Bull run or Bear hug

1. New alliance partner to fight in an expanding market

2. Corporatisation and public holding to stem dwindling popularity

Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia, the second being the Tokyo Stock Exchange established in 1878. BSE is also one of the busiest stock exchanges in the world, currently ranking around number five in terms of annual transactions. BSE played a pivotal role in the development and expansion of the Indian capital market and its index, SENSEX, is tracked worldwide.

The prestigious bourse recently announced its intention of going public and wanted to offload to a strategic partner around 26% stake and has supposedly short listed NYSE, Nasdaq, Singapore stock exchange, LSE, Deutsche Boerse and the Luxembourg stock exchange as potential strategic partners as also some other domestic and global investors.

BSE proposes to divest 51% of its equity-26% to a strategic invetsor and 25% to public. As per regulations its members have to reduce stake from 100% to 49%. The process of equity dilution would have to be completed by May 2007.

But there is a worrying factor. BSE’s market share is dwindling. It is facing stiff competition from National Stock Exchange (NSE). NSE’s turnover comes mainly from derivatives. Any alliance partner of BSE should also end up being a market maker and offer new products and services at competitive rates. But BSE has a lot to offer, with a 130 year history compared to NSE’s 10 years, it also has a large base of listed companies running over 8500.

However, the Indian Capital market is big enough for two bourses, but unless BSE makes inroads into derivative market and reinvents itself it might find space in history books.