Equity markets lost sheen in Q3; MCX posts 42.6% gain in total income

Equities may not be the most exciting market to be in, even if you are a stock exchange.

The two equity bourses in India saw significant slowdown in total income and profit, in the December quarter (Q3). A combination of fewer listings and falling ‘average daily traded value’ contributed to the drag in Q3. Non-equity bourses have shown sharper gains over the same period, according to an analysis of quarterly numbers.  

The equity-focused National Stock Exchange and the BSE posted a combined increase of 11.9 per cent in total income, on a year-on-year (YoY) basis. Total expenses grew slightly faster, at 12.5 per cent. Overall, profit growth came in at only 1.9 per cent, hit by higher taxes in the quarter.

Both the BSE and NSE are the leading bourses in the equity segment, with the former being listed and the latter unlisted. The NSE discloses quarterly figures on its website, which was used for the analysis.

Interestingly, the two listed non-equity focused exchanges registered better gains. The commodity-focused Multi Commodity Exchange of India recorded a 42.6 per cent YoY gain in total income. Its profit more than doubled to Rs 42 crore.

Power trading platform Indian Energy Exchange recorded a 17.7 per cent gain in profit to Rs 42.62 crore. Total income was up 9.6 per cent to Rs 76.92 crore. The exchange also benefitted from one-off returns, on account of treasury gains.

This was largely on account of the fall in interest rates in November and December, which resulted in gains on long-term investments, as stated during and analyst call after the Q3 results.

Equities faced a drag in Q3. There were 12 initial public offerings worth Rs 36,294 crore in the quarter ended December 2017. There were none in the December 2018 quarter, shows the data from primary market tracker PRIME Database.

New listings contribute to the earnings of stock exchanges, along with the trading in already-listed shares. The average daily traded value fell for the two equity bourses by around 3 per cent, shows the data.

Analysts believe that new segments can help drive growth in the future, even for exchanges that were primarily known as equity plays. Platforms for mutual fund (mf) transactions, insurance, and small and medium enterprises (SMEs) are among those expected to help volumes at Asia’s oldest stock exchange, according to a February 3 Result Review report by HDFC Securities.

“The BSE has several growth engines that are currently in the investment phase. Its new platforms INX and Insurance will start contributing from FY20-21E. Volume growth in Star MF will drive transaction revenues, with costs mostly fixed. Incremental revenue from new platforms (INX, Star MF, Insurance, SME and Bonds), volume revival, and higher listing revenues should also lead to revenue growth of 12.5/11.2 per cent in FY20/21E,” said the report, authored by analysts Amit Chandra, Aura Prasad and AK shay Armani.

Interestingly, the NSE has also got into multiple other businesses. It announced the launch of its commodity segment in October. This has also involved substantial investment. “As required by Semi, an amount of Rs 250 crore has been earmarked towards a separate fund to augment the Settlement Guarantee Fund for Commodity Derivatives, by way of appropriation from General Reserves. Further, the company has earmarked investment of Rs 250 crore towards the same,” it said.

Meanwhile, operational leverage could kick in with any recovery in equity markets, leading to higher growth for the segment as well, believe analysts.

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