Is BSE's IPO a good bet for investors?

Sadanand Shetty, Senior fund manager, Taurus AMC

India is a comparatively nascent market when it comes to commodity, currency, equity or derivatives. This means that in the coming decade, exchanges engaged in these asset classes will only see higher growth as more and more investors take to investing. MCX is a prime example of how volume can grow even for a relatively new exchange. For domestic investors, the BSE’s float is an opportunity to participate in the growing penetration of financial products in the country. Moreover, exchanges tend to be highly profitable as their operating costs are stable as they are largely fixed compared with a corporate. The merit of investing in the issue though will depend on the price at which the shares will be offered. Though the proposed valuation is still not known, an exchange in an emerging market is likely to be valued at a premium to global exchanges. 

UR Bhat, Director, Dalton Capital Advisors

BSE is losing out to competition. It has been trying to improve its turnover through incentives to marketmakers, but volume will disappear once the incentives will stop. BSE’s business strategy has failed as it has a negligible market share in the F&O and cash segments. In this business, it is not enough to say that your exchange has so many listed companies. A chunk of its revenue is investment income, driven by rent and interest. On the other hand, NSE, which is also planning an IPO, has high volume and a dominant market share. In fact, a whole lot of BSE members, who are also investors in the exchange, do their business on the NSE. The IPO is their way of encashing their historical holding and an eventual exit. Prima facie, the issue appears to offer an exit route to existing shareholders and institutional investors. Against such a backdrop, the IPO doesn’t sound like an attractive proposition.