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After 10 years in the top office of the BSE, Ashish Chauhan is moving to the top office of the National Stock Exchange (NSE). Given the multiple issues or investigations the NSE has been embroiled in the past few years—favouring select market participants, nepotism, phone tapping, trading stoppages—it seems Chauhan’s appointment is partly a clean-up act.

While there might be loose ends to be tightened and unfinished objectives to be met, the NSE has retained its position as India’s No. 1 stock exchange all through. It has, in fact, widened its leadership status on two dimensions during the pandemic: trading turnover and financials. But on a third, stock market listing, it’s the BSE that managed to move first.

Promoted by select government-owned financial institutions, NSE was set up in 1992 to counter the brokers-owned BSE that was coming off the Harshad Mehta securities scam that laid bare its opaque governance. The NSE introduced electronic trading in India, and replaced settlement of transactions using physical certificates with dematerialized certificates.

In just its second year of operations, the NSE’s turnover in the cash segment exceeded BSE’s. It’s stayed that way since, and two spurts have widened this gap: one between 2010-11 and 2017-18, when the NSE’s volumes as a multiple of BSE’s increased from 3.2 to 6.7 times, and the other during the pandemic, when this multiple shot up to 14.7 in 2021-22.

Even in other trading segments typical to stock exchanges, the NSE currently registers volumes that are a multiple of that recorded by the BSE.

Revenue spurt

This dominance in trading volumes trickles down to financial performance as well. In 2017-18, the first financial year after the BSE listed its shares, NSE’s revenues were 4.3 times those of BSE. During the pandemic, markets surged and investor interest exploded. The number of demat accounts, for example, have increased from 40 million in February 2020 to 94 million in June 2022. On the trading side, it’s the NSE that has hogged these gains.

Between 2019-20 and 2021-22, NSE’s revenues increased 2.4 times and net profit 2.8 times. The increases for BSE were, by comparison, modest. As a result, NSE’s revenues widened to about 11 times BSE’s in 2021-22. The nature of the stock exchange business is such that it entails a high upfront and fixed investment in setting up technological and trading infrastructure. But once that is in place, every increase in trading volumes tends to not only increase revenues, but also channel more into the bottom line.

High-margin business

Thus, NSE’s net profit too increased at a brisk clip during the pandemic, expanding 2.8 times between 2019-20 and 2021-22. It recorded a net margin of 55% in 2021-22, against 48% in 2017-18. Its net margin in 2021-22 was also nearly twice that of the BSE. Although dwarfed by the NSE on this count too, even the BSE doubled its net profit during this period. And the BSE stock appreciated about 6.7 times from its March 2020 low.

Taking the BSE public is one of the several achievements at the exchange for Ashish Chauhan. Other notable achievements include increasing trading speed, diversification into new trading domains like commodities and currency, increasing trading volumes, and consolidating the platform for small and medium enterprises. For Chauhan, taking over the NSE top job is a homecoming. He was at the NSE between 1993 and 2000, before multiple stints at the Mukesh Ambani-led Reliance Group between 2000 and 2009.

Waiting to list

At NSE, one of Chauhan’s objectives would be to see through its initial public offering (IPO). The NSE had filed IPO papers in 2016, but its spate of issues didn’t help its cause. Meanwhile, its shareholding has diversified beyond government-owned financial institutions. First came more Indian and foreign institutional investors. Then came brokers trading on the exchange and their associates, as well as other individuals.

From 69 in June 2011, the NSE has grown to 3,649 shareholders as of June 2022, including 479 trading members and their associates. The top 10 shareholders hold 43%. NSE shares trade in the grey market at about 3,500 apiece, valuing NSE at about 1.73 trillion, around 19 times BSE. NSE shareholders will hope that Chauhan will not only help them unlock this value, but also grow it—and keep the competition from BSE well at bay.

www.howindialives.com is a database and search engine for public data.

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