BSE Ltd (BSE) Q3 FY23 Earnings Concall Transcript

BSE Ltd (NSE: BSE) Q3 FY23 Earnings Concall dated Feb. 07, 2023

Corporate Participants:

Anand Sethuraman — Head, Investor Relations

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Nayan Mehta — Chief Financial Officer

Analysts:

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Vikram Kotak — Ace Lansdowne Investments Services LLP — Analyst

Santosh Kesari — Kesari Wealth — Analyst

Amit Chandra — HDFC Securities Limited — Analyst

Vikas Kasturi — Focus Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to BSE Limited Q3 FY ’23 Investor Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Anand Sethuraman, Head, Investor Relations, BSE Limited. Thank you and over to you, sir.

Anand Sethuraman — Head, Investor Relations

Thank you so much. Good evening, everyone. This is Anand from Investor Relations at BSE, and welcome to BSE’s earnings call to discuss Q3 FY ’23 results. Before I begin, it gives me great pleasure to welcome Mr. Sundararaman Ramamurthy for his first earnings call with BSE after he took charge as MD and CEO on 4th Jan 2023. He’s a highly motivated leader and a consistent performer with a successful track record of 38 years. Prior to joining BSE, he was the MD and Chief Operating Officer in the Indian arm of Bank of America where his responsibilities included global governance and control of the banking entity in India and the securities segment. He has also worked with the National Stock Exchange of India for over 20 years as a senior member since its inception where he was responsible for a significant transformation.

Joining him today are the other members of BSE’s leadership team consisting of Mr. Nayan Mehta, Chief Financial Officer; Mr Neeraj Kulshrestha, Chief Regulatory Officer; Mr. Sameer Patil, Chief Business Officer; Mr. Girish Joshi, Chief of Trading Operations and Listing Sales; Mr. Kersi Tavadia, Chief Information Officer; and Mrs. Kamala K., Chief Risk Officer. Do note that this conference is being recorded and the transcript of this call will be made available on the BSE website.

Before we get started, I would like to once again take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. And any forward-looking statements that we make on this call today are based on assumptions, and BSE assumes no obligation to update these statements as a result of new information or future events.

I would now request Shri Sundararaman Ramamurthy, MD and CEO to give a brief overview of the Company’s financial and business performance. This session will conclude with a Q&A session.

Thank you, sir.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Thank you, Anand. Good evening, everyone, and thanks for joining the call today. Indeed, I’m honored and excited to be here as the new MD and CEO of BSE. I’m very well aware of the challenges that lie ahead, but I can assure you that all of us at BSE are working very hard to drive the success of this organization.

Let me first start with the financial updates. I’m happy to inform you that despite the volatile market conditions, BSE Group delivered a growth of 12% with total revenues of INR245 crores for Q3 FY 2023 as compared to INR218.6 crores in the corresponding quarter of last year. Similarly, BSE’s operational revenues have grown by 6% to INR204 crores from INR193 crores. The net profit attributable to shareholders of the company standing at INR52 crores as compared to INR61 crores. This decline is because of added contribution to the core settlement guarantee fund, we call it as core SGF here to the tune of INR16 crores at a consolidated level, which is an increase of 83% year-on-year. This is on account of increase or rather added contribution to the Equity and Currency Derivatives segment.

If we talk on consolidated financials now, I would now share some of the key financial numbers on a consolidated basis for the quarter ended December 31, 2022 as compared to the corresponding quarter of previous year. The clearing and settlement operational revenues increased by 57% to INR18 crores from INR11.6 crores. Treasury income from clearing and settlement funds has increased by 53% to INR22 crores from INR14 crores.

Other operating revenue, which includes data dissemination fees, training income, and software income has increased by 21% to INR18 crores from INR15 crores. Investment income increased by 70% to INR35 crores from INR20 crores. The operating EBITDA has reduced to INR39 crores from INR57.7 crores with operating EBITDA margin reducing to 19% from 30% earlier. The net profit margin stands at 19% as against 27% earlier due to increase in computer technology related expenses and increase in core SGF as stated earlier.

