How India’s markets finally found their momentum

Functioning and independent exchanges are a key part of any free market. Few remember that the BSE is the oldest stock exchange in Asia!  Yet over the years, short-sighted governments have handicapped and almost crippled many of our fine institutions. The result is that our exchanges, which should have been world leaders, have begun to show their paces only in the last 30 years. 

The National Stock Exchange (NSE) shows what we are capable of. Until its formation, the BSE and the other regional exchanges had been almost reduced to tightly-knit clubs, often struggling to survive. The fallout was that Indian industry could not raise the capital it needed to grow and remain globally relevant. Of course, there were many other, heavier governmental blocks, including taxation and licensing, but that is a separate story. Suffice it to say our exchanges were overtaken by many other exchanges, in Japan, Korea, Taiwan and even Hong Kong. 

But progress has been slow, and all of us are amazed that it took over 10 years before SEBI could agree to the listing of the NSE. All these years, the initial investors had to rely on a grey secondary market to exit, and, of course, the Indian public had no opportunity to participate in the wealth being created. One of the sticking points was that SEBI insisted that the exchange could not be listed on its own platform. The result is that the BSE is listed on the NSE, and the NSE will list on the BSE. This comic situation, of course, does not exist anywhere else in the world. The exchanges and their boards can be trusted to create open and fair markets, without manipulation, for thousands of companies whose total valuations run into trillions of rupees. But can they be trusted to ensure no manipulation of their own shares?

But in spite of SEBI and the RBI, which dictate how foreigners, including NRIs, can invest, the NSE has evolved in 30 years into one of the most vibrant and efficient exchanges in the world. 

The platform it provides allows Indian companies to raise hundreds of crores to invest, with several now being global in size, and it also allows the common man to invest even tiny sums and participate in the Indian growth story.
The growth of NSE will be a textbook study for years to come in terms of its wide membership, linked electronically initially with VSATs reaching every corner of the country (now leased lines), and the architecture of its systems built from the ground up for online trading and not as an overlay to the old outcry system which exchanges around the world had to use. All this allowed it to create new products, which also caught the imagination of traders and investors. Particular mention must be made of the derivative products that catapulted NSE into the largest exchange globally for derivatives. But one cannot ignore that in recent years, the derivative market drew in millions of retail investors who found themselves pitched against foreign giant institutions, leading to almost a bloodbath, where many retail players have been losing money.

Looking ahead, globally, exchanges are evolving. Some, like the London Stock Exchange Group, see themselves as data powerhouses, with the listing fees and trading fees being less than half their income.

From now onwards, NSE has to build more products, particularly in commodities and popularise the retail debt market. Chauhan has played a stellar role in the last few years and has played an active role (as he did at BSE). Hopefully, he will succeed in his aim of attracting foreign regional companies to list in India.

When it finally lists, NSE will be a star in the Indian market.