On a cloudy day in New York last week Ashish Chauhan, the CEO of Bombay Stock Exchange (BSE) was upbeat. He had been meeting with several large investors and the verdict was positive: “None of them could participate in China the way they could participate in India. India has a very straight and transparent way of doing things. Today India is one of the largest foreign owned markets with almost 46% of free float, shares which are not with the promoters, owned by foreigners. That tells us how foreigners trust India and what kind of returns they have been getting.”

The BSE may be the first stock market established in Asia, but up until a decade ago its out-dated infrastructure and negative reputation had reduced it to just a piece of the city’s history. Since then the bourse has revamped its technology and product line. As a result, it has grown in status and reaches not just to other parts of India, but to the rest of the world. 

Chauhan can take the credit for a lot of these changes. A graduate from India’s premier Indian Institute of Management at Kolkata, he joined the firm in 2009 and took over as CEO in 2012. Interestingly, he’s never been a serious investor. In fact he appears untouched by the excitement of the stock markets. He likes to explain his role with a simple allegory: in a game of cricket, his team provides the stadium and umpire. As CEO his focus is on keeping up with the ever-evolving business, administration, sales, coming up with newer products like derivatives and Small and Medium Enterprise (SME) stocks and most importantly, marketing, which involves convincing the reluctant Indian middle class to put their money in the stock market. According to Chauhan, while the Indian middle class has been growing, the number of Indian investors has actually shrunk. (See also: An Introduction To The Indian Stock Market.)

Foreigners appear to trust India more than Indians do?

Yes. There's a reason for that. We (Indians) have gotten used to very high growth for very long, and we get frightened whenever there is a little bit of a slowdown. When you are on the outside you don’t see that kind of growth, so you know that even five percent is better than one percent elsewhere. Indians have sold stocks over the last twenty years, and foreigners have bought. But on a positive note, foreigners have nudged and pushed Indian companies into becoming more transparent, more responsible to the needs of investors and that has brought up entire Indian companies and stock markets to a league where we are pretty much in the top 10 of the most trusted markets in the world. In fact, if you look at the World Bank reports, India is ranked 7th in investor protection, even ahead of the US. That is largely because of the activism from foreign investors.

Where do you see the Indian stock market headed?

Today we have 20 million investors. It would be nice to have 200 million investors investing in Indian markets. That's what will bring savings into the economy and the companies that we need for India to grow. Youngsters will have to invest for their future and when other asset classes like real estate or gold stop giving people great returns, they will come to something that is tried and tested like the equities market.

We are an investment exchange. Others can be speculative but we want to help India get more investment. Internationally, the markets have moved in the favor of derivatives, and that's a highly technical and highly speculative activity. The exchanges love it because it gets you a lot of trading volume and then they get you a lot of recognition and revenue, but effectively the stock exchange's main function is to raise resources for companies and create a secondary market in the shares of those companies. If an exchange is able to do that well it will be serving a social purpose, in addition to serving its own. For me, that basically is what India needs because there are a lot of young people coming into the job market.

I’ve heard about training programs that the BSE has undertaken to teach the public about finance. Can you tell me a little bit more about them?

It's been going on for around 20 years. We go to schools, colleges, investors and women's self-help groups and teach how to balance budgets, open a bank account and how to take out a loan. In schools we teach kids through board games like Vyapar (Monopoly) and Snakes and Ladders that if you don't pay your premium in time then you may lose your position and come down the board. It's the same games you play normally, but they have financial messages and try to promote the message of compounding. Many of us are not intuitively aware of compounding. Schools even bring their children to BSE for a day and they play games to learn how to trade, how prices get formed, computer based trading, etc..

You’ve been CEO long enough to witness two separate union governments in power. What changes have you noticed?

There has been more purpose to management of the economy lately. The earlier government didn’t try to control things, this government has some framework through which they want to manage the fiscal deficits, they want to ensure corruption is reduced, and regulations are more transparent so that's helping the regulatory framework quite a lot. Investors are starting to believe the authorities, and that's a very important step, though it's not something that can happen overnight. The last two years have seen a great reduction in corruption involving auctioning assets and natural resources. (See also: 3 Economic Challenges India Faces in 2016.)

Why should people invest in India rather than, say, China or South Africa?

It may look as if you're at a disadvantage because if you go to China they welcome you with red carpets for the first few years, and that may not happen in India because it's a democracy and there are governments exists at different levels: state, center and municipality. But if you overcome the initial hurdles and stay for three to four years, the profitability is immense in comparison to if you were in China. There are IPR protections in India which you would not get in China. In India foreigners are given much more respect than even Indians are, and most of our laws are British laws. It might be a little slower because of how our legal system works, but it's the same framework. If you look at companies in India, out of the top 100 at least 50 are of foreign origin, and that shows how much comfort foreigners have in operating in India.

And any advice for people looking to buy stocks in India?

If you come from a double tax avoidance treaty country like Singapore, you don't have to pay taxes in India in terms of your profit. But if you are coming from the U.S. you will not have to pay capitals tax [i.e. capital gains tax] if you stay invested for more than a year in a listed company. There are huge fiscal benefits. If you are used to trading in New York, Japan or London you will find the same framework, mobile-based trading on equity derivatives, mutual funds, IPOs. You need to be very careful with the settlements with your broker because in India the settlement happens very quickly on a t+2 basis so you need to arrange for funds or securities with your custodian before you enter into those kinds of transactions. India is the largest and fastest growing economy with a 7-8% growth for next twenty years and that would mean that you would get great returns if you are able to identify the right companies.

An institutionalization of markets is happening in India. The employees provident fund has started investing in equities market after a long time, mutual funds are gaining ground, insurance companies are coming into equities in a big way and overall institutional structure as well as retail structure is becoming much more conducive for investment.

The government recently formalized rules for the booming e-commerce industry in India that prevents companies from owning inventory but allows 100% foreign investment. Will this affect their plans to list in the future ? What about other industries listing?

It’s phenomenal progress. These companies can still do everything in terms of logistics and providing service to the sellers. Almost all the e-commerce markets which are large in India are actually acting as markets and not producing, so it's in their favor. Last week Infibeam got over subscribed. They listed a valuation of $400 million.

In India, investors are used to looking at companies which have some track-record of profitability. There are many high tech companies doing reasonably well and that’s a new trend. We have new regulations coming  up that will allow companies not making profits to come to the markets and we have an SME marketplace (Small and Medium Enterprises) that is amongst the best. We raise funds from $100,000 to $8 to $10 million dollars in SMEs and that has met with tremendous success with almost 127 companies listed and every week we see 2-3 new SMEs listing on our market place . Many of them have innovative models and are in high tech areas like biotech which we did not associate with India before.

The Bottom Line

If Indians shrug off their apprehension of stock markets, the BSE has the potential to be a driving force in global equities. Ashish Chauhan and his team have set the stage. If you're looking for more reasons to believe India's stock market has come of age, the BSE will make its initial public offering in 6-9 months. According to experts, the Indian economy will continue to be one of the fastest growing in the region this year and the next, outpacing even China. Maybe it's time Americans learned about cricket? 

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