On the business side, let me start by covering our primary market segment. Fund-raising by India Inc. is well off last year’s pace as geopolitical uncertainty along with other macro factors affected the IPO sentiment. Notwithstanding the revision in annual listing fee with effect from April 1, 2022, a slight uptick in annual listing-related income is seen. Overall BSE contributes to the — sorry. Overall BSE continues to be the market leader for Fund-raising by India Inc. with a share of 60% for equity public issues, 84% for debt public issues having enabled issuers to raise INR3.9 lakh crores. The IPO momentum of 2021 has not carried over to 2022 so far, which has resulted in lower book-building income for the quarter.

India equity markets faced various headwinds after record-breaking turnover levels in 2022. Facing the challenges of the current market environment, BSE’s performance in Trading Segments were muted, but the Mutual Fund segment continued to demonstrate strong growth. For the quarter ended December 31, 2022, the average daily turnover in Equity Cash segment stands at INR4,234 crores, which is down 11% as compared to the previous quarter. The average daily turnover in Equity Derivatives segment stands at INR1.97 lakh crores, down 13% as compared to the previous quarter. The average daily turnover in the Currency Derivatives segment stands at INR26,246 crores down 18% as compared to the previous quarter.

BSE StAR MF, India’s largest mutual fund distribution platform, continues to grow at a remarkable pace. Its total number of transactions growing by 37% to reach 6.9 crores transactions during the quarter from 5 crores in the same period last year. The platform continues to scale new peaks in terms of transactions with platforms processing a new high of 37.75 lakh transactions in a single day and a new monthly high of 2.44 crore transaction in December ’22, and then once again with 2.5 crores transaction in Jan 2023. Overall, the platform achieved 101% of the transactions processed within nine months. 18.7 crores so far in FY ’22, ’23 as compared to 18.5 crores transactions during FY ’21, ’22.

Now, I shall cover developments of the subsidiary companies. India International Exchange is IFSC, the average daily trading turnover in India INX, the BSE promoted international exchange at GIFT City, Gandhinagar stands at $18 billion with a market share of 95% for the quarter ended December 31, 2022. India INX has about $70 billion medium term notes established and about $50 billion of bond listings till date. India INX Global Access platform for investors wanting to invest in global securities has grown to reach a trading turnover of $7,369 million that is $7.4 billion for the quarter ended December 2022.

Insurance broking. On the insurance distribution front, BSE Ebix Insurance Broking where BSE holds a 40% stake through its subsidiary, BSE Investments Limited, is now integrated with 26 insurance companies. The total premium collected is INR17.1 crore for the nine months ended December 31, 2022, a growth of 84% from the same period last year.

BSE E-Agricultural Markets, we call it as BEAM, a transparent commodity spot trading platform to facilitate spot commodities transactions across the value chain has now enrolled 1,220 members and executed trades worth INR43.7 crores in Agri and Steel segments on the platform during the quarter ended December 31, 2022. The company is working closely with several state governments and their agencies for direct procurement and disposal of commodities.

Power Exchange. The trading at Hindustan Power Exchange where BSE has a stake of 22.61% through its wholly-owned subsidiary, BSE Investments has been relatively modest and the exchange is continually onboarding new members and exploring new products to be launched, which can result in higher volumes going forward.

Before I conclude, I can confirm that the Board of the BSE in the meeting held today has approved the divestment of 2.5% of BSE’s stake in Central Depository Services Limited, CDSL, towards meeting regulatory norms. In closing, overall, I believe we reported a sustained third quarter results amidst a difficult market environment. 2022 was a period of transition for the BSE, and as we embark on a new journey in the new financial year, I believe that the balanced business model will enable us to grow much higher. We are confident of rising to the current challenges and take BSE to newer heights.

With these updates, I now hand over the call back to Anand. Anand?

