By Courtney Trenwith
Chitra Ramakrishna leads one of the world’s most dominant stock markets, India’s National Stock Exchange, with a market capitalisation of nearly $1.6tr
In 1992, India’s financial markets were considered a closed brokers club riddled with corruption and desperately needing reform and modernisation. The Bombay Stock Exchange (BSE) had dominated the scene for decades, but few were game to dabble in stocks unless they were already a qualified broker on the inside.
The $780m stock manipulation scandal involving Harshad Mehta eventually exposed the severe immaturity of the century-old BSE and embarrassed the entire Indian financial market system.
But from the ashes rose the ambitious idea to create a new index that would rival the BSE with transparency, the country’s first electronic trading and strict regulatory monitoring at its core.
The National Stock Exchange (NSE) was born under then-finance minister and mastermind of India’s economic liberalisation Manmohan Singh, who went on to serve as prime minister until last year.
Among the NSE’s five initial employees was a young woman named Chitra Ramakrishna. Not yet 30 years old, Ramakrishna had already made an impression among senior members of the finance world, particularly with RH Patil and SS Nadkarni, respectively, the then-executive director and chairman of the Industrial Development Bank of India (IDBI), where Ramakrishna worked on projects including a highly successful bond issue.
When Nadkarni and Patil were tasked by the government with setting up the NSE, Ramakrishna was handpicked to join them. Twenty years later, in April 2013, she took over the highest office, as managing director and CEO.
The NSE, initially viewed with scepticism, is now among the largest bourses in the world, with a market capitalisation of $1.65 trillion. It is ranked number one globally on numerous indices including index options.
Yet present momentum has barely been stronger in the bourse’s 23-year history. In the past 12 months, the NSE has soared 25 percent, with the flagship CNX500 climbing more than 30 percent and the CNX mid-cap adding a whopping 50 percent.
The BSE has also rallied amid an overall improvement in the country’s optimism surrounding the election of Prime Minister Narendra Modi in May 2014, although to a slightly lesser degree than the NSE.
“There is a broad-based economic strength coming from economic stability, because that’s always a basic parameter for any market to be attractive,” Ramakrishna tells Arabian Business in an exclusive interview. “And on the back of that, the growth prospects in several industries [are motivating investors]; all of these really add up to the strength of any market. The market really is the parameter of economic prosperity.”
The gains in the past year, however, follow a hammering in 2013, amid a plummeting rupee, rising inflation, high interest rates and overall investor pessimism.
Two significant changes have happened since then: Raghuram Rajan was appointed governor of the Reserve Bank of India (RBI) in September 2013 and conservative Narendra Modi was elected prime minister on an economic-reform agenda.
Rajan quickly stabilised the rupee, reversed the capital outflows that had been pillaging the Indian economy and helped to reduce volatility in the stock markets.
The markets reacted positively to Modi even before he was elected, rallying to record highs on the presumption he would win the historic vote.
“You have seen a huge upturn in the optimism in the faith and policies [of the national government] and I think the vision which the country has sold now to investors is something that is meeting with the aspirations of investors who want to bring money into the market,” Ramakrishna says.
“I can see that; the numbers will speak for themselves. The amount of FII [foreign institutional investment] flows last year [compared to] the first three months of this year, has grown $13m.
“So definitely there are two things. One, there is an inherent attractiveness caution, which has improved for the country. Secondly, [in regards to] the relative perspective between countries, I think India has been able to bite back [under Modi].”
Modi’s election has particularly boosted appeal among foreign investors, although Ramakrishna says participation also has increased domestically.
“There is definitely an all-round increase in investor interest [among] foreign investors, institutional, as well as retail investors,” Ramakrishna says.
“For us, growth is more of a function of savings going into the capital creation activity. There’s domestic savings going into this capital creation activity but we’ll certainly seek out foreign investments as well, to strength[en] this capital creation, whether it’s in the form of large infrastructure products or the investment fund that’s been created in the budget this year.
“So all of these definitely require reasonable participation from foreign investors, but domestic institutions also. For example, the pension and retirement funds have started looking at investing in the equity market so it broadens the number of institutions that are participating.”
More company listings also are anticipated on the back of the optimism.
“It’s definitely the expectation because in any economy, as there is progressive economic growth and prosperity, the capital raising process follows,” Ramakrishna says. “All of the [divestment programmes announced in the past year] will mean new capital coming into the market and therefore more opportunities for people to invest.
