(Mint)
(Mint)

BSE fortune hinges on how well revival in cash market segment plays out

  • Net profit of BSE declined 26% year-on-year to 40.9 crore in the quarter ended 31 March 2019
  • BSE has initiated a buy-back programme that is worth 480 crore, which is significant considering that the company’s free-float market capitalization stands at about 3,173 crore

The bids for India’s oldest stock exchange, BSE Ltd, seem to be sliding. The BSE stock has dipped marginally by 4.1% in the last two trading days, after the company announced lacklustre results for the March quarter. The stock has now fallen about 45% from its highs, around two years ago.

The exchange’s financial results show why investors have been losing interest. Net profit of BSE declined 26% year-on-year to 40.9 crore in the quarter ended 31 March 2019.

While the company has been lagging its rival in the equity derivatives segment for some time now, what is worrying for the markets of late is the loss of volume in the cash equity segment. Worryingly, in FY19, BSE seems to have conceded more ground to the National Stock Exchange of India Ltd (NSE). Average daily turnover in the cash segment, which hovered around 4,400 crore in FY18, has dipped to around 3,100 in FY19. This was at a time when daily turnover on NSE’s cash segment continued to rise.

The rout in mid- and small-cap stocks last year has hit BSE particularly, since it derives a higher proportion of revenues from these segments. In FY18, it had got a revenue boost by trading differential charges for stocks that were exclusively traded on its platform. Most of these revenues did not recur in FY19 with a decline in penny stock trading. Revenues from transaction charges fell 28% in FY19 to 113.9 crore.

Interestingly, some new segments have been contributing to the revenues. In its mutual fund trading platform, Star MF, BSE has generated 8.3 crore in revenue in the last quarter. This segment had revenue of only 5.1 crore in all of FY18. Newer segments, such as the INX International Exchange, are still some time away from being monetized. While turnover in the currency derivatives segment rose strongly, transaction fee earned fell from 8.2 crore in FY18 to 7.5 crore in FY19.

Analysts, however, reckon that BSE could be on the cusp of some triggers, and one of them is interoperability in clearing houses. This is expected to facilitate arbitrage and day-trading opportunities between exchanges as one can buy in one exchange and sell in another on the same day.

Besides, BSE has initiated a buy-back programme that is worth 480 crore, which is significant considering that the company’s free-float market capitalization stands at about 3,173 crore. Further, BSE’s additional 25 per share payout raises its dividend yield to about 4.9% at current prices. That should keep the bidding interest somewhat high on the stock. Still, investors must keep an eye out for its the market share in the core cash segment.

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