Better times ahead with third bourse
India’s third stock exchange, the MCX-SX, which is expected to start functioning by the end of this year, if not by Diwali, raises hopes for a more robust and more inclusive stock market that reaches out to India’s far-flung areas.
Companies, and even the government, are growing ever more dependent on the capital markets for raising funds for investment, particularly for infrastructure. So a vibrant stock market that can reach a significant section of the untapped market and create volumes is an imperative.
And there is scope, as is evident in the development of the gold market. Till 2007 there was hardly any investment in gold, though people did purchase the yellow metal. It was only after the market was developed and started to give returns that it picked up between 2007 and 2012.
Despite the over 100-year-old Bombay Stock Exchange and India’s number one exchange, the 20-year-old National Stock Exchange, less than two per cent of India’s population, or 21 million individuals, invest in the equity markets through demat accounts. A survey by Sebi and NCAER of an estimated 17.7 per cent of the total Indian households showed that only about 1.3 per cent invest in equity shares, bonds and debentures.
The new exchange expects to tap far-flung areas by bringing down membership costs, creating new categories like professional members and rural entrepreneur members, reducing transaction costs, training brokers and other participants and speaking in their language.
The significant factor about this third exchange is the competition war it has already unleashed, leading to the two existing exchanges bringing down membership and transaction costs. The `1.5-crore membership cost at the NSE, for instance, was a big entry barrier for smaller brokers. Now, with lowered costs, a sub-broker can be a member and does not have to depend on a main broker. These and more ingredients are necessary to get in the volumes needed.
The MCX-SX, promoted by the Financial Technologies Group, has experimented successfully with their now thriving commodities and currency futures exchange by going to hubs like Tirupur (textiles) and Jaipur (jewellery) and training staff to read contracts, make entries, protect themselves, etc; their literature is available in a dozen languages.
Another ingredient is a product differentiator. If one goes with a complex derivative or futures product to untapped areas, one could wipe out investor capital and scare investors away. This is evident in the current situation where retailers who burnt their fingers in various scams and with vanishing companies are wary of returning to the market as till today they have not got back a single paisa. Hopefully MCX-SX will develop the languishing risk-free debt market.
Post new comment