Moneycontrol Pro Panorama | NSE has an edge, needs to build on it

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Dear Reader,

India’s biggest stock exchange, the National Stock Exchange (NSE), has been in the news for all the wrong reasons over the last few years. It is only now that we are getting a glimpse of the rot in the system. From favouring a certain set of traders to poor service standards like stoppages, the exchange has seen it all.

Yet, it continued to be the number one exchange in the country, with its volume increasing steadily despite the glitches. The only reason for this was there is no other alternative for traders and investors. BSE, the oldest stock exchange in the country, is a distant second with barely any presence in the derivative segment, which attracts more than 90 percent of the volume.

BSE does see volumes in the cash segment, most of which is on account of arbitrage between NSE and BSE, and on account of participation of investors in small and mid-cap stocks that are only listed on the exchange. Despite many attempts and initiatives by BSE under the leadership of Ashish Chauhan, traders did not shift from NSE. Better software and hardware and incentive schemes launched by BSE also failed to attract traders.

Loss of reputation of the oldest stock exchange and various scams and crises along the way saw participants, especially institutional ones, leaning towards NSE. The first mover advantage in terms of adapting to technology and transparency saw NSE build up on its lead since the year it was launched. From the second year of its operations, NSE overtook BSE in the cash segment and has never looked back.

After the launch of derivatives, there was no stopping NSE. At the helm of its activity, especially in the derivatives segment, was Ashish Chauhan, who later joined BSE.

In his second innings in NSE, now as the head of the exchange, Ashish Chauhan has his job cut out. Besides building its reputation, Chauhan has to ensure that the infrastructure on which the NSE trading platforms are built is robust and in case of a stoppage, there is a working backup infrastructure.

Though most market makers and high frequency traders (HFTs) use NSE mainly on account of liquidity, there is room for improving the speed of transactions. Further, the exchange needs to work on the margin system in the options segment where traders are asked to keep the margin way above the maximum risk in a risk-defined options strategy. The exchange needs to be aligned with the rest of the world in its derivative segment. With SGX Nifty likely to start trading at GIFT City, traders would expect the same kind of margining system that is available on the international exchange.

Finally, the market is looking up to Chauhan to get NSE listed, one of the most awaited IPOs in Indian markets.

As far as the current market is concerned, the recent bounce has raised hopes of a short-term bottom is established. Ajay Bagga in his article looks at the impact of peak pessimism, peak dollar and peak inflation on emerging markets. ​

The greening of Corporate India continues, with India’s cement companies are gearing up to save energy through waste heat recovery systems as mentioned here in an article by my colleague Vatsala Kamat.

Why do we still bother with active funds? (republished from the FT)

Technical Picks: Bajaj Finance, Grasim, Guar seed, Equitas and ICICI Bank (These are published every trading day before markets open and can be read on the app)