“There are several prospectuses that have been filed, so that’s an indication. Definitely, there seems to be a pipeline of interest.”
Those listings may soon also include one of the hundreds of Gulf-based companies run by Indians. In a high profile example, Indian-born, Abu Dhabi-based BR Shetty’s NMC Healthcare, which operates healthcare centres across three UAE emirates, listed on the London Stock Exchange in 2012. But Ramakrishna hopes the improving standing of the Indian markets could see similar Indian-owned companies based abroad choose the NSE for future listings.
“Yes certainly, I think they’ve always looked at India as a very competitive destination to attract listings and as we go ahead the international competitiveness of the Indian capital market is something that policy is very focused on,” Ramakrishna says.
“In fact, there is a new international financial centre code that has been recently introduced in India and this is all about creating a centre which is internationally competitive.
“There is a bit of time and life cycle in this so I think we will definitely do a temperature check of their interest and at the same time look at what are the facilitations they need to come on board so it’s a bit of a match of both of these needs. It will be one of the things that we pursue.”
Ramakrishna also sees exponential opportunities among individual, or retail, investors. It is difficult to quantify how many of India’s 1.2 billion people have played the stock market. But considering at least three quarters of them live on $2 or less a day and about 40 percent do not have a formal bank account, it is safe to say the proportion with stocks is minute.
In August, the government launched an initiative to open 120 million bank accounts for the country’s poorest people. The accounts were specifically established to enable direct deposit of government pensions and other benefits but they also open up financial education to men and women who have had little ability to save, let alone invest.
“Absolutely, we see that as a huge opportunity not just from an exchange business perspective but it’s also [about] how to de-risk the savings of many people when they put their monies for retirement,” Ramakrishna says.
“How do they ensure there is growth and wealth creation for them? That can only happen when they participate in the market but then we need a proper product because you can’t really sell sophisticated high-end products without creating that ground-level awareness first.
“One, you have to create the financial education and awareness. Second, we have to create more simple products like ETF [exchange-traded funds], which are passive investment products, which is what we as an exchange have been committed to for the last five years. We have some very interesting ETF products that we use as an instrumentality to reach the retail. These are all vehicles we feel are appropriate for us to take markets to the doorstep of the investors.”
The NSE has launched several ETF instruments — designed to replicate the overall indices, so returns are close to the total returns of the index — to help potential investors who do not have the market expertise to pick or follow stocks.
Ramakrishna also is keen to see an exchange or affiliate dedicated to the country’s 1.3 million small-to-medium-sized enterprises (SMEs). With 12 million jobs needed annually, SMEs will undoubtedly become the backbone of the Indian economy. The experience is similar in the UAE, where SMEs now account for 40 percent of gross domestic product, leading to the establishment of the Dubai SME100 index, which is expected to imminently launch after closing initial registration last month.
“[The idea of an SME index] is the subject of a whole day,” Ramakrishna says, revealing her passion for the topic.
“We have done a lot of work on this and we have created different models for going out and reaching out. It’s about getting quality SMEs and showcasing to the world what the growth sectors are and the quality of the SMEs in these growth sectors, whether it’s engineering [or] whether it’s farming.
“It’s a subject that is very close to our heart. Like many other countries, we have experimented with very different models on how to reach out to SMEs to be able to help them access finance. It’s early days.”
In the meantime, as India’s economy races ahead at more than 6 percent growth annually and it marches closer towards becoming an international economic powerhouse, the NSE is likely to strengthen even more against hallmark bourses internationally, including the New York and London stock exchanges.
“That’s the aspiration,” Ramakrishna says, cautious not to put a timeline on the notion. “We’re already among the global few in many of the benchmarks as well as how the markets are concerned so it’s [only] a matter of time.”
It is this constant evolution of the index and its role in one of the most watched emerging markets that creates rapture for Ramakrishna, even after 20 years.
“The biggest satisfaction is being part of an institution that’s been able to have an impact on the markets and what we do contributes in some sense to better capital formation, to better investments by savers, and improves their financial prosperity. I think that gives some tremendous satisfaction,” she says.
The NSE changed the game in Indian equities two decades ago. Ramakrishna was a key player then, and now in the most powerful position, is bound to continue revolutionising the industry.