时间：2022-04-05 04:41:09
We want to benchmark ourselves to Chinese exchanges where retail participation is nearly two-thirds.
Equity is glamorous but we will look at other products.
The bond market is a big opportunity to attract debt for investment-hungry infrastructure in India.
For a man appearing before the media for the first time in nearly four years, Jignesh Shah was not in the least hesitant. On July 11, a day after his MCX Stock Exchange Ltd received permission from the markets regulator to deal in equities and some kinds of futures, he took questions straight on with responses – three of which are reproduced above– that were precise in detail and context.
It was clear that the ambition in the stockilybuilt founder of India’s biggest commodity exchange and self-styled “technology scientist” had not ebbed. Over some 10 years, Shah has built an empire of nine exchanges and related ventures in warehousing, information management and electronic payments, with combined revenues of `834 crore and estimated profits of `264 crore. That is all fine, but the next big bet 45-year-old Shah is making is a push into equities and debt trading with MCX-SX, as his stock exchange company is called in short.
Those who know Shah say it is market leader National Stock Exchange (NSE) that he has in his sights. “BSE is no competition. It is only moving closer to a museum,” he has been heard joking with colleagues. NSE is expected to have made revenues of around`1,600 crore in the financial year gone by(an unlisted entity, it declared revenues of`778 crore in the first half of 2011/12). Bombay Stock Exchange (BSE), Asia’s oldest bourse, is smaller with revenues at `580 crore for 2011/12.
Shah, whom Business Today met in May, was not available for an interview for this feature.
For all the gung-ho atmospherics, Shah and his businesses are going through the roughest of times since he stepped into the limelight in the early 2000s as a firstgeneration billionaire businessman. The licence for MCX-SX came after nearly four years of fighting the Securities and Exchange Board of India (SEBI). Shah took SEBI to court for denial of a licence and the case was finally decided by the Supreme Court in favour of the businessman from Kandivali, a middle-class Mumbai suburb. The battle with SEBI, go whispers in New Delhi’s power circles, even had the office of former finance minister Pranab Mukherjee sucked in. Retired senior government and regulatory officials –former finance secretary Ashok Jha, former revenue secretary Nitish Sengupta, and former Reserve Bank of India deputy governor Vepa Kamesan, to name three –who line Shah’s companies and boards added heft to the battle.
Group flagship MCX, or Multi Commodity Exchange, is valued at over`5,660 crore and daily trading volumes have jumped to over `50,000 crore. But this is dominated by trade in gold and silver (see Striking Gold, page 44). Financial Technologies (India) Ltd, or FTIL, a software company that Shah founded in 1995 after he quit his job at BSE, has also lost lustre. At the height of the boom in the economy in 2007/08, FTIL, also the holding company for the group, was valued at over `12,000 crore. Today, its valuation is `3,500 crore– a decline of over 70 per cent, compared to a decline of just around 15 per cent in the benchmark BSE Sensex.
Flame-outs Aplenty
In the past several ventures of Shah and his group have faltered (see In a Spot, page 40). A quick summary:
Safal National Exchange of India: A joint venture between the FTIL-MCX duo and National Dairy Development Board, Safal was to offer an online platform for fruit and vegetables. But, from day one, traders and farmers didn’t see eye-to-eye on quality and price, and the partners could not agree on the way forward. In less than a year, Shah’s first effort at “markets for the masses” crash landed.
Dubai Gold Commodity Exchange: A 50:50 venture with Dubai Multi Commodities Centre, DGCX was strategically located between the time zones of London and Tokyo, but two years into the business, Shah had to cede control. It had accumulated losses of `100 crore in December 2009, after which accounts have not been finalised pending capital infusion.
National Bulk Handling Corporation: An ambitious push into collateral management services, NBHC was to set up warehouses where farmers “even with a bag of a commodity” could get a loan through banks. The plan is not dead but with revenues of just `123 crore for 2011/12, contracting profits, no company-owned warehouses near major mandis, and mostly manufacturers and traders as clients, the business is not exactly on fire.
National Spot Exchange: A spot exchange set up with the National Agricultural Cooperative Marketing Federation of India was aimed at farm produce but turnover is low in agricultural commodities. Instead, investment products built around gold, silver, copper and zinc are finding takers though daily turnover is just around `1,000 crore.
Indian Energy Exchange: IEX, India’s first electricity exchange, holds some promise but with a total income of `70 crore and profits of `34 crore in 2011/12, it is yet to scale up.
Shah has agreed that several of these ventures were ahead of their time, but has defended the strategy. It helps “in terms of your preparedness to scale up when the market actually opens up or realises the potential,” he has told investors.
MCX-SX Next?
Until July 10, MCX-SX could deal only in currency futures and volumes – around`13,000 crore daily – have been at a trickle. The SEBI approval for trading in equities, equity future and options (F&Os), interest rate futures, and debt instruments does away with that restriction. When MCX-SX launches its new products, the financial landscape could change. And, Shah’s life.
