As MCX-SX gears up to begin trading in equity and equity derivatives from Monday, investors and analysts will be keenly watching its progress and contribution to the trading landscape.

Last time equity market in India was on the threshold of such an important event was in 1994 when the National Stock Exchange began its operations. A quick perusal of how the equity, equity derivative and debt market changed following the launch of the NSE can give us some clues about what to expect from the new exchange.

Capital market segment

When the NSE commenced trading operations in 1994, the Indian stock market meant only the capital market segment or the cash segment . The market was also fragmented among 21 other exchanges including the Bombay Stock Exchange that offered ring-based trading. In 1993-94, the BSE recorded a turnover of Rs 84,500 crore followed by Calcutta Stock Exchange with Rs 57,641 crore, and Ahmedabad Stock Exchange at Rs 23,540 crore. Overall turnover in the cash segment of all exchanges was Rs 2,09,800 crore with the BSE accounting for 40 per cent.

With its online trading platform that could reach out to any part of the country, the NSE overtook the BSE to become the exchange with the largest turnover at Rs 67,749 crore by 1995-96.

The total size of the market grew to Rs 2,52,024 crore with the NSE contributing to much of the growth in that year. With the BSE also going online in 1995, the cash segment expanded over ten-fold by 2000-01. However, a discernible slowdown is under way in capital market segment in the new millennium. The growth in market size has averaged six per cent since 2000-01. Cash segment turnover is in fact declining since 2010-11.

The primary reason for the decline was the separation of the derivative trading from capital market segment in 2000. Besides languishing turnover, there are other signs that not all is well with the cash segment. The average trade size has been declining on both the BSE and the NSE and fresh capital raising has also slowed down.

The derivative segment of the equity market is a clear success. Futures and options on stocks and indices were introduced by the NSE and the BSE in 2000.

The segment flourished on NSE growing from Rs 21,500 crore in FY 2002 to Rs 35,77,998 crore in FY 2012. BSE has also made inroads in this segment in recent times.

Debt market

The debt segment of stock exchanges has not really taken off. There is almost no trading in retail debt market. Corporate debt market is also not popular. The wholesale debt market recorded strong growth between 1994 and 2004, when turnover peaked at Rs 13,16,000 crore. But action started drying up after that with turnover declining to Rs 2,82,000 crore in 2007-08. There is a gradual recovery since then but this segment still has a long way to go to reach its peak turnover.

The above data imply that there is much that still needs to be done in reviving both cash segment in equity and the debt segment. It is to be seen how the next decade for Indian stock exchanges evolves with MCX-SX too in the fray.

> lokeshwarri.sk@thehindu.co.in

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