacharjee, who also took the opportunity to launch Down Lyons Range, a history of the CSE written by financial commentator Aditi Roy Ghatak. The CSE is currently in the process of buying 10 acres of land near the Eastern Metropolitan Bypass in Calcutta, where it will construct its new building. The new structure is planned to house other important financial players, with the West Bengal government hoping that the Exchange will thus emerge as a renewed financial hub. That Calcutta is currently enjoying a revival – economic and otherwise – is also likely to help the CSE prosper. Indeed, many are now hoping that the CSE will once again witness the kind of vibrant trading that took place under the neem tree in New China Bazaar more than a century ago.

~ Sankar Ray is a writer based in Calcutta.