The market downturn last year had not just left the investors sweating. The stock exchanges too had to suffer through a decline in turnover and volumes. The fall in the volume of trading activity was reflected in the decline in income from transaction charges. For the National Stock Exchange (NSE), this contributes 56% of total income, and it fell 23% in FY2008-09. The Bombay Stock Exchange’s (BSE) income from transaction charges fell 30%.
Last year also witnessed little action on the IPO front and this was reflected in the fall in book-building fees. NSE’s book-building fees fell 92% in FY2008-09 while BSE recorded an 86% decline. While NSE recorded a small drop in total income, BSE’s total income remained largely unchanged. This was mainly due to the fact that BSE had a larger cushion from income from investments and deposits. Income interest grew by a whopping 231% for BSE whereas for NSE it grew by 63%. BSE’s total income was also supported by income from other services, which grew 56%.
In line with the reduced trading activity, BSE recorded a significant reduction in expenditure. But the same did not hold true for NSE. While BSE’s total expenses fell 31%, NSE’s expenses grew 15% over the year. NSE’s expenses were higher on account of higher spend on employee and administration expenses.
– Debashis Basu with Sanket Dhanorkar email@example.com
After the Securities and Exchange Board of India abolished the entry load on mutual funds, the asset management companies (AMCs) have found that their business models have gone for a toss. They can no longer dip into investors’ corpus to pay for the huge launch expenses of funds. This would put a severe strain on the survival of several AMCs. These companies were designed to be businesses run on a small capital base. They cannot take on the huge cost of advertising and promotion on themselves. Already some of the AMCs are in talks to sell out. A few weeks ago the Murugappa group sold its stake in DBS Cholamandalam mutual fund to L&T Finance. Which are the others that would be vulnerable? Those that have made losses in 2008-09 have little hope to launch new funds. Their only option is to recapitalise the business. Of the 26 AMCs that have declared results for 2008-09, 11 have registered losses. Surprisingly some AMCs like Quantum, Kotak Mahindra, ICICI Prudential and UTI are yet to declare their results for financial year 2008-2009.