BSE’s long-term growth trajectory remains strong: Sundararaman Ramamurthy

BSE Managing Director and CEO Sundararaman Ramamurthy said the exchange remains firmly focused on long-term market development rather than short-term gains in derivatives market share, even as recent regulatory changes and tax hikes reshape India’s trading landscape.

Speaking to ET Now, Ramamurthy said BSE’s strategy has always centred on deepening and strengthening the market ecosystem, rather than chasing headline market share numbers in derivatives. He emphasized that the exchange is still in an early phase of its growth journey.

“BSE has never been going behind the market share as far as derivatives are concerned. Our thought process has always been that we should deepen and strengthen the market, which means in terms of products, in terms of expiries, in terms of participants, FPIs, everybody. That is what we have been working upon. So, we will continue to work. Therefore, it is still a growth path for us,” Ramamurthy said.

He noted that the exchange currently has around 470 foreign portfolio investors (FPIs) on its platform, indicating significant headroom for further participation.

“We just still have only 470 FPIs with us. There are many more FPIs who are yet to come in. We have to build more because there is a good amount of demand. There is a long way for us to go. Sustainability comes when you reach the peak. I do not think we have yet reached the peak. We have just started our journey 30-plus months before and we have a long way ahead. Delhi bahut door hai,” he added.

On the impact of the recent Securities Transaction Tax (STT) hike, Ramamurthy said historical trends suggest limited impact on options trading volumes, though market structure could evolve as a result.

“As far as options are concerned, if you look at all the previous increases, the previous increases had not had any adverse impact on the volume. So, if we go by history, we have safe reasons to presume that the STT increase on options may not impact volumes. It may shape the market micro structure, that is a different issue,” he said.For futures, Ramamurthy said the government’s broader intent appears to be encouraging longer-term investment behaviour and greater market stability.

“The thought process of the government could have been probably to align the investors more towards long-term equity investment and as far as mutual funds and others who participate in futures market for arbitrage, to move them slowly towards a longer dated futures so that the impact of increased GST is lesser on a longer-term contract compared to a shorter-term contract,” he explained.

He added that this shift could lead arbitrage funds to consider second- and third-month futures, which may help reduce transaction cost impact while enhancing market stability.

“Maybe if an arbitrage fund were to think in terms of second month and third month, it will reduce the impact at the same time bring great stability and it will be more a type of a longer-term product in the market. This is the thought process with which this change is coming,” Ramamurthy said.

He also clarified that BSE’s exposure to futures is relatively limited compared to options, reducing the direct impact of higher taxes on the exchange’s overall volumes.

“Since BSE’s volumes are more in options, the impact of the increased STT should be far less, if not anything, nothing for BSE is concerned,” he said.

Elaborating on how market microstructure could change, Ramamurthy said higher trading costs may push retail investors to consider longer-term investing routes.

“If a retail investor today thinks of trading in options or futures, it may be less costlier for him to think in terms of a broad-based mutual fund or equities and take delivery and hold it for a longer time. So, I feel the move is to making investors think in terms of longer-term equity investment,” he said.

He added that this aligns with the broader objective of capital formation for economic growth.

“The idea of a market is that it should support capital formation for the growth of the economy. Capital formation is supported from a retail perspective by contributing more towards, say, a mutual fund or towards equities,” he said.

On margins, Ramamurthy acknowledged a sequential dip, attributing it to BSE’s ongoing investment phase and one-time regulatory-related costs.

“Neither the revenue nor the margins nor the expenditures at this point of time are fully crystallized for BSE because BSE is in a growth phase. In the growth phase, the last two years we have been investing significantly into technology. Naturally, the depreciation impact of it will start coming,” he said.

He also pointed to changes in labour law-related provisions, which impacted the quarter’s financials.

“There has been a change in the government’s position on this payment for gratuity and other labour laws which has impacted BSE to the extent of around Rs 24 crore in this quarter. It is more a current type of an adjustment and it will also settle,” he noted.

In addition, rising volumes naturally push up operating costs, particularly regulatory and clearing-related charges.

“When we start making more volumes, our operating expenditure will go up because a significant portion, around 50% of our operating expenditure, is towards SEBI turnover fee and clearing and settling fee. That is unavoidable,” Ramamurthy said.

He said the exchange is currently in a transition phase where both revenues and expenses are growing, but expects margins to stabilize as growth matures.

“When the top line is growing in a very big way, opex will grow to a particular level and then probably it will stand still. It will come to a sort of a state of equilibrium when our growth phase reaches a sort of a maturity level,” he said.