ValuePickr Forum

BSE (Bombay Stock Exchange)- Bet on Financialization?

(dprashant) #338

I think soon he will join Reliance again to run their kabaadi team after taking experience of being CEO of their IPL team.

I was amazed to see his pictures so many time in annual report of BSE. I have never seen any annual report till day where picture of CEO appears on every now and then …seems as of he was running some personal campaign.

I do believe that they trying many things , hope they clear about their focus too as MF may become really big , not sure what they will transalete to in terms of profits as it can get disrupted very fast

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So many prospects, so many possibilities, so many hopes, optimistic future. But why does Mr. Chauhan have to stress about valuation.

“I’m telling you, that if, mutual fund was a separate business, and coming out of Bangalore, many of you would have given it few billion dollars of valuation. It is – because it is in BSE.”

“Look at the news related to company called, and youwill get an idea of how to value all these companies. Of course, nobody values BSE or anything coming out of BSE that way.”

@Mridul your thoughts please.

(Mridul) #340
  1. People reading too much into that comment. He has been asked repeatedly about losing battle in equity portion and has time and again maintained he is working on generating many future rev streams, and that bse shouldn’t be valued merely on equity volumes. Equity share is reducing, yes…but in absolute terms has been maintained. He was forced to answer about valuation in frustration, as people repeatedly asked cash balance and valuation and stuff.

  2. And what he is saying about Star MF Pf is absolutely right. Such is the growth, and such is the potential and longevity. He told this as he felt people are just valuing BSE for its equity segment and asking questions with a prejudiced view.

People here might disagree, but i actually like what he said! This is not another smallcap mgmt looking for higher valuation by commenting on the same. One rule doesn’t apply in every case. One has to see the context.

Disclaimer: Invested.


No disrespect, but how come market is not recognizing the kind of potential that you say BSE has? You have been a proponent, but looks like market has quite the different opinion. Looks like market is does not want look into the future and is waiting for the goods to be delivered, then grant the appropriate valuation but not soon, or market does not see any real value and what BSE has is just potential which will not turn into reality anytime soon.

I’m learning, hence these questions and the stock is seeing new lows but I too would like to believe in this particular story.

(Mridul) #342

Market makes everyone humble, one.

Proponent is a wrong word. I like this company because of its potential vis a vis valuation and cash and yield. I have discussed pros and cons like many others on this forum. Never asked anyone to buy or sell.

I believe in the future potential of many rev streams Mr. Chouhan is trying to create here at bse. There is always a leap of faith when it comes to investment decisions.

I invest for not just 1-2 year timefeame. Bse for me is a long term bet where there is a huge optionality element, not just one or two…but multiple.

At the same time, this is a cyclical business like AMCs. We are in the downleg as far as new listings and mkt participation is concerned.

A lot of investments are being made here, which are not contributing to pat at the moment. Many of these investments are like investing in insurance businesses, which takes its own sweet time attaining breakeven, but once breakeven is attained…one gets consistent free cash flows. You have to remain watchful, but patient.

I like Mr. Chouhan. He has been leading the company from the front and has been quite successful in making a sleepy stock exchange frontrunner as far as areas other than equity is concerned. Equity is a losing battle as they don’t have derivatives. Volumes attract volumes in exchange battles.

India will grow, and indian capital, currency, bullion, commodity markets will grow along. One needs to determine his investment timeframe before buying into something.


Me too, I am not looking at this as a short-term bet. I want to be in for many years, hence the doubts and questions. I too am considering its optionalities.

But isn’t the fortune of a company depending on one person a potential risk. There are many possibilities for his absence, and the plans may not come to fruition with the change of management. Not that other companies don’t have this challenge, but as you give importance to him, he becomes a significant moving part, around whom everything revolves. Or do you think that he legacy and the vision will be continued by some others.

(Bhaskar Jain) #344

True. Even the BSE homepage carries only his pictures all the time. Does not look good. Key man risk is there.

(Dharmeysh Ashar) #345

Just wanted to add my two cents to your post. Mr. Chauhan is basically a tech guy so he must be very agile about disruptive technologies risk. Secondly their new businesses require very little capital. And thirdly as to “one man show risk” I think it is factored into low valuations.

Disclosure : Invested. Views are likely to be biased.

(TT) #346

The kind of posts on this forum are par for the course for most retail investors. The IPO took place two years ago, and, in the 18 months after that everyone was optimistic, even though it was clear from the beginning that the legacy segments will not deliver the growth, it will be the newer segments and they will take time to mature. No, time is not measured in quarters but years. Now people have been invested for a year or two and haven’t seen any returns, so it is natural to start dissing the company and its management.

