NSE zooms despite hiccups: Net profit jumped 101% to Rs 3,447 crore in Dec

Its net profit jumped 101% to Rs 3,447 crore in Dec 2021 and net sales rose 69%

The National Stock Exchange (NSE) has been mired in controversies for nearly a decade now, but these have had little to no impact on its operations and financial performance. It continues to capture market share from its old rival BSE.

The NSE accounted for nearly 91 per cent of the combined revenue of BSE and NSE during the 12-months ended December 31, up from 83 per cent two years ago, and 76 per cent five years ago. The BSE and NSE together account for nearly 100 per cent of the trading volume in stocks and shares in the country.

This has made the NSE one of the most profitable firms in the country. It reported net profit of Rs 3,447 crore during the 12 months ended December 31, up 101 per cent from Rs 1,713 crore a year ago. If NSE were listed, it would have been the 57th biggest company in terms of net profits on the bourses, ahead of many index companies like Maruti Suzuki, Asian Paints, Bharti Airtel, Dr Reddy’s Lab, Cipla, and UPL.

In contrast, the revenues and profits of the BSE (formerly Bombay Stock Exchange) have stagnated in recent years. For example, its net sales during the December quarter on trailing 12-months basis (TTM) was Rs 662.3 crore, only 5.4 per cent higher than its previous high of Rs 628.4 crore, during March 2018 quarter on TTM basis. The NSE’s net sales rose 22.7 per cent from Rs 2,132 crore during 12-months ending March 2018 to Rs 6,882.5 crore in December 2021.

BSE’s profitability has also declined steadily. India’s oldest stock exchange reported net profit of Rs 156.2 crore in the December quarter, down 26.7 per cent from Rs 218.3 crore in the December 2018 quarter on TTM basis. In comparison, NSE quarterly net profit on TTM basis more than doubled in the period. (See chart) The BSE has reported earnings recovery in its last five quarters, but it continues to lag the NSE.

Analysts attribute the NSE’s superior financial performance to its ability to capture the bulk of the incremental growth in trading volumes on the stock exchanges since the pandemic’s outbreak.

The trading volume in the cash market has risen 61 per cent in the last two years, while volumes in the futures and options market have risen 379 per cent since January 2020. The NSE captured 90 per cent of the growth in the cash market and 97 per cent of growth in the F&O segment in the period. This analysis is based on monthly average volume. The latest figure is for January.

“It is not that people are backing NSE and shunning BSE. No doubt NSE has strong systems and mechanisms in place but more importantly it is liquidity that attracts liquidity. Everyone will go to a place where there is ample liquidity. It is difficult to move liquidity. BSE would have been a leading exchange had they not been in control of brokers and reluctant to change. If the governance and systems of BSE at the relevant time would have been what they are today, probably NSE wouldn’t have been required,” said JN Gupta, founder of Stakeholders Empowerment Services (SES), a corporate governance watchdog.Industry players expressed confidence in NSE’s improved technology architecture and regulatory effectiveness.

“The exchange has seen exponential growth in volumes and daily orders. Yet it has managed to operate seamlessly even during difficult times like the March 2020 crash. The exchange has to be credited with India’s market development, which includes setting up a pan-India electronic trading, clearing corporation with guaranteed settlement, development of the derivatives market and deepening retail penetration,” said an industry official.