Book Extract | Running behind Lakshmi: The Search for Wealth in India's Stock Market by Adil Rustomjee

Initially, the centre of their operations was the old Bombay Green, a large open area in front of the Town Hall building where cotton was stacked, and where it became convenient to trade in that commodity.

Part of that old Bombay Green – the garden in front of Town Hall – still stands today, a serene oasis surrounded by the urban chaos of Mumbai. Under its banyan trees congregate lovers in need of privacy, drug addicts looking for a quiet place to shoot up, and the odd insurance agent taking a breather from his rounds. The nomenclature of this area has changed over the years – from Bombay Green to Elphinstone Circle and now Horniman Circle Garden.

The catalyst to transform this little scene into something resembling a stock market came not from India but the United States. The American Civil War had affected the cotton plantations of the South, with the North’s blockade of the former’s ports preventing Southern cotton from reaching outside markets. Cotton from India entered world markets as a substitute. As a result, prices in India soared, providing an opportunity to all those traders who bought and sold cotton futures. Some of the trading profits from cotton found their way into other stock schemes, and the mania that resulted led to the frenzied creation of India’s stock market. Eyewitnesses to the Bombay events who were familiar with accounts of famous manias such as England’s South Sea Bubble or Holland’s Tulip Mania pointed out similarities of scale between the 1860s share mania and those episodes. And yet, there is no detailed recounting of the Bombay episode, and no name attaches to these events. Given the close connections and spillovers between the cotton and share markets, it is appropriate to call this the Cotton and Share Mania.

The phenomenon spanned the four years of the American Civil War, and saw cotton and share prices gyrate and fortunes rise and fall on the ebb and flow of the campaigns of American generals Ulysses S. Grant and Robert E. Lee. It was also the first recorded instance when international news impinged on Indian markets, offering a brief and dramatic break from a settled – almost timelessly domestic – cadence. With the North’s victory and the ending of the blockade came the re-entry of American cotton in world markets, resulting in the inevitable crash and dénouement.

The Cotton and Share Mania of the 1860s also produced the first noted Indian market participant. His name was Premchand Roychand, and he laid down many of the conventions and traditions that were to govern trading for the next century. Today, at the Bombay Samachar Marg entrance to the Bombay Stock Exchange stands a totemic sculpture – that of a massive, virile bull, muscles rippling in bronze. Opposite the sculpture is Bombay Paperie, a small paper-trading concern, and among the companies listed at its entrance is Premchand Roychand and Sons, still in existence. In the alcove within hangs a portrait of Roychand himself, complete in dagli, fetah, and white walrus moustache. India’s first bull and his bronze avatar still stare at each other all day, almost in silent cosmic agreement on the need for rising stock prices.

India’s first bull run followed a pattern that was to repeat itself in subsequent episodes. Initially, a displacement occurs, which changes people’s belief in the future. This displacement is often based on sound economic logic and translates into larger profits for firms. The higher profits cause a major movement in paper assets such as stocks that are priced off firms’ profits. Intuitively, people pay a multiple of these profits – say 15 times – for such paper assets, and as profits surge, people keep paying 15 times for the increased profit, which moves prices higher; alternatively, the paper price stays the same and the profit surges, causing the multiple to fall, making the paper assets cheap, and this recognition causes further buying that takes prices higher.

The upward spiral in price is then followed by the search for capital by market participants. The capital is needed to keep the price rise going, and it is usually obtained by compromising elements of the banking system. Along the way, there is the search for newfangled instruments that can fully exploit the price rise. These usually involve leverage – buying in excess of the capital at hand, which is done by using the capital at hand as margin to fund a much larger position, or by borrowing to buy stock. As the price rise continues, it is often associated with a single personality, who is seen by the crowd as a person of dazzling virtuosity; following this demigod, this Pied Piper, will lead one to riches. There is also the spillover into related asset classes such as real estate. In turn, all this leads to naya daur or ‘new era’ thinking, and a tendency to view the new conditions as permanent.

At the peak, the last buyer has come in and news comes out about the transience of the displacement. A crash follows, resulting in prices falling so much that calls go out to participants operating on leverage to deposit more capital as margin to maintain their positions. These margin calls often cause financial distress among participants and lead to unsustainable pressures on them, which spreads to the banks that provided the earlier capital. Finally, all this ends with the public’s outrage and search for a scapegoat – usually the Pied Piper who led the rise and who was most associated with the price expansion.

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Adil Rustomjee, Running behind Lakshmi: The Search for Wealth in India's Stock Market,‎ Hachette India/John Murray, 2025. Hb. Pp. 880

From banyan trees to electronic screens – the authoritative account of India's stock market over two centuries. For millions of people, the stock market is the canvas on which are sketched fantasies of riches, of lives transformed. Yet, the history and methods of one of modern India's most transformative forces remain underexplored till now.

Starting from the early nineteenth century, when a few banias traded shares under banyan trees, to the Cotton and Share Mania occasioned by the American Civil War, to the decades of marking time during the Nehruvian Era, to 1991's great unshackling that made the market accessible to the public, all the way to the market cycles of the new millennium, Running behind Lakshmi brings India's stock market into focus.

By combining archival sources with observations and expertise forged through immersion in the markets, Adil Rustomjee provides a wide-ranging account that is equal parts analytical history, financial practice, and market lore. Brimming with pioneers and adventurers, grand rivalries and petty jealousies, scams and scandals, this is the story of a nation and a people told through a lens that's never been used, but is more relevant than ever.

After a career in international development and markets, Adil Rustomjee discovered his life's work as a chronicler of India's stock markets. The idea for the book came when he stumbled upon the BSE archives during the time he had an office in the exchange's building. These nuggets of history were just lying around, but a substantial account had yet to be written about an equity market that was over two centuries old.

Adil Rustomjee then made it his calling to narrate the market's past, outline its methods, and detail its participants. Born in Hyderabad, he attended the universities of Madras and Bombay, from which he graduated with degrees in commerce and management. He also holds graduate degrees in international relations from Johns Hopkins University's School of Advanced International Studies, and in business from Yale.

Besides taking a keen interest in financial markets, he is a student of military history and strategy.