The NSE listing marks a new chapter for India’s capital markets. Uday Tardalkar reflects on the exchange’s journey from screen-based trading and dematerialisation to retail participation, derivatives and investor education.
When the National Stock Exchange (NSE) emerged in the mid-1990s from the shadow of the 1992 securities scam, it did not merely introduce another trading venue—it dismantled the insular, paper-choked world of regional trading rings and rebuilt Indian capital markets on a foundation of satellite connectivity, automated limit-order matching, and central counterparty clearing. Over the past three decades, that architectural shift has transformed India from a nation of passive bank savers and physical gold accumulators into one of the world’s most dynamic equity ecosystems.
In this wide-ranging conversation with Dipin Damodharan, Uday Tardalkar—Chairperson and Independent Director at RoseMerc Limited, a member of the NSE’s Mumbai Regulatory and Investor Grievance Redressal Committee, and a veteran of nearly four decades in capital markets, including a stint heading operations at Tata TD Waterhouse Securities—reflects on the structural milestones that defined the NSE’s journey. He discusses the transition from 70-day paper-based IPO cycles to T+3 digital listings, the risks facing retail capital in speculative derivative markets, the vital role of the SME board in nurturing startups, and what it will take to cultivate a disciplined investor class as India marches toward its Viksit Bharat 2047 economic roadmap.
Edited excerpts:
Dipin Damodharan: Could you tell us about the historical relevance of the NSE in India’s capital market journey, specifically its origins and institutional importance?
Uday Tardalkar: As the saying goes, certain major institutions emerge out of adversity, and the NSE is a prime example. Following the 1992 Harshad Mehta securities scam, there was an urgent need for screen-based trading and structural transparency to safeguard investor interests.
A core group from IDBI led the initiative under Dr. R. H. Patil, who became the founding Managing Director and established the institution. The exchange commenced operations with the Wholesale Debt Market, followed shortly by the equity segment in late 1994. By expanding its reach to every nook and corner of the country, the NSE empowered retail investors to participate in the markets.
It was a watershed achievement in the history of Indian capital markets: ordinary citizens gained direct access, eliminating the geographic limitations and inefficiencies of regional stock exchanges. The NSE’s aggressive thrust on technology democratized market participation.
Dipin Damodharan: How did the broader financial ecosystem evolve alongside the exchange?
Uday Tardalkar: Portfolio diversification across asset classes has always been essential, and the NSE pioneered this multi-asset framework. It began with debt and equities, introduced derivatives trading in 2000 as India’s first exchange to do so, and went on to launch mutual fund order routing platforms, the Social Stock Exchange, and Electronic Gold Receipts (EGRs), alongside international trading infrastructure at GIFT City.
Because of this breadth, the NSE dominates both the cash and derivatives segments. For any exchange, liquidity is the ultimate benchmark, particularly for Foreign Portfolio Investors (FPIs). The NSE remains the clear leader on this front.
Dipin Damodharan: How did the post-1991 economic liberalization feed into the formation and operational structure of the NSE?
Uday Tardalkar: Economic liberalization gathered momentum from 1993 onward, reshaping how markets operated. In the pre-reform, paper-based era, public issues (IPOs) took upwards of 70 days to close and finalize, and physical share certificates were prone to bad deliveries and theft.
The NSE transformed this framework in partnership with the banking sector. Today, through UPI and the ASBA (Application Supported by Blocked Amount) mechanism, an IPO opens, closes, and lists within three working days (T+3). Capital never leaves an investor’s bank account until actual allotment; funds are simply blocked.
Equally vital was counterparty risk mitigation. Investors need the certainty that buying shares guarantees receipt of securities, and selling guarantees payment. To solve this, the NSE established the National Securities Clearing Corporation (now NSE Clearing), a dedicated clearing corporation that recently completed 30 years of operation. That infrastructure gave investors complete peace of mind.
Dipin Damodharan: Historically, retail participants were skeptical of equities. What role did the NSE play in reframing the stock market as a viable long-term investment channel?
Uday Tardalkar: In the open-outcry era, without electronic matching engines, retail clients relied entirely on physical contract notes mailed by brokers.
When the NSE launched computerized trading, order confirmation became transparent. By 2003, it rolled out nationwide internet trading. For younger generations who expect immediacy, the exchange provided an interface where buy and sell executions, along with price discoveries, were communicated in real time. That operational transparency replaced suspicion with confidence.
Dipin Damodharan: Stock market penetration in India still hovers under 10%. How can the exchange push further to democratize participation?
Uday Tardalkar: Opening a demat account is the first step toward market entry. India currently has over 20 crore demat accounts. While growth was gradual initially, the post-COVID period saw a significant inflection point, adding 2.5 to 3.5 million new accounts almost every month.
Beyond direct equity, mutual funds play an indispensable role. Today, retail engagement is no longer confined to Mumbai, Delhi, or Bengaluru. Tier-2 and Tier-3 centers—spanning from Kochi to Jammu, and Gandhinagar to Guwahati—are driving growth. The mutual fund industry’s emphasis on “Beyond-30” (B30) cities has broadened the investor base substantially.
Historically, Indian households favored physical assets: gold and real estate. That mindset is shifting toward financialization. Government vehicles like the National Pension System (NPS), which allocates systematically to equities, demonstrate how patient capital yields double-digit compounding over the long run. Supported by campaigns like “Mutual Funds Sahi Hai,” individuals are aligning investments with their financial goals and risk appetite.
Dipin Damodharan: Young investors often confuse long-term investing with short-term trading. How should they navigate this distinction?
Uday Tardalkar: The habit of checking smartphones constantly—much like scrolling through messaging apps—has conditioned retail traders to treat portfolio balances as intraday scorecards.
