National Stock Exchange of India Ltd. will offer products to lure individual investors and trade volatility futures to prevent MCX Stock Exchange Ltd. from ending its dominance of Asia’s fifth-biggest equity market.
The NSE plans to widen its range of fixed-income products, which include government and company debt, to attract so-called retail investors, Ravi Varanasi, the exchange’s head of business development, said in an interview on Sept. 6 in Mumbai. The bourse is awaiting regulatory approval to offer futures on India VIX, a measure of expected market volatility, he said.
“The NSE is facing a serious and credible challenge for the first time in its existence,” U.R. Bhat, managing director of Dalton Capital Advisors India in Mumbai, said in a telephone interview on Sept. 6. “It should act now instead of resting on its leadership position, which can fade away very fast.”
MCX-SX was awarded its stock-trading permit in July, almost four years after it began operations. The Mumbai-based bourse said Sept. 5 it will charge members a total 2.5 million rupees ($45,130) to trade shares and equity derivatives, with the cost doubling after the introductory offer ends Oct. 18.
The NSE has a new membership fee of 500,000 rupees, while the BSE charges 250,000 rupees, according their websites. The NSE and BSE also seek deposits of up to 15 million rupees and 3 million rupees respectively, their websites show.
The NSE has not stated whether it would revise its fees. The bourse’s share of the total transaction cost per trade is about 1 percent, which is “one of the lowest” levels in the world, Varanasi said.
MCX-SX, which hasn’t disclosed its transaction costs, is hoping to sign up people located beyond the 2,000 cities and towns where capital-market access is currently available, the bourse said Sept. 5. The exchange will start trading equities in November, Vice Chairman Jignesh Shah said in July. He is due to speak to reporters in Mumbai today.
Setu Shah, a spokesman for MCX-SX, declined to comment on strategies the bourse might explore to fight its rivals.
The NSE’s plan to offer more fixed-income products is a move to appeal to a relatively untapped market of risk-averse individual investors, Varanasi said. Indian households had financial savings of 9.7 trillion rupees in 2011-2012, about half of which were invested as deposits with commercial banks, central bank data show.
“Fixed income is an area of significant possibility,” Varanasi said. “India doesn’t have a properly developed fixed- income market for retail investors.”
About 25 million Indian invest directly or indirectly in the capital markets, or 2 percent of the nation’s 1.2 billion people, according to a survey in July last year by the National Council of Applied Economic Research. That compares with 9.4 percent in China, 41 percent in Australia and 18 percent in the U.K., Thomas Mathew, a former joint secretary in the Ministry of Finance’s capital markets, said in an interview on Sept. 5.
Poor participation by individual investors has held back volumes on Indian bourses, Dalton’s Bhat said.
Trading this year of the 50 stocks in the NSE’s S&P CNX Nifty Index, at 28 billion shares, is poised to be the lowest annual level since 2007, data compiled by Bloomberg show. Some 3.8 billion shares in the 30-stock BSE India Sensitive Index changed hands last year, the lowest level in more than a decade.
An average of 672 million shares traded daily on the NSE this year, data compiled by Bloomberg show. That’s about three times the 229 million shares on the 137-year-old BSE Ltd., Asia’s oldest.
Increased activity by retail investors will help “counter inflows and outflows” from overseas funds and lower volatility, said the finance ministry’s Mathew. Inflows from abroad climbed to a record in 2010, making the Sensex the best performer among the world’s 10 biggest markets that year. The gauge had its second-worst annual loss in 2011 after funds withdrew $512 million, according to data compiled by Bloomberg.