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Entrepreneurial talent taking India in new direction

Interview - February 26, 2016

The fastest stock exchange in the world, in fact 10 times faster than second-placed Singapore, the Bombay Stock Exchange (BSE) is enabling India’s deep-rooted entrepreneurism to get off the ground with the latest technology and a paradigm shift in financing regulations. Ashishkumar Chauhan, Managing Director and CEO of the BSE, explains how.



Given India’s current economic performance and future perspectives, how well do you feel India is equipped to replace China as the world’s growth engine?

From 1979 onwards, China’s growth, in a very different context, has focused on manufacturing. China’s growth has been planned and followed a top-down approach, while India, being a hugely democratic country, has followed a bottom-up approach. In this respect, India is very different to China. Demographically, there are similarities between India of 2016 and China of 1979 given that India, just like China at that time, has an unrivalled youth demographic. China planned its future growth by capitalizing on this advantage by creating employment/entrepreneurial opportunities for its young population.

India’s progress will be different as it only has 2% of the world’s landmass and 17% of the world population. So, while China chose manufacturing, based on government decisions, India, without centralized planning, chose to go with services, since the advantage China had was already too big, based on those demographics.

Whether India will be able to replace China as the next global growth engine remains to be seen, but our country is definitely well equipped to maintain a sustainable growth pattern in the medium term. India has improved in ease of doing business recently. The current government is making huge efforts to make India business friendly. Government policies of Make in India, Startup India Standup India, etc., are bringing the desired results. A huge entrepreneurial talent pool is building up which will take India into a new direction of technology and wealth creation.


What are your thoughts regarding the reform program implemented by PM Modi and what do you respond to his critics that state that it is only about words and that “one cannot invest in hope”?

Reforms are not an event; they are a continuous process. Therefore, people need to support it from the bottom-up. In a democracy, such as ours, with such freedom of expression, reforms take longer to be implemented. If you are used to investing in China, you might find India a bit confusing. Nevertheless, a lot of foreign companies have been very profitable in India. Once you get involved and have a vision for the medium or the long term, India is a tremendous addition to your portfolio. Investors should not be afraid of the complexities of the Indian market; we as Indians also face them. It has been proven over and over again that when a company establishes itself in India, it obtains the legitimate results of its investments and efforts in the country, perhaps not immediately, but definitely within a reasonable time frame.


How would you evaluate the apparent contradiction between the impressive economic performance of India and the recent lower stock market performance?

The year 2015 will be one to forget for investors in India as most of the top asset classes failed to make money. Equity markets couldn’t match last year’s stellar performance and showed how improving economic fundamentals don’t always lead to higher stock prices. Key economic indicators, including gross domestic product growth, inflation, current account deficit and fiscal deficit improved in 2015, but the benchmark S&P BSE Sensex index – which rose 30% in 2014 – fell 5% in 2015.

However, India in my opinion has not been performing that bad. It is true that many funds have been moving away from emerging markets recently, but most of the emerging market funds contain a portion of Chinese, Brazilian, Venezuelan, etc. stocks, as well as Indian. In other words, it is more than an Indian issue alone. When things calm down however, people will start treating India separately. Rising domestic consumption demand and lower commodity prices are expected to boost company earnings and stock prices.


Would you say that India faces a “trust” issue?

In the last 20 years, foreigners have invested $250 billion in India. With the exception of 2008, each year investments have increased into the country. Traditional investors know how India works and what the corporate governance standards are. As a matter of fact, India ranks seventh in the World Bank’s corporate governance standards, even ahead of the US. Regulators are very alert and have created a strong institutional framework. Our equity markets are also very prestigious.


Do you think the financial community in India has a role to play in sending a positive message about the Indian market and its positive outlook?

India is such a big country. I sometimes feel that there are too many different opinions impeding us of having a single unified vision of India and how to market our country. When we meet in international forums however, the message is more compelling. There is a need to market India more positively and there are a lot of people that need to be reached both within India and outside. For this, we will continue to reinforce our communication efforts, and investment awareness programs, and we will continue to use technology as a tool for that.


What is in your opinion the significance of the “fourth industrial revolution” both for India and for an institution such as the BSE?

The BSE used to be a floor-based exchange. Today we are not only easily accessible to all Indians; we have also become the fastest exchange in the world with a speed of six microseconds. In finance, the faster you receive information, the better you are able to take decisions. India is adapting more rapidly to the fourth industrial revolution than we would have thought 10 years ago. Key indicators such as connectivity are evidencing this.

Technology is changing the way humans are interacting. This will lead to a completely new ecosystem. One small innovation in technology can change the world forever. We are also noticing this in India. The IT industry in our country has provided many Indian success stories from non-traditional backgrounds. Many people have grown with these stories. Today, almost every youngster wants to become an entrepreneur. We see incubators and angel investors everywhere and new venture capital is being raised more easily than it has ever been before. After the US, India is the entrepreneurial country par excellence.

