BSE is the fastest stock exchange in the world: Ashishkumar Chauhan

BSE (formerly Bombay Stock Exchange) has transformed over the last one decade from a sluggish tech-averse bourse to an agile, new-age e-commerce platform for distribution of several financial products. It is gradually expanding its market share in several segments of currency derivatives, commodity derivatives, bond distribution, SME and IPO, riding on superior technology, better services and lower pricing. "We are the fastest exchange in the world," says an elated Ashishkumar Chauhan, managing director and chief executive officer. In an interview with Anto T Joseph, the turnaround man, who pulled the 164-year old bourse back from the brink after he joined it in 2009, discusses his expansion plans and efforts to beef up revenues.

For 2018-19, BSE has reported a dip in consolidated net profit at Rs 199.28 crore. For the January-March quarter, it posted a 16.46% year-on-year decline to Rs 51.86 crore. What led to the drop?

We have three types of revenue. One is services to corporates -- that is listing fees, which is broadly stable now. Every company has to pay annual listing fee. There is an upside if there are more IPOs. In 2017-18, there were several IPOs. The market was also buoyant, which led to an increase in transaction charges, which is our second type of revenue. The third is other income which comes from interest accrued from investments. Additionally, we also have rent and data charges that we levy on clients like Reuters and Bloomberg.

As the market was uncertain in 2018-19, there was a decline in transactions in the equity market. The stocks from where we get larger revenues are the exclusive stocks listed only on BSE. They contribute nearly half of our transaction charges. During last fiscal, daily volumes in those stocks declined from nearly Rs 200 crore to Rs 50 crore a day. That led to an overall dip in our revenues. Of course, financial income has been reasonable, but we gave away Rs 160 crore in buyback and over Rs 200 crore in dividends. Also, there has been some inflationary increase in operating cost too. This year, we have announced that Rs 200 crore (entire profits) will be distributed in dividends and Rs 460 crore in buyback. That makes it Rs 660 crore.

After the initial delay, how is your Gift City Exchange performing now?

India International Exchange, the country's first global exchange based out of the Gift International Financial Centre in Gujarat, is doing exceedingly well. Since it has just commenced operations, we have not started charging and hence there is an initial loss. We have an expense of Rs 30-35 crore on our balance sheet. Without this cost, our profit in the last fiscal would have surely gone up. But these are investments one has to do to ensure the future is better. The exchange has reached a turnover of $2.93 billion daily. It is now bigger than DGCX (Dubai) and also does more than 25% transactions in index derivatives compared to SGX (Singapore).

Your mutual fund distribution business has recorded steady growth. What is the road ahead?

We are growing at 100% year-on-year. For the first time in 10 years, we have started charging now and earned Rs 30 crore in revenues in 2018-19. If the trend continues for 5-6 years, the MF business will surpass our transaction income. We closed March with 37 lakh transactions and in April, we clocked 43 lakh transactions. It is a fast-growing fin-tech platform. A lot of new clients are joining thanks to various innovations around the distribution business. Just last week, we started a mobile platform for independent financial advisors (IFAs). More than 500 IFAs gathered in Mumbai for the launch of StAR MF mobile app, where one can invest in funds directly.

Speed is what is driving BSE ahead. What is your response time now vis-à-vis the competition?

We are the fastest stock exchange in the world, with 6 micro seconds in response time. It is 10 times faster than the second fastest which has 60 micro seconds. In a competitive scenario, where you are the challenger, you have to keep evolving. The technological advances have definitely helped improve the perception of BSE. This also helped us gain market share, especially in the currency market, where we raced to over 50% from 0% in 2014. Equity derivatives have not yet come. But the new interoperability rules might get implemented soon. It will be interesting to watch how it pans out.

You are foraying to newer segments such as insurance and power trading…

We have applied for a joint venture with the US-based Ebix, the largest insurance exchange in the world. They had recently taken over several companies such as ItzCash. This JV is for insurance distribution. We have also applied to the Insurance Regulatory and Development Authority (Irda) for a license. We have also tied up with ICICI Bank and Power Trading Corp (PTC) to set up an energy exchange for trading electricity on spot basis. We will have a 25% stake in the venture. In 2019-20, we are seeing fruits of our hard work put in during the last few years.

We are very conservative in our approach. We are slowly reducing the money that we have in the balance sheet by way of dividends and buybacks. That will improve the return on capital employed (ROCE) and many other parameters.

We are also keenly watching Sebi's new interoperability implementation framework for clearing corporations (CCPs). Sebi's aim is to reduce trading costs. The interoperability will permit trading members to clear trades through a firm of their choice instead of going through the CCP owned by the bourse on which the trade was executed. BSE's commodities market has also started in a promising way and looks set for a multi-fold growth in next few years.

Several unicorns have come up in India's fledgling start-up market. Are they going to help the IPO market?

Today, many of the unicorns are not profit-making. India's market has not yet evolved to fund them. Also, most unicorns are structured outside India. So, we have to see if anyone becomes eligible to get listed here. Also, an Indian company like Makemytrip.com ended up listing in Nasdaq.

BSE has started a start-up platform for anyone raising small funds of Rs 1-5 crore. We are getting a lot of inquiries. We already have an SME platform, with 299 companies listed, out of which 60 have now gone to the main board. Sebi is also trying to bring in rules for larger high-tech companies. They are currently in discussions. When some of these companies turn unicorn, they will be an already-listed unicorn. So one needs to see if you want to have the existing unicorns go for IPOs or new companies that are already listed become unicorns.

After the government introduced the tax on long term capital gain (LTCG), has the long-pending issue of tax evasion disappeared?

The main culprit was the Income Tax Act, which did not charge tax on capital gains arising out of stocks if you held them for more than one year. We had taken up the issue with the government and other regulators. BSE was projected as a conduit of such transactions while the law had its own lacuna. Now that LTCG is taxed at 10%, the issue of tax evasion has kind of evaporated after the change in the law. There are still a few related issues that need to be addressed. But overall that issue has been sorted out.

What is your prediction for the market? Still sticking to the $20 billion target by 2035?

India is a $2.2 trillion market and $3 trillion GDP economy at present. The 7-7.5% economic growth will help the market grow faster. In next 15-16 years, we will grow 8 times. So, we are in a way on track to become a $20 trillion market cap by 2035.