If things go according to plans, the Bombay Stock Exchange (BSE) could become India?s first listed stock exchange by the next year. But, if the latest financial numbers of the exchange are anything to go by, it seems that the BSE may have a tough time attracting investors for its public offering.
The exchange has seen its share dwindle in the cash market, while the derivatives (F&O) segment is being driven only by a market-making scheme. The standalone profit for the exchange dipped by 37% in FY12, while a bulk of the revenue for Asia’s oldest equity bourse now comes from investments and deposits and not from securities business. This would be a major cause for concern for BSE?s top officials, who have said that the exchange has already formed an IPO committee and is looking at listing in the first or second quarter of CY13. Interestingly, the BSE is betting on its cash-rich status to attract investors.
According to the latest annual report, BSE’s net profit for 2011-12 is pegged at R117.29 crore, which is 37% lower than the previous year’s R186.24 crore. Further, the consolidated net profit has declined 17%. Even for the first quarter of 2012-13, the BSE reported a more than two-thirds decline in net profit at R15.4 crore against R64.2 crore in the same quarter last year.
As far as revenues of the exchange go, nearly 50% or R268.27 crore, is attributed to investments and deposits. The core securities business accounts for only 32% of the total income of the exchange.
While the BSE has historically been strong in the cash segment, the last few years has seen a steady decline in its market share. From a high of over 30% in early 2008, BSE’s share has now dropped to around 17%.
According to the annual report, the BSE attributes this partly to ?weak performance of the market in 2011 and… the erosion of BSE’s market share in cash equity trading.? BSE’s net revenue from its cash equities business declined from R60.30 crore in FY11 to R36 crore in FY12. A section of market players, however, says that all is not lost for the BSE, which boasts of a strong and impressive recall value among investor community. They say that while NSE’s Nifty is the preferred underlying for index-based derivatives, Sensex is still looked upon as the leading barometer for the Indian capital market.
Incidentally, the BSE has tried to capitalise on brand Sensex by signing agreements with Eurex and BRICS Exchanges Alliance. The agreements allow for the listing of derivatives products based on Sensex. BSE also boasts of names like Deutsche Borse, Singapore Exchange, Caldwell India Holdings, SBI, LIC and BoI among its shareholders.