Truth is, the CEO has been outspoken since the beginning and has lambasted some analyst or the other in every concall. He’s a straight shooter and always has been. I think he has also always been clear that the legacy segments aren’t going anywhere because the incumbent has been entrenched too long. He has worked on the other segments and the results are excellent. They’re just not at the scale retail investors are enthused by if they’re tracking this on a quarterly basis or even across 1 or 2 years.

This company will not contribute linearly to any investor’s portfolio for a while. The ones who remain invested will be betting on all the new segments the company is targeting, and in my opinion, the investment thesis should be looked at from that perspective and not how much equity cash trading or equity F&O trading is taking place. If this is what investors are tracking, they’re probably in the wrong stock.

(AmitContrarian) #347

He is saying start M.F has such high potential on what basis ?

I think its not good to consider the markets fool, if there is such a potential smart money will flow in… i do not understand star MF and with my limited understanding i don’t see any moat / pricing power here.

NSE is giving it for free, only reason BSE start is 10% of market today is because zerodha coin is built on it. If today some revolutionary broker comes up and builds it over NSE then whole market share will shift and brokers do gets disrupted all time , apart from NSE MF Utilities is there, which is promoted by AMFI. why not others can jump in ?

Why BSE start will have pricing power ? he is saying we will be able to raise price from Rs8-9 today to Rs 30 -40, i do not understand how ? frankly here i don’t know if its easy for them to do that without losing market share …

there are many platform to buy direct M.F , why marketshare will move to BSE star ?
why BSE star will have pricing power to raise their fee without losing marketshare ?

PS: Okay i have been bear on this stock bcoz i don’t see real assets earning anything , is the earning from GoV - bonds that translate into net income, why would i own BSE when i can directly buy Gov- bond.

(Rezang La) #348

I have tried to sum up my thoughts on why I am invested in BSE:

  • The moat: Any exchange has a regulatory moat – not easy to replicate. This provides it with optionality.
  • Optionality: This allows them to explore a variety of options – with few rivals to worry about.
  • Non-linear pay-offs: Heads I win, tails I don’t lose much. BSE has thrown money at various initiatives which have failed to pay-off; this has primarily been in the equity segment. BSE has had one spectacular success – CDSL. This has not been just a financial success. The listing, MCX taking a 24% stake in CCRL and MCX advising it’s members and their clients to use the CCRL platform are probably more important measures of success. Of course, all this will play out years into the future. StAR MF is another success in the making. Both BSE and ICCL are likely benefit disproportionately from inter-operability – if it happens.
  • The float: From where does BSE get the money to explore so many (failed) options? Exchanges have plenty of money in the nature of deposits and margin money – much of this is not technically theirs. However, they get to keep all / much / some of the interest earned; this is the financial source of their longevity.
  • Compliance: Mr. Chauhan does not describe the company as an exchange – he calls it a “compliance organization”. A highly regulated entity, which in turn is expected to regulate a host of other entities. In this regard, the difference between BSE and IEX on the one hand, and MCX and NSE on the other, is glaring. Regulators tend to take a benign view of companies with a laser-sharp focus on compliance; the way the RBI views a HDFC Bank (as opposed to some of the other pvt. sector banks) is a good analogy. In the long run, this culture of compliance will make a huge difference.
  • The upstart: The BSE of today is less than two decades old. The corporatization and demutualization scheme commenced in 2005 and ended in 2007. Till then, BSE was a “broker’s club” where the concept of professional management was alien. That this company is refusing to roll over and die in the equity segment is itself a testament to management quality – after all, exchanges are a winner-take-all business. Now this upstart is taking on the incumbent (MCX) and a rival with deep pockets (NSE) in the commodities space; this will be another good test of management mettle.
  • GIFT city: Much of the country’s investing and financing needs are met by exchanges abroad. Singapore is as good example. GoI and the regulators levelled the playing field in GIFT city. Both BSE and NSE have set up exchanges there. This, IMHO, will be a “fair fight” blue ocean business – there is no entrenched incumbent to take on. I believe that this business has a long runway ahead, as BSE and NSE have the first-mover advantage.
  • I can go on about a variety of other segments / initiatives, but you probably get the drift.
  • Valuation: Even a rough calculation of ONLY the owned liquid assets will show that the operating business is being offered-up for free today. This leaves us with two questions: Will the business survive? Will the business scale up to reward investors in the years ahead? The answers are likely to vary widely.