For a sense of potential, the feisty Shah– he has been fighting a case over a leased beach house in Mumbai for years because he believes the landlord got greedy after Shah splurged on refurbishing it – just needs to turn to NSE’s financials. NSE records an average daily turnover of around `1.5 trillion (one trillion equals 100,000 crore) in equities, equity F&Os, and currency trading.“The equity segment is by far the largest and most profitable segment of the Indian ex- changes industry,” says Nikhil Vora, Managing Director of Mumbai brokerage IDFC Securities Ltd. “I see MCX-SX’s entry into equities as offering huge growth potential.”
Even discounting for Vora’s optimism, history favours MCX-SX’s case. In the early 1990s, a technology-enabled NSE displaced BSE in no time. If another exchange – with superior technology, innovative products and lower membership and transaction fees– comes along, it could change rules of the game again. Today, NSE controls over 80 per cent of the cash market in stock trading, and rules the fief in equity derivatives. “The monopoly of a single player is strictly unwarranted. MCX-SX will only raise the standards for the existing two,” says Ashok Kumar, Managing Director, Lotus Knowlwealth, a wealth management firm.
Experts say that there are two big weaknesses in Indian equity markets: lack of products and shallow market depth. MCX-SX has headroom for innovation around products. However, not only will it need the regulator’s approval, but the product could be copied by competitors. Pricing, then, will be the only edge for MCX-SX. Says Joseph Massey, Managing Director and CEO: “As a new entrant we would bring in the latest technology with less legacy costs the benefit of which can be passed on to the market participants.” MCX-SX has also said small and medium businesses will be a focus area.
The spread of the equity culture is hampered by high entry costs for brokers at Indian bourses. For instance, membership fees to register as a stock broker with NSE are`75 lakh for individuals and `1.5 crore for corporate, for trade in equity and equity derivatives. NSE has a vast network of sub-brokers in small cities but over 80 per cent of its cash trading turnover comes from five cities (Mumbai, Delhi, Kolkata, Ahmedabad and Chennai). “If a new exchange can slash membership fees, a large amount of money can be mobilised from small towns,” says Vinod Jain, Chairman, Committee on Financial Markets, Institute of Chartered Accountants of India. The potential is there– non-metros account for 60 per cent of overall savings in the country.
Regulator’s Frown
Soon after assuming the role of SEBI Chairman in February 2011, U.K. Sinha expressed concerns about the lack of competition in the exchanges business, which many interpreted as the regulator’s discomfort with NSE’s dominant position. “NSE’s operating margins are higher than many international exchanges due to its transaction costs being on a higher side,” says Ashok Banerjee, Professor (Finance & Control) at Indian Institute of Management, Calcutta. The exchange made net profit margins of 46 per cent in 2010/11, the last year for which data is available. A McKinsey& Company study in 2010 – Capital Markets 2020: Going for 3X – noted that costs per trade were significantly higher in India than in developed markets.
When asked about this, all that an NSE spokesperson would say was: “We wish MCX-SX good luck. We are always ready for any kind of competition.”
On the credentials front, the FTIL Group has shown its mettle, despite worries in the finance ministry’s capital markets division about how safe it is to grant entry into fullfledged equities trading to a private entity that already controls more than a quarter of all assets (equity, equity derivatives, currency derivative, commodities and interest rate futures) traded on exchanges in India. Of the total turnover of `542.89 trillion transacted on Indian bourses across asset classes in 2010/11, Shah-controlled exchanges accounted for `40.35 trillion or over 25.85 per cent. Data for 2011/12 is not complete.
There are also loud whispers that circular trading – a small group of brokers selling to and buying from each other – has propped up volumes at MCX in the past. But, no one can deny the fact that MCX has built an amazing 86 per cent market share. MCXSX’s currency futures segment turnover is neck-and-neck with NSE’s currency trading platform. And, despite his setbacks, Shah has shown that he doesn’t shy away from risk when it comes to expanding his business. Examples besides those named earlier are Singapore Mercantile Exchange, Bahrain Financial Exchange, Global Board of Trade in Mauritius, and Bourse Africa Ltd in Botswana. Rashesh Shah, Chairman and CEO of Edelweiss Group, who has known Shah for 14 years, says Shah can be lasersharp in his objective. “Apart from the vision, you also need a good team. He gets the execution done very well.”
Not all experts are comfortable with the idea of another exchange, even if it is promoted by a group with a track record of generating robust volumes. Says Raamdeo Agrawal, Joint Managing Director at broking firm Motilal Oswal Financial Services:“In the exchange business, volumes attract more volumes and the market leadership itself can be the biggest strength of an exchange and vice versa.” Then, as others point out, an entrant in today’s bear market will find it tough to gain traction.
Still, for anyone interested in how the coming months will pan out with MCX-SX padding up for action, a billboard at the entry of Bandra Kurla Complex, a financial district in suburban Mumbai, has a story to tell. It is among the most expensive billboards in Mumbai and has been leased to one of the FTIL group companies for about seven years now; every year, Shah’s companies win it in lease auctions. Shah often boasts to his friends that he leased it at a time when he couldn’t afford an office in the complex but MCX was taking arch-rival National Commodity and Derivatives Exchange, which was backed by big financial institutions and banks, head on. For a year now, Shah has moved into a plush office in the complex and takes pride that everyone – including NSE Managing Director Ravi Narain – driving to work in the neighbourhood gets the message that MCX and Jignesh Shah are for real.