It is reported in Financial Express that NSE had recorded PAT of Rs 614 crore for FY10, while BSE saw a net profit of Rs 213 crore. With a net profit margin at upwards of 40%, Indian exchanges are on the top compared to global peers.
But the proposal to put a cap on the profits of market infrastructure institutions (MIIs) by the Sebi-appointed Bimal Jalan Committee might make Indian exchanges unattractive for potential investors. The recommendations, if implemented, will also see some of the existing shareholders exit the exchange business; feel a section of the industry.
Sandeep Parekh, founder of Finsec Law Advisors and former ED of Sebi, said, “It is a big cause of concern for even existing shareholders,” admitted an exchange official requesting anonymity. “Investors are here to make money. Putting a cap on them will drive them away from the business of Indian exchanges,” he said. “Barring MIIs from listing their shares as well as capping their returns will deter new investments into the Indian exchanges.”
The higher margins commanded by domestic bourses in the past has prompted some of the leading overseas investment funds to pick up stakes in local exchanges. In August this year, billionaire investor George Soro’s Quantum Hedge Fund had bought over 4% stake in BSE for around $35 million, valuing the exchange at over $800 million.
Meanwhile, the Jalan committee, after re-evaluating the corporate governance structure, ownership norms and conflict of interest of MIIs, felt these institutions being a public utility should endeavour to earn only reasonable profits on a par with average earnings of corporate sector in the country.
The report prepared by the Jalan committee, said “The cap may be fixed by Sebi after taking into consideration ‘risk-free return’ based on the yield on a 10-year GoI bond and a ‘risk premium’ to account for the risks faced by MIIs including equity risk premium and liquidity risk due to non-listing of MIIs.’
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