Key risk: An exchange business is a tricky one requiring management of extraordinary caliber. Some of the essential attributes are a. fostering a culture of vigilance and compliance, b. being able to earn the trust of – and work with – multiple regulators, c. having the imagination to spot opportunities in time, and then getting the execution right, d. having the maturity to let go of failed projects (and these are likely to be plenty) and e. being eternally vigilant of disruption – rivals and technology are good examples. As of now, BSE has best-in-class management. This will be a key monitorable going forward.

(Ampi) #350

BSE considering buyback of shares again in next board meeting. Can do so from July of this year.

(Nityanand) #351

Tried searching few things on what BSE StarMF platform is. BSE Star MF platform is available for distributors mainly to onboard their customers to the Mutual Funds. Earlier it was a tedious process to onboard an investor on mutual fund and a lot of paperwork was required. Now with the help of platforms like BSE Star MF, the MF distributors are onboarding the new investors and shifting existing investors which have opted for SIPs.
BSE Star MF platform is provided by BSE, similarly NSE has NSE NMF II. Also, MF Utilities is also a service initiative formed by AMCs.

If we see the below link BSE and NSE has started charging from AMCs and waived off the joinin fees from Distributors.

Advantages to investors/other stakeholders of using BSE StAR MF:
1.Independent view of customer’s entire portfolio at one place
2.Reduction of paperwork and ensuing errors
3.Reduction of redundancy in process and data duplication at RTA and Distributor levels
4.De-risking MF settlement processes by using superior Delivery v/s Payment (DVP) process provided by 5.Stock Exchanges
6.Efficiently & effectively address customer servicing issues
7.Extending present convenience available to Secondary market to mutual fund investors
8.Enable transparency to customers
9.Enable charging customers for service at the point where it is rendered


I see the trend, that MF Distributors shifting towards using platforms like BSE STarMF or NSE NMF II.Not able to get the numbers which platform is growing fast and gaining market share but it looks like it will be duopoly.

Some Useful Links

Disc: Invested

(AmitContrarian) #352

how much BSE will be able to charge for this ? Rs 100 /- ? then i think stock is trading cheap.

(arsh13) #353

It might not be a duopoly. AMFI promoted MF Utility ( is apparently gaining market share at expense of both the BSE and NSE products Given that the MF’s have a stake in this third horse, there is a genuine risk that it eats up the value creation of BSE STAR and NSE NMF II. Havent been able to get market data but anecdotal evidence suggests the threat is real

(AmitContrarian) #354

it certainly look to me there should not be any pricing power for sure … Its still the distributors who are bringing in the fresh money for the AMCs , So, AMCs will not pay good cut to these exchanges ever. I don’t think BSE will be able to raise price from Rs 8-9 per transactions to lets say Rs 30-40.

(Mayank.mail) #355

I feel BSE might be taking more risk than a prudent investot would be happy with.
Just got a message from my broker, ICICI direct that one can purchase SBI shares by paying only 27% margin money upfront and the rest anytime within 6 months if bought through BSE
Is’nt this risky? or the exchange is protected somehow? maybe they may ask the investor to put in more money if the stock continues to fall??
how different is this from buying in Futures? there the margin required is even lower and one can continue to rollover for even more than 6 months…

(AJ) #357

I’m sure the broker is charging extra for the costs of borrowing plus his margins. Did you check the cost of doing such a transaction?

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(Dhiraj Dave) #358

Interesting article in The Economist on London Stock Exchange. Despite Brexit concern, the LSE group business is doing good. While it is paid subscription, with three article for free after registeration, not sure all members would be able to read this. Nevertheless, enclosing link on same.

The main point the article drive is reducing dependence market turnover for LSE group. In enclosed presentation of LSE group in December 2018, on second slide we find that total revenue from Information service is around 38% (which is highest segment) as against Capital market (being third largest segment at around 20%, after Post trade segment revenue of 36%. )

It is important to note that LSE is the largest stock exchnage in Britain and hence have unique advantage vis BSE which is second largest exchange in India (with single digit share in equity cash segment). Hence, we can not directly apply learning to BSE from LSE. Nevertheless, interesting perspective about how business of stock exchange is changing globally. Specifically, increasing investment share of ETF traded funds resulted in very large revenue for LSE. While, Nifty is dominating Indian Index market, Sensex also has its own advantage. Hence, it would be interesting to observe how ETF led revenue benefit stock exchange in India.

Discl: I am investor in BSE and my view may be biased due to my investment. Investor shall do his/her own due diligence before making any decision.

(devarshi84) #359