Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

If there was a prize for the world's most prolific stock exchange, India's BSE would win hands down. At the end of last year, Asia's oldest equity bourse had 5,836 companies listed on it. That's a fifth of all publicly traded firms in the Asia-Pacific region, and a tenth of the total worldwide.

But an exchange has to be more than a museum of zombie corporations. Now the Bombay Stock Exchange, as it was formerly known, is planning its own IPO, investors will be wondering if the marketplace can also drum up liquidity from buyers and sellers. On that front, BSE hardly has a stellar record.

Rival NSE, promoted by the Indian government in the early 1990s to break the stranglehold of BSE brokers who ran it like a gambling den, has 60 percent fewer corporate and ETF listings. Yet it transacted more than five times the older exchange's equities business last year. As for derivatives, 44 percent of the trade in India's benchmark futures contract -- the Nifty -- takes place on the SGX, in Singapore.

India's National Stock Exchange trades 4 to 6 times as much equity as its much older rival
Source: World Federation of Exchanges; BSE

It may be disconcerting to some that SGX is offloading its entire 5 percent stake in BSE's upcoming share sale.  Deutsche Boerse, however, with which BSE has agreements on product development and international data sales, will retain its 5 percent interest, according to reports.

If Deutsche Boerse is staying put, it's probably looking at the long-term potential of India's capital markets. Roughly half of the nation's annual household savings go into physical assets like property and gold, while bank deposits make up the bulk of financial holdings. Stocks' and bonds' share is less than 5 percent.

Expect that to change. Favorable demographics could lead to a rapid expansion in pension assets, which are only now beginning to get invested in shares and debentures. And a corporate bond market still in its infancy holds much untapped promise.

But prospects won't automatically boost performance. Challenging the NSE in domestic equities will be tough, and BSE's plans to establish an international exchange in a special economic zone sound more like an expensive distraction than profitable new opportunity.

Hugging the Floor
India's BSE has seen its return on equity collapse over the past four years
Source: BSE draft IPO prospectus

In the past, investors were willing to pay a premium to own any piece of India's capital-markets infrastructure because very little of it was for sale. That strategy hasn't worked too well. Shares of MCX, an Indian commodity bourse that listed in 2012, are down 40 percent from their all-time high that year. Besides, soon there may be plenty more paper going around. Stealing BSE's thunder, the NSE might come up with an IPO of its own if the regulator allows it to self-list.

Short term, BSE can probably spruce up shareholder returns by cutting inefficiencies. A return on equity of barely 5 percent -- down from almost 8 percent four years ago -- suggests a lift is both possible and warranted. For a sustained boost to its fortunes, though, the 141-year-old exchange needs to find its niche. Being home to a record number of companies is hardly its own reward.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The World Federation of Exchanges estimates that in the first half of this year there were 25,386 listed companies in the Asia-Pacific region and 49,012 globally. Bloomberg has data for 59,200 actively traded equities. 

  2. The purpose of the IPO, which won't raise any fresh money for the BSE, is to give investors, including the brokers who used to own it as a collective, an exit.

  3. BSE has agreed to list on its rival bourse, a favor NSE refuses to return.

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Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Katrina Nicholas at