The gloves were off. The so-called bonhomie that was building up among the rival stock exchanges vanished as officials from the country’s largest player National Stock Exchange (NSE), and the newest entrant in the space, MCX Stock Exchange (MCX SX) competed with each other to make their points to the regulator at the CII capital markets summit here today.
The topic itself set the stage for the interesting duel. The seminar was on ‘Deepening capital markets,’ keeping open an interpretation that it is not deep enough now and needs to be deepened. Joseph Massey, managing director and CEO, MCX Stock Exchange, was quick to pounce on that, as he was the first to be called to speak.
Massey explained how retail investors have left the market and cash market volumes have gone down substantially, while trades in futures and options has gone up substantially. “We are discouraging investing and incentivising trading,” Massey said. He referred to developed countries, where retail participation was much higher.
Massey also emphasised the need for creating strong participation from newer and smaller centres to make it a vibrant market for companies to raise capital. He cited the example of Hong Kong. “Hong Kong has become the largest IPO market in the world. The shift has already happened from West to East. Hong Kong is now seen as the place to go for capital raising. Not only local companies, companies across the globe go there to tap the Chinese investor base,” Massey said.
He noted how our markets have lagged, with very little IPO activity over several months.
Massey pointed out how in the commodities space, MCX had taken the technology and trading to even small centres and educated the investors. The education needs of staff members with intermediaries should also be addressed adequately.
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Chitra Ramakrishna, joint MD, NSE, who took the podium later, said the fall in market volume was a function of the difficult times faced by global markets. She assured that compared to global markets, Indian markets were doing much better. She also said the Indian markets were “much more resilient and had robust risk management framework” when compared to markets with similar volatility.
According to Ramakrishna, retail investor participation was of two types: Direct retail participation and intermediated retail participation. According to her, while there was no issue with direct retail, the problem was with the latter. She said globally, 40-50 per cent of retail money comes through vehicles such as pension funds and provident funds. “In India, there is practically zero participation from such funds, which should legitimately come into the market,” she added.
The sparring continued in the following sessions among junior officials. Unlike the first session where NSE had the last word, the newer exchange ensured that was not the case in the session before lunch. Moderator Ved Prakash Chaturvedi of L&T Finance said U Venkatraman, CEO of MCX SX’s currency segment had requested to speak last.
R Sundararaman, senior vice-president, who represented NSE in the session said the idea that the entire middle class will come to the equity markets is not practical. “All middle class is not same. A person who starts earning will first look at buying a house, jewellery, a two-wheeler and then he may come to equity market." He also said market can be deepened by introducing debt products on exchanges, which a common investor can better identify with.
Venkatraman of MCX SX who had the last word said he is looking at the brighter end of the tunnel. “There is lot of surplus money in Tier-II, Tier-III towns, which is going to asset classes like gold and real estate. Part of this can come to equity. 600 million people are investing in banks where they get 10 per cent return. Can we not bring one per cent of this to equity markets where there is opportunity to earn much more in the long term?”