In the past 10,000 years we have not seen the level of wealth that is being created in the world today, and that will continue to be created in the following 30 years. By using new technologies such as robotics, life sciences, nanotechnology, and artificial intelligence, the world is destined to grow. Many of these technologies will require people to use their brain. And this expands the spectrum beyond IT. For instance, just recently a young company announced a vaccine for the Zika virus in India. This is something to be proud of, since it came out of India.


The entrepreneurial spirit is deeply rooted in India. How easy is it for its young entrepreneurs to use the BSE as a platform to raise capital?

Four years ago, we created a new SME segment. Previously, only companies with $3 million profit in their last three years of operation could be listed. For Indian standards this is a very large company. Today, however, even if a company needs to raise $100,000 in capital, the BSE can assist in that process. This is a paradigm shift and we have currently 123 companies listed in that segment. We expect 30 more to join in the following three months. In other words, every week 2-3 companies are joining. We expect to develop them from an SME into a bigger-scale company.

Additionally, we are also starting a new high-tech segment for companies. In India, stakeholders will trust a company more if it has the BSE involved as a regulator. It is also worth mentioning that we created an incubator a few years ago that we are seeking to expand. The future is bright for this new incubator with many intelligent and ambitious people involved in several areas such as 3D printing and robotics and many other areas that are already shaping the future of India tomorrow.


How would you evaluate your decision to join the BSE when the company was not in its best shape?

I was a bit reluctant in the beginning. I was running a cricket team, which was very interesting, and was very active at the Reliance Group. At the time I also ran a family IT firm, but this firm was bought by the BSE and the initial agreement was that I was required to stay for a year. This is my seventh year with the BSE. I really have enjoyed the journey so far although there is still a long way to way to go.


What separates the BSE from other stock exchanges in India?

First of all, we do have a brand advantage: when people think about the Indian stock markets they think about the BSE. Our brand is thus highly recognized; everybody grows up listening about the Indian stock market through BSE indexes.

Secondly, the BSE has the higher reach – 3,000 cities in India and 200,000 terminals. As we come up with newer and better products, we can take more advantage of those distribution channels ensuring that the BSE is available to more people.

And thirdly, we have achieved a clear technology advantage: we are the fastest stock exchange in the world, with 6-microsecond response time, 10 times faster than the second, which is the Singapore Stock Exchange. We want to continue to be pioneers of technology and achieve even faster response times. Technology is not just about speed, it is also about being able to launch new products and continuously transform.


The BSE also excels in corporate governance. Recently, you released a corporate governance scorecard in collaboration with the IFC. Can you provide an overview of that?

Indeed, the IFC worked with us and assisted us developing this scorecard that, in terms of disclosure and ethics, will enable companies to assess their corporate governance performances against global benchmarks. We want to tell companies that if you do behave ethically, the market will reward you. The scorecard derives from the global learning of the IFC in the field of corporate governance, and their experience in implementing the framework for most emerging markets around the world, including Africa, Latin America, Asia, Middle East, Central Asia and some parts of Europe.

We want to make this scorecard widely available to further strengthen confidence in the market. Our collaboration with the IFC to develop this scorecard is a not only a revolutionary step towards benchmarking companies in India, it will also result in increased transparency, access to capital, economic development and boost investor confidence.


Can we expect the BSE to do an IPO in the near future?

We have been trying to list since 2005. It has however not been possible due to regulatory conditions not being in place. In 2009 the regulator set up a committee recommending that stock exchanges cannot list. The government did not accept this, but it was not possible to proceed with the listing at the time. Then in 2012 the regulations became too strict. In December 2015, however, the regulators issued more flexible conditions for listing, so, in January 2016 we reapplied for SEBI (Securities and Exchange Board of India) approval. We will undergo all due processes in order to list our shares, and after an initial approval, the process will be similar to any other company.


What is your message to the American business community about India as their investment destination of choice?

India is like any other democracy; it is also a consumption society and has a young and vibrant demographic. It is a growing economy and can generate many economies of scale. With increased globalization, the trend in demand for various goods and services has increased with a conscious effort also taken to attain goods of global quality. This behavior is observed over all categories of goods including the luxury category. The changing consumption pattern of the Gen-next as they are called is a potential market place for the American business community to make it an investment destination of their choice.


What defines your leadership style?

I like being involved and in the middle of the action. I don’t like to stay on the sidelines, I don’t like to just be seated in the corner office. Being with the colleagues helps me connect better with each of them and hence improves the interaction between us. It bridges the gaps between different the groups. It is important that I do give my feedback and advice with openness, so as to understand how the teams and the organization is performing now and how to get everyone take it towards the targeted common ideology.