NSE to move away from non-core business areas: New MD & CEO Chauhan

The NSE MD & CEO made the comments while addressing its investors during the exchange's first-ever quarterly earnings concall

The National Stock Exchange of India (NSE) plans to "move away" from non-core business areas to focus on significant opportunities in the capital market ecosystem.

The bourse's new managing director and chief executive officer (MD & CEO), Ashishkumar Chauhan, said, "The non-core businesses contribute 6 per cent to our revenues and 1 per cent to profit. Given this context and acknowledging that there are significant opportunities for mainstay business to grow, it has been contemplated to move away from non-core business areas appropriately."

He made the comments while addressing its investors during NSE's first-ever quarterly earnings concall. Although unlisted, Chauhan said NSE would hold investor calls every time while declaring quarterly results and would make the transcript available.

The move is seen as rebuilding the trust in the exchange, which has been marred by controversies such as the unfair access to brokers at its co-location facility and corporate governance lapses while appointing a chief operating officer.

Chauhan took charge as NSE's new boss in end-July. However, his comments appear to be a deviation from the path the exchange took over the last few years when it made a string of acquisitions in areas such as data, cloud and education tech.

In its latest annual report, NSE described this as a "string of pearls" strategy.

"The 'string of pearls' approach reinforces the company's competence in diverse technology areas, saving the company considerable time that would have been otherwise expended in building capabilities from scratch," the annual report for 2021-22 mentions.

Some of NSE's acquisitions in recent years include CXIO, a step-down subsidiary involved in the business of providing multi-cloud service and support services to national and international organisations; TalentSprint, a deep tech education firm; Cogencis, a data, news and market intelligence provider to financial market professionals in India; Aujas Cybersecurity, a cybersecurity services provider with global operations. Besides NSE, other associate firms and joint ventures, such as National Securities Depository (NSDL), where it holds a 24 per cent stake.

Chauhan said many businesses added to NSE's portfolio had become non-core business areas.

"Over the next few years, NSE will focus on consolidating and strengthening its IT system capabilities, core regulatory and compliance activities to build a robust and efficient market place," Chauhan said.

In October 2020, Sebi levied a penalty of Rs 6 crore on NSE for investments in six entities unrelated or non-incidental to the stock exchange business. These firms included Power Exchange India (PXIL), Computer Age Management Systems (CAMS), NSEIT, NSDL E-Governance Infrastructure (NEIL), Market Simplified India (MSIL) and Receivables Exchange of India (RXIL).

Even after the Sebi rap, NSE made several acquisitions, which the exchange said was done after obtaining regulatory approvals.

As exchanges are tightly regulated businesses, investments and forays into non-core business areas have always been contentious issues. 

Industry players said any acquisition could be considered critical for the mainstay business, and it is difficult to draw a line. 

During the call, Chauhan didn't provide any timeline to exit from non-core business areas. He also touched upon issues such as the co-location scandal, corporate governance issues, much-awaited IPO and new product launches.

On the co-location and governance matter, he said most of it happened before 2017, and after that, there has been no such issue at the exchange. "But there is an overhang of that, and we all are aware of that."

On the listing plans, Chauhan said many shareholders are keen to know when the IPO will happen, and the exchange is doing everything in its control to obtain a regulatory go-ahead.

In 2016, NSE filed its DRHP for a Rs 10,000-crore IPO. However, the probe into the co-location matter derailed its listing plan. Last year, it had written to Sebi on whether it can once again file its draft red herring prospectus (DRHP) to go public.

While regulatory issues have stopped NSE's listing plans, the exchange has managed to clock robust financial performance and consolidate its market share.

NSE logged a 53 per cent jump in consolidated net profit to Rs 3,463 crore for the six months ending September 2022 (H1FY23). During this period, the country's largest bourse's total income rose 57 per cent to Rs 6,293 crore, driven by a sharp increase in options trading volumes. Its equity options volume more than doubled year-on-year during the first half, and cash market volumes rose 18 per cent. NSE has almost a monopoly in the equity derivatives segment and a 93 per cent market share in the equity cash segment.