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Race to the top

Amidst the general buoyancy in the stock markets, a few developments stand out. The country's two principal stock exchanges, the 128-year-old Bombay Stock Exchange (BSE) and the more recent National Stock Exchange (NSE) are vying with each other to become India's premier stock exchange. Interestingly, along with other parameters such as turnover, they have been projecting their benchmark indices, the Nifty and the Sensex, to win recognition. Competition between the two was only to be expected and, in a sense, was always on. The NSE, set up in the wake of the securities scam of 1991-92, is being professionally managed right from its inception. It has been India's first "demutualised" stock exchange, with the members' right to trade kept strictly segregated from their right to own and manage the exchange. Secondly, a large-scale adaptation of technology made it possible for the NSE to trade on the screen from terminals located across the country. In the more traditional exchanges trading was conducted through an open outcry in the trading pits located at one place. The BSE followed suit with its demutualised and corporatised model, providing terminal connectivity to brokers all over the country. Nearly all the regional stock exchanges have been marginalised, as the government and the SEBI forced them to switch to a corporate model, what with their dwindling business.

For all practical purposes, India has just two major stock exchanges. This occurred at a time when the country has emerged as an extremely attractive destination for overseas investors. Increasingly, domestic mutual funds and government financial institutions have also become big investors. The world's leading stock exchanges are adapting themselves to globalisation by buying into one another and expanding well beyond the geographical borders of a country. In such a scenario the question of which of the two, the BSE or the NSE, will come to occupy the number one position will depend as much by the valuations they command as by other business parameters. The current high voltage publicity campaign is really to boost valuations by projecting their benchmark indices. This makes sound sense because in popular perception both the Sensex and the Nifty have become synonymous with the respective exchanges, although seasoned investors have found other uses for them. For now, the exchanges are leveraging the fact that the indices are their most recognised symbols.

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