Ashishkumar Chauhan is the managing director and chief executive of the BSE, previously known as the Bombay Stock Exchange, the world's largest exchange by number of listed companies. Mr Chauhan was instrumental in setting up India's National Stock Exchange, India's other major stock exchange, and used to be the chief executive for the Mumbai Indians, an Indian Premier League cricket team. In an interview at his office in the BSE's landmark building on Dalal Street, he talks about the challenges the economy is facing, efforts to improve the financial markets and the demand for Indian equities from the UAE.
The Dubai Gold and Commodities Exchange (DGCX) this month started trading futures for your benchmark S&P BSE Sensex index. Why did you decide to have this launch in Dubai now?
I think there are several issues. This agreement was entered into between DGCX and BSE in October 2011. It's just that they were in the process of changing their own technology and that's why they could not implement the trading in the Sensex earlier. Dubai is trying to establish itself as an international finance centre. The index was in a sense not traded abroad much, but in the last three years, we have tied up with Brazil, Russia, China and South Africa. All those countries are trading BSE Sensex and we also have a trading of Sensex in Germany at Deutsche Borse. Internationally, there is a demand for Indian indexes.
Who are the investors who will trade Indian stock futures through the UAE?
[DCGX] seems to have the perceptions that there are a lot of Indians within in the Middle East and North Africa region who might be interested. They also have a perception that some of the foreign institutional investors would prefer Dubai as a venue over other international exchanges. They also hope to attract interest in India from the Gulf region, from sovereign wealth funds and banks. They seem to have a wide canvas, but one needs to wait and watch how this thing pans out.
But surely it has been launched at quite a bad time in some ways. Last month foreign institutional investors pulled out quite a lot of money from Indian markets and sentiment seems to have turned quite weak. What do you think about the investment climate and is that a big challenge for you?
The way we look at it, there is an international situation where all the currencies are getting devalued in comparison to the dollar. In some sense, India has been a better performing market than even China. I was told that India's growth rate might be higher than China's in June. What I see is that even the issues that are taking place internationally, whether it's Brazil or Egypt, those also have an effect on emerging markets. These issues have to be resolved. It's not India-specific. The money that has been taken out is largely in the debt market. The US yields are getting tightened so the money is moving out of emerging market bonds and getting into US markets is kind of a given phenomenon. Now the Indian current account deficit is improving with gold imports going down in the month of June. There is going to be a pretty good improvement going forward. We see this as a temporary situation.
You say it's not India-specific, but there are also quite a lot of issues with India at the moment. If you look at the elections coming up next year, there are still quite a few negatives. What are your thoughts on this?
If you look at elections in India in the past, in those years India got a lot of foreign investments, which will continue this year also. If you look at the overall framework in India, the regime change, if at all, is always very peaceful. Almost all large political parties have a very similar economic agenda, so most investors are very comfortable in terms of the policy continuation. It's more of a mental situation where you start worrying. Many people confuse themselves by looking at a negative in one small aspect of it and generalising it across the entire nation, which is 17 per cent of the world population.
How risk averse are India's investors at the moment? Are they staying away from stocks?
There are investment cycles that happen internationally, including in India. The commodities boom over the last 10, 12 years internationally ensured people invested in commodities, but that cycle is kind of getting over, with international prices of oil and gold, silver all down by 20, 25 per cent or more from their historic highs. Similarly, real estate used to be one large market and that market has run its own cycle. There are various asset classes which people tend to invest in and those asset classes were giving higher returns in the past and people were projecting those returns in the future. So when those returns stop happening, they start moving into other asset classes. We think equity as an asset class in India was not invested in over the last five or six years and in 2012 it gave almost 24 or 25 per cent returns vis-à-vis negative returns elsewhere. Similarly, this year it's holding up vis-à-vis other asset classes which are going down substantially, including gold. You can see that people are coming back to equities and also corporate debt.
The volumes traded on the Bombay Stock Exchange are significantly lower than those traded on the National Stock Exchange (NSE). Why is that and does that mean that you have to try to catch up with the NSE?
The way we look at it is we have the largest number of companies listed in the world. We have around 5,200 companies listed. We are the eighth largest exchange in the world by the number of trades. We are the 10th largest by market capitalisation. We are the fifth largest index options market. So we are among the top exchanges in the world with a very good reputation of running a very transparent, fair, and efficient market for 138 years. It's the oldest exchange in Asia. The way we tend to measure ourselves is on giving a more orderly, transparent, fair, efficient market to the population of India and investors coming from abroad. The transaction volume is not the only parameter you measure an exchange on. It's like saying that a human is basically measured by the weight that he or she has. Only adding weight might not be that relevant in the context.
What initiatives are you focusing on and how are you trying to improve market transparency and efficiency?
One of the newer initiatives which BSE is implementing is a new trading technology that has been acquired from Deutsche Borse. That is under implementation. That will increase the throughput by about five times from around 20,000 orders a second to 100,000 orders a second. It will improve the response time by 100 times in the next three to four months from 10 milliseconds now. We have also undertaken the automation of continued compliance by companies. We basically have a website created for the companies to report their various filings into the exchange in an automated fashion instead of faxing their details. That has had a huge response. More than 1,500 companies have started using that. We also have several thousand investor awareness seminars across the country every year. We have a training institute which does training in rural areas for groups that are traditionally not participating in the financial markets. Today, if India has only 2 per cent population investing in the financial markets, how do we take it to 30 per cent by 2020?
There has been talk about an initial public offering for the BSE taking place this year. Is that going ahead?
Yes, we are working on it, but I have been told by my investment bankers to keep quiet on the details, so my apologies for not being able to reply on that.
What's your outlook for the economy?
The economy looks very promising, especially the way the world markets are working out. India has basically two large issues, in terms of the import of gold and the import of oil. The long-term trend is that the price of oil should move down. For gold, it has already come down substantially. So, barring some skirmishes in the Middle East, both these are positive for the Indian economy if their prices go down. Our democracy also is a huge help. In the long term, where more than 50 per cent of the people are under 25 years of age, you have very good demographics, so everything is looking good. We are not only commodity driven; we are not only services driven; we are not only consumption driven; we are not only investment driven. It's a very balanced economy [skilled] in manufacturing, services, newer technologies. On a 20-year scale, these are the issues that any investor would look at.
Is the BSE's plan to continue with global expansion, opening up India to more and more foreign investors?
Absolutely.