Equities are inherently long-term compounding instruments. For disciplined wealth creation, systematic investment plans (SIPs) in mutual funds provide the optimal route. If an individual has the analytical rigor to evaluate balance sheets, direct equity investing is viable, but it must be approached with a multi-year horizon.
Historically, conservative domestic investors leaned on the Public Provident Fund (PPF), which offers around 7.1% tax-free—roughly equivalent to a 10% pre-tax return. Yet over 15-year rolling horizons, equity indices have historically beaten fixed-income vehicles by generating 12% to 14% annualized returns.
Trying to time market peaks and troughs is futile; no one can accurately forecast turning points. Sectors rotate in cycles—we have moved from FMCG and IT dominance to infrastructure, defense, and emerging service economies. Directing capital into high-conviction businesses through cycles builds durable net worth; intraday trading does not.
Dipin Damodharan: Is there a gap in financial literacy among new entrants?
Uday Tardalkar: Expanding investor education remains essential. SEBI, alongside the stock exchanges and depositories like NSDL, conducts nationwide literacy programs. Crucially, these workshops are delivered in regional languages, which is non-negotiable for a multilingual country like India.
Financial planning must always follow a disciplined hierarchy:
- Secure adequate pure-term life insurance for household earners.
- Establish comprehensive health insurance cover.
- Build emergency liquidity before deploying surplus capital into risk assets.
Too many young entrants bypass this ladder and jump directly into the futures and options (F&O) segment. SEBI’s analytical studies have revealed that over 90% of individual retail traders lose capital in derivatives. Education must emphasize that wealth is built through compounding over decades, not overnight speculation.
Dipin Damodharan: How does the NSE maintain operational resilience given this massive expansion?
Uday Tardalkar: In its founding years, the NSE deployed VSAT technology to bypass terrestrial telecom limits and link broker terminals across Indian towns.
Operationally, the exchange serves as the nation’s financial barometer. Through major disruptions—including the 2005 Mumbai floods, market crises, and the COVID-19 lockdowns—the core trading engine functioned without interruption.
That resilience has accommodated exponential volume growth. A decade ago, monthly domestic SIP inflows stood at a fraction of what they are today; currently, monthly SIP collections routinely exceed ₹20,000–₹25,000 crore. Maintaining uninterrupted clearing, settlement, and trading continuity is what underpins this retail trust.
Dipin Damodharan: For a complete beginner, what is the ideal entry vehicle: trading or investing?
Uday Tardalkar: Investing—unequivocally.
While intraday traders supply short-term market liquidity, wealth creation requires ownership of productive businesses over time. A professional starting their career in their early twenties who commits capital to equity mutual funds or the NPS until age 60 can achieve life-changing compounding even at a 12% to 13% CAGR.
For retail participants:
- Avoid speculative trading: Derivatives should not be treated as a shortcut to profits.
- Leverage institutional research: Utilize free, verified corporate disclosures and equity research available on exchange portals.
- Work with qualified advisors: Match assets to timelines. For low risk, use debt instruments; for balanced growth, adopt dynamic hybrid funds (such as 65:35 equity-to-debt allocations).
Dipin Damodharan: How can India’s startup ecosystem utilize the exchange infrastructure effectively?
Uday Tardalkar: Listing directly on the main board requires stringent capital and track-record thresholds that most early-stage companies cannot meet. To bridge this, the NSE established the SME platform (NSE Emerge).
This board allows small and medium enterprises and growing startups to raise public growth capital with proportionate compliance requirements. Once an enterprise scales its balance sheet and revenue, it can migrate seamlessly to the main board. For the millions of micro and small enterprises across India, the SME board provides an institutional roadmap to scale into publicly held corporations.
Never commit capital out of haste or social media trends
Dipin Damodharan: Looking ahead toward the Viksit Bharat 2047 vision, how do you see the capital markets supporting this transformation?
Uday Tardalkar: The national objective for 2047 is to transition India from a nation of passive savers into a nation of informed investors.
Financial inclusion laid the foundation: over 50 crore Jan Dhan bank accounts integrated millions into the formal banking system, while UPI streamlined capital mobilization. The next phase involves shifting surplus savings out of idle physical assets and unhedged liabilities into productive economic avenues: mutual funds, equities, and sovereign gold instruments.
A resilient economy requires diversified asset allocation. By distributing capital across equities, fixed income, and commodities rather than concentrating it in a single basket, households build enduring resilience.
Dipin Damodharan: If you had to identify the major milestones in the NSE’s history, what would they be?
Uday Tardalkar: Five key developments define its journey:
- Screen-Based Trading: Transitioning from the physical open-outcry ring to transparent, electronic limit-order books via satellite terminals nationwide.
- Novation and Central Counterparty Clearing: The establishment of the Clearing Corporation, which eliminated counterparty default risk.
- Dematerialization via NSDL: Transitioning the market from physical paper certificates to electronic book-entry settlement in 1996, eliminating bad deliveries and counterfeit risks.
- Product Diversification: Expanding beyond cash equities into index and stock derivatives, internet trading, mutual fund platforms, and Electronic Gold Receipts.
- Global Benchmark Exchange Listing: As the NSE prepares for its domestic public listing on the BSE, its scale and profitability position it among the top market infrastructure institutions globally alongside the CME Group, ICE, and Nasdaq.
Dipin Damodharan: What is your concluding message on responsible investing for young market entrants?
Uday Tardalkar: The NSE’s core advisory sums it up best: “Soch Kar, Samajh Kar, Invest Kar” (Think, understand, and then invest).
Never commit capital out of haste or social media trends. If you lack the time or training to dissect corporate financial statements, route your savings through professional asset managers via mutual funds and systematic pension frameworks. Approach the market calmly, align your portfolio to realistic risk boundaries, and let time and compounding do the heavy lifting.