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BW Businessworld

‘Initiatives Taken Four Years Ago Bearing Fruit’

Exchanges across the world have to figure out new ways of getting themselves engaged with society’

Photo Credit : Umesh Goswami


On the eve of its results, BSE’s Ashishkumar Chauhan (49) took time out to speak to Clifford Alvares on how the exchange business is being re-shaped globally and how India’s oldest exchange is gearing up for the future.

Edited excerpts:

BSE has reported an increase in net profit. How has it fared on core operations?
Our net profits increased to Rs 523 crore in the second quarter, because of an exceptional transaction where we reduced our stake in CDSL to 24 per cent through an offer for sale. But otherwise, our revenues from operations has increased 26 per cent y-o-y consolidated, while net profit is up 44 per cent. It’s been a good quarter. We have a steady nature of business, and some of our initiatives over the last few years are bearing fruit.

Which are the areas that have seen improvement? Your market share has slipped to competition?
We have seen improvement in listings, and on transaction charges. The volumes on gift city exchange is about $50 million, which is improving.  

Our trading volumes have increased. We are now charging on per transaction basis. Our aim is to push people towards investments, and not towards speculation. It is important to measure the exchange’s performance on the basis of capital raising, and quality of compliance, not just volumes.
Nevertheless, BSE has taken leadership in currency derivatives, where we are No. 1. This segment does not make headlines because the Rupee is stable. Our fund distribution platform is gaining ground. On our SME platform, we have more than 75 per cent market share. We are doing well in bond distribution business. Over the next 20 years, India will require more investments. Speculation is plateauing across the world, and exchanges across the world have to figure out new ways of getting themselves engaged with society.

In equity derivatives, BSE has negligible market share...
We have good facilities with lower costs. We have grown in other segments. For instance, in 2014, BSE was zero in currency derivatives, but today we have more than 50 per cent market share. We think there is no reason why BSE can’t increase market share in equity derivatives.

The exchanges business internationally is grappling with rising costs too. Your thoughts...
We are seeing exchanges merge internationally. However, there is still some way to go for the Indian exchanges because new products will be allowed in India. India has a huge entrepreneur base, and new companies are listing. India requires capital formation, and the opportunities are immense.

So, what exactly has changed in the exchanges business?
Internationally, the World Federation of Exchanges has noted that transaction volumes and profitability of exchanges is on the decline because transactions are plateauing internationally. India and China have delivered growth in the last decade to global exchanges market, but now here, too, the exponential growth is showing signs of slowing. Hence, exchanges will have to look at investing and capital formation.

Globally, 20 years ago, automation increased trading volumes. Further, depositories and trading corporations further increased volumes. Next came derivatives, which further raised volumes nearly over 10-fold, followed by algorithm-based trading, which  again gave a fillip to trading volumes.
These were the reasons why volumes rose significantly, now there are no new levers that will raise the volume bar further. Therefore, we have to think where exchanges are going to have their future revenues from.

But exchange revenues are coming from derivatives and other products. So, will there be enough revenues from the investing side you speak about?
Future growth is what counts. The current business is already discounted. You may be making large profits today, but people will look at future revenues. Wherever there is a potential for growth, people see there is scope for capital appreciation. In this regard, BSE has remained a preferred exchange for new listings.

How do you see the domestic exchange business evolving? 
It is a tough business. Many new exchanges are coming, but many have gone. It is a highly regulated business. The platforms are expected to be robust and strong since you are dealing with public money. It is not easy to create these balance sheets. BSE has a very large balance and a very good reputation, and a large distribution framework across the country because of which we have been able to create a wide franchise. Fortunately, BSE is listed. Brokers own less than 37 per cent of the business.

Equity culture in India is still abysmally low at 5-6 per cent of savings...
Earlier, the trading process needed change. Costs were also prohibitive. Again, the last 15 years have not been good for capital formation, while there has been an increase in speculative trading. Now the next 15 years, if we focus on capital formation, the exchanges can literally raise $100 billion a year for Indian corporates in the next 15 years, which is like a service to the nation. Last year alone, BSE distributed $35 billion of equity and debt, which was $7 billion, so $100 billion is not impossible. BSE raised more funds for the corporates than banks.

The Indian economy will require capital. But are stockmarkets geared for that role in a big way? 
India’s growth is just the beginning. Just to give you a perspective, India’s GDP is just $2.5 trillion. If you take 30 per cent savings, it becomes $750 billion. If you take 7 per cent growth, in the next 10 years you will save $10 trillion. Out of which, India requires just $3 trillion to make infrastructure investments. We don’t need overseas funds to meet our requirements. For me, it is important to understand that markets can play a much larger role in a normal society. I am delighted that a lot of money is coming through mutual funds. Buying today and selling tomorrow is not investment. Investment is long-term, and that is what we need to tell our people.  

But aren’t banks also integral to Indian economic growth?
Government wants to focus on markets, in addition to cleaning up banking system. It has also recognised the markets as a growth engine, and where growth can be raised. The H.R. Khan Report suggests that larger corporates should increase their borrowing from the market. The market tends to discount information much faster than the banking system. This will change the valuation of holdings, and it will be positive for that perspective. Banks and markets are now two legs of the same economy. Both legs have to be stronger.  

Your thoughts on the NSE...
A robust NSE is ultimately good for the country, and so if NSE is changing, that is good news.