Research report & IPO details of BSE’s IPO

IPO DETAILS:

BSE Limited

Start date: 23 January 2017

End date: 25 January 2017

Offer price: Rs. 805 to 806

Face Value: Rs. 2

Type of issue book building

Market lot: 18 shares

Lead managers to the issue:

Edelweiss Financial services Limited

Axis Capital Limited

Jefferies India Private Limited

Nomura Financial Advisory & Securities Private Limited

Motilal Oswal Investment Advisors Limited

SBI Capital Markets Limited

SMC Capitals Limited

Registrar to the issue:

Karvy Computershare Private Limited

PRODUCTS AND SERVICES OF BSE:

Revenue is mainly earned in the following three ways.

  1. The Listing Business: This consists of the primary market and is related to the issuance of new securities.
  2. The Market Business: This consists of mainly the secondary market, relating to the sale and purchase of previously issued securities. BSE STAR, the online platform for placing orders and redemption of units of mutual funds, and NDS-RST, the platform for reporting over the counter bond trading also falls under this category. This category also includes memberships and post trade services.
  3. The Data Business: This consists of the sale and licensing of information products.

Of course, in addition to the primary lines of business, BSE also provides several other services. Provision of IT services, licensing index products and providing financial and capital market training are some of the myriad other services that BSE is involved in.

Here are some financial details of BSE:

For both BSE and NSE, the primary source of revenue is derived from security services and services to corporates. Information services make up about 4% to 5%. For developed economies, however, information services account for 10% to 25% of the revenue.

Competitors:

National Stock Exchange (NSE) is the only competitor of BSE.

Here is the comparative analysis of number of shares traded and market capitalization of NSE & BSE.

As you could see, NSE is the market leader in terms of volume of shares traded. NSE is also coming up with an IPO. Don’t worry, we will update you about it.

RISK

Stock trading, while very profitable is not without risks. Neither investors nor exchanges are exempted from risk.

Broad market trends and other factors beyond our control could significantly reduce the demand for services. Unforeseen factors such as these can adversely affect business and operations. For example, a decline in share prices and the number of shares traded can cause settlement shortages or defaults by a member.

A stock exchange is subject to numerous contingencies and uncertainties over which it has no control. The companies listed on the exchange may suddenly find themselves unable to meet the ever-changing requirements. There is no assurance that the company will be able to improve or add to the technology infrastructure of the exchange in any way. This would ultimately affect the reputation of the exchange. Damage to the reputation of the exchange would in turn have an adverse effect on all the listed companies.

The products offered by the exchange could lose market appeal or the company might be unable to expand its business and attract new investors. The business could be adversely affected by the risks associated with clearing activities.

Also, the electronic trading platform of the exchange is vulnerable to a plethora of security risks and cyber attacks.

STRENGH

According to CARE Research, BSE ranks third in terms of currency options and futures contracts traded in 2015, with 430 million currency derivatives traded. This marked an increase of 103% from 2015.

The turnover from the interest rate derivatives market grew from Rs 26 billion in 2014 to Rs 1141 billion in 2016.

BSE introduced the BSE SME platform for listing and trading shares of small and medium enterprises in March 2012. It introduced BSE STAR for the online placement of orders and redemption of units in mutual funds in December 2009. It won the SKOCH Achiever Award for SME enablement in 2016.

As of 30th June 2016, BSE was the largest stock exchange in the world in terms of the number of listed companies. With a market capitalization of $1.52 trillion, it is the 11th largest in terms of market capitalization.

INDUSTRY OVERVIEW

Worldwide, the total turnover of stock exchanges grew from about 78 trillion USD to 114 trillion USD, from 2011 to 2015.

Asia Pacific, however, saw a much more substantial growth. It grew from 17 trillion USD in 2011 to about 54 trillion USD in 2015. The compounded annual growth rate was almost 34%.

GENERAL OVERVIEW OF THE EXCHANGE SECTOR

Stock exchanges around the world have grown in leaps and bounds in the past few years. By most estimates, more than 630,000 companies are now traded publicly in the various exchanges.

The 63 members of the World Federation of Exchanges had a market capitalization of about 66 trillion USD at the end of June 2016. There are 16 exchanges that are part of the elite “$1 Trillion Dollar Club”, with more than $1 trillion in market capitalization each.

The New York Stock Exchange (NYSE) is the largest in terms of market capitalization and represents about a third of all the equities traded in the whole world. The Tokyo Stock Exchange (TSE) follows closely behind. A strong national currency is the reason behind the growing size of the TSE.

The London Stock Exchange qualifies as a top five stock market, and is considered to be one of the most international of global exchanges, the Hong Kong and Shanghai exchanges are newer, but growing very fast.

The Bombay Stock Exchange of India is the world’s fastest stock exchange, with an average trade speed of about 6 seconds. It is the 11th largest in terms of market capitalization, and one of the largest in terms of the number of listed companies.

DEMOGRAPHIC DIVIDEND

Presently, India is in the early part of it’s demographic dividend. The working age population is much larger than the dependent population. This provides a boost to the consumer spending in the economy.

PARTICIPATION BY RETAIL INVESTORS

Equity ownership by retail investors has fallen over the past couple of decades. The active retail participants in the Indian stock market are about 1.5% of the population. Participation has been increasing slowly in the recent years because of the number of financial awareness programs conducted by stock exchanges and mutual funds to make sure the retail investors in India make well informed decisions and do not invest impulsively. Also, tax breaks for equity investors helps channel more of household savings into the stock market.

INITIATIVES TAKEN BY THE GOVERNMENT OF INDIA

The Government of India allowed the Employee Provident Fund Organization (EPFO) to begin investing in equity markets last year. This provided a boost to equity investments.

The country desperately needs to channel more household savings into equity. India also needs more local funds in order to sustain the strength in the equities markets while avoiding macroeconomic imbalances.

The tax benefits offered by the government to retail investors has gone a long way to attract participants. Also, with the increasing number of mutual funds and SIPs, the number of retail investors has finally started increasing.

GLOBAL INFLOW OF FUNDS

Given the rise in the Indian capital markets, 269 new foreign portfolio investors registered with SEBI and NSE during 2012 to 2016.

India’s benchmark Bombay Stock Exchange recorded a 31% jump in 2014. Most of this increase is due to foreign institutional investors. Around 70% of the market is dominated by foreign investors.

The equity derivatives market, which accounts for more than 85% of the total traded turnover on Indian exchanges, has seen greater participation by investors since 2012. Between September 2008 and October 2014, foreign investors made net purchases of about $45 billion.

The currency derivatives market is comparatively younger. It commenced in August 2008 and has seen a gradual increase in participation by investors. BSE increased its market share from 33% to 39% in 2016. The interest rate derivatives market has also seen significant increase. In NSE, this segment grew from Rs 302 billion to Rs 5,264 billion, while BSE saw an increase from Rs 26 billion to Rs 1,141 billion.

 



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