The broking business is transforming and we may see a shrinkage in the number of players going ahead, feels Ashishkumar Chauhan, MD & CEO, BSE. In an interview with CNBC-TV18, Chauhan also spoke on a wide range of issues from the Indian economy to consolidation in the stockbroking industry.
Here is the edited excerpt... The year 2019 was full of events that impacted Indian stock markets such as General elections, the slowdown in economic growth, the US-China trade war, five consecutive repo rate cuts from RBI then the Finance Minister coming up with a series of stimulus measures. What according to you had the most significant long term impact?
Indian markets were impacted by a combination of global and domestic factors. The global factors had a larger role including the US-China trade war, a slowdown in China, Brexit, overleveraged global financial system, among others. However, the entire world prefers India against other emerging economies. Global trade dynamics have changed and these are long term trends that will continue to impact Indian markets.
Despite weak macro-economic conditions, markets have done quite well with Sensex rising over 15 percent and crossing 41,000 mark. What are the factors driving the rally and why are Indian markets are so attractive for the FIIs?
India’s consumption and demographics are making it a hot spot for foreign investors. India is the only large country with huge consumption growth because of the young population that will fuel a new level of demand. India will remain a consumption story for long. That is reflected in the profits of consumer-oriented companies. Consumption in India will continue to grow for the next 25-30 years.
Also, stability at the political level, economic and social levels are attracting investors to India. Further, India has done well in ‘ease of doing business’ that has led to foreign companies to set up manufacturing plants here. Both, foreign portfolio investments and direct investments are on rise due to rising domestic consumption and efforts towards easing regulations.
How has Inter-operability among clearing corporations helped the business? How are you dealing with any issues related to technology or others?
Inter-operability has been in existence in other countries for long. The users have started gearing benefits. However, most software vendors and trading systems are not ready. But, exchanges have been ready. Inter-operability has allowed BSE to start equity derivatives and has achieved Rs 1,000 crore transactions a day. Trading in currencies has picked up. Brokers have started getting better utilization of their margins, customers are experiencing easy trading and reduction in margins. In long run, it will help BSE in regaining market share in equities and equity derivatives. BSE is a leader in bonds distribution and now also has launched commercial papers IPOs. We have done 30 issues with Rs 20,000 crore worth CPs raised on BSE. In September quarter BSE’s StAR MF Platform achieved 26 percent of net inflow for current fiscal.
Recently we have seen some instances of wrongdoings by large brokerage firms. The BSE has also taken actions against the broker. Will we see stricter regulations coming? Also, what are your discussions with SEBI regarding the issue and what actions will be taken further on the regulatory front?
Stricter regulations will come. There have been defaults by brokers in recent past. This seems to be a systemic issue. SEBI will take steps to prevent any misuse of client funds and securities. This is going to be an increasing trend as the industry is witnessing huge churn due to low-cost or zero-cost brokerage, affecting the income for brokerage houses amid the rising cost of compliances. This has mainly to do with automation and is an international trend.
Brokers are witnessing lower margins leading to compliances issues with them. This has also resulted in many brokers defaulting. BSE has been away from such activities. The broking business is transforming and we may see shrinkage in number of broking players going ahead.
Weaker brokers will be forced out of business and this may lead to additional regulatory issues with the broking industry.
What are your plans for 2020 and how do you hope the new year will be for the Indian markets?
We hope to launch Rupee-Dollar contracts deliverable in India INX, Indian Depository Receipt at India INX. India INX is becoming a powerhouse to raise funds. Also, expect the insurance distribution and power exchange to become live in 2020.If the market continues at the current pace, we hope many new IPOs to come. This shows Indian markets are growing not only in trading but also in raising funds.