Shishir AsthanaMoneycontrol Research
As BSE gets ready to list this year, it is perhaps worth-while to compare Asia’s oldest bourse with the National Stock Exchange, a 24-year-old upstart, which has in its short lifespan become a better brand name. Such a comparison is more relevant today given how BSE will be listing on NSE, as no self-listing is allowed by SEBI.
A bourse, as they say, is only as good as the products and services it offers. By that token, BSE, which has many firsts to its name, will have to reinvent itself. And, to be fair, the bourse has been making the right moves for some time now – launch of new products, its big-ticket push on IT, its recently launched international exchange, to name a few. But the key question is, will investors want to bet on the BSE stock?
Based purely on sentimental reasons, BSE is a good stock to own. Having begun life in 1875, the bourse is the world’s largest exchange with the maximum number of companies listed on it. It is India’s largest and the world’s 11th largest exchange by market capitalisation, with USD 1.7 trillion in mcap of listed companies. For old-timers it is also perhaps the stock exchange of choice. For many investors and traders BSE Sensex is still the benchmark index to gauge the movement of the market.
But investing does not involve thinking with your heart but with your brains. So how does BSE compare with NSE on parameters of growth, returns and valuations?
Ever since it started operations in 1992, NSE has stolen the thunder from BSE. In the interim, NSE has become the exchange of choice for institutional investors who contribute a major chunk of the daily business. But, more importantly, NSE scored over BSE in the derivatives segment.
Nearly 90 percent of the combined volumes in the two exchanges take place in the index and equity derivative segments. Within the equity segment, derivatives volumes are 14 times that of the cash segment. NSE is a clear leader here capturing all the volumes in this space. BSE did try to make a dent here by launching the liquidity enhancement incentive programmes (LEIPs) but met with little success and the programme is now being wound up 5 years after its launch.
In the cash segment, which is around 6 percent of volumes traded (others being currency, commodities, bonds, ETFs and interest rate derivatives) the share of BSE is a meagre 14 percent. Despite having 5,911 companies listed on BSE as compared to 1,808 on NSE, volumes are higher on the NSE. This is because nearly two-thirds of the volumes are in the top 50 stocks, which are common to both the exchanges. When it comes to sheer size of business between the exchanges, NSE wins it hands down.
In terms of profit margins, while NSE earns a net profit margin of 49 percent, BSE works with 20 percent margins. NSE earned a consolidated revenue of Rs 1863.5 crore in FY16 against BSE’s Rs 658.3 crore. While growth for NSE since FY12 stood at 36 percent in absolute terms BSE grew more modestly at 13 percent. In growth and financial terms, too, NSE is the leading exchange.
It’s in valuations that BSE trumps NSE. NSE has also announced plans for an initial public offer. Though the price and valuation at which NSE will be tapping the market are not known, based on the sheer difference between the two exchanges it is safe to assume that NSE will always command a premium over BSE. Approaching the market ahead of NSE, BSE has priced its IPO at 41.23 times its FY16 earnings, leaving very little room for NSE to charge a hefty premium.
BSE issue can get through, being the first big exchange to tap the market, but coming just ahead of the Budget, its listing price will be dictated to a large extent by the sentiment in the market.
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