Anand Sethuraman — Head, Investor Relations

Thank you, sir, for the updates. With this overview, let me now welcome you all once again for the Q&A session. Handing over call to Yashashree.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have our first question from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yeah. Hi. Good evening, everyone. First of all, welcome Mr. Ramamurthy to this esteemed organization. First question to you is on what are the initial focus areas for you to take BSE to new heights? What would be the key focus areas for you, say, top three or four things that you would be focusing on? That would be my first question.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Hey. First of all, thanks for your good message and question. The initial focus areas. What I find is BSE today has its presence felt in equities and currency. To start with, therefore, my focus area will be to ensure that we are able to concentrate on equity and grow our market share there. The second area will certainly be currency where we have some presence, which we can build upon. That’s a short answer. If there are further questions, I can elaborate on them.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Sir, one of the key drivers for the business has — for the exchanges has obviously been that Equity Derivatives segment where the actual growth has been coming. The margin norms have really hit hard the cash segment and the growth has kind of moved from cash to derivatives, so how would you think that BSE can at least garner some market share on the Derivatives side?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Yes. That’s a very, very fair question. So since you asked for initial focus areas, I mentioned equity and currency and of course, actually, I should have mentioned one more segment there, which is Mutual Fund. Since — see that’s the initial focus area because we have some foothold there. So to develop something where we have a foothold becomes easier. And in Equity Derivatives, at this point of time, I find BSE is not having much of a foothold. We need to develop it. While that will be certainly remaining as a focus area, first we will have to strengthen our foothold in Equity and Currency Derivatives and Mutual Fund where we have a good market share.

And as a follow on and as a process along with equity since they are related, Equity Derivatives will be built over a period of time first concentrating on Sensex as Sensex is a brand, which is known to the entire world, and has its merits and value and lot of recall. So that will be the next focus area.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Great, great. The second question is on this — more on the financials. The settlement guarantee fund, the increased the contribution that has been coming through in previous quarters as well and then this quarter as well. Now, how do we see this going ahead? How should we kind of read into this and how should we kind of model for this? Does this become the — this becomes an element, which we are not able to kind of figure it out?

Nayan Mehta — Chief Financial Officer

Prayesh.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yeah.

Nayan Mehta — Chief Financial Officer

Nayan here.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Hi. Yeah.

Nayan Mehta — Chief Financial Officer

So the settlement guarantee fund as we had spoken in earlier meetings also, this fund — the constitution and increment contribution is dependent on many factors, which include volatility in markets, business volumes increase, concentration of positions, and many, many other things. And it is determined by an algo on a monthly basis. So to that extent, you would recall even when earlier MD had said that when we make initial contribution to SGF, that’s a sign of progress as far as business is concerned.

So while it might look as a hit on your P&L for the company, but it’s a one-time hit whenever it comes. And it comes on increments means when we move on to the next level of business. Obviously, there will be some incremental SGF, which would come. As of setting today, it is very difficult for anybody means an analyst or the management itself to determine as to how much movement or incremental contribution will be there in SGF from year to year.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Just extending that point, sir, if we look at the cash volumes that are down for you, derivatives we don’t have too much of volumes, so what actually drove this incremental settlement guarantee fund? October and November were very weak months and even December were very — was a very weak month for cash volumes, so I just — so just try and explain me as to what really caused this SGF contribution?

Nayan Mehta — Chief Financial Officer

Yeah. Prayesh, in this year, obviously, we also contributed some SGF amount towards electronic gold receipts, which was a new contribution — minimum base contribution required by SEBI.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Okay.

Nayan Mehta — Chief Financial Officer

At the same time, Currency Derivatives volumes increased during this year. So obviously, those volumes necessitated that we do some contribution towards the same. And again, as the number of people, number of members increased in our clearing corporation, obviously, that’s also a big reason why that position led to incremental SGF contribution.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Okay. Great. And my last question will be on CDSL. So we have to reduce it to it 15%, right?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Yeah. We have to reduce it to — it’s a very correct question. We have to reduce it to 20%.

Nayan Mehta — Chief Financial Officer

15%.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Sorry, 15%. So we are — we will be getting towards that. There is a regulatory time limit available, so we will offload in tranches to ensure it’s a smooth transition.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

What is the time limit for that?

Nayan Mehta — Chief Financial Officer

We have to do it by 2nd October.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

2nd October, basically, 4% to 5% stake, which 2.5% you will be doing now?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

That’s what has been approved by the Board today.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Approved by the Board today, okay. Great, great. Thanks. That’s all from my side.

Operator

Thank you. [Operator Instructions] We have a question from the line of Vikram Kotak from Ace Lansdowne Investments. Please go ahead.

Vikram Kotak — Ace Lansdowne Investments Services LLP — Analyst

Yeah. Congratulations, Mr. Ramamurthy for the appointment. And my one question has been answered by you in earlier question. The other question, which I have for Nayan or you that how do we set off this — your Guarantee Fund contribution, which we’re doing by way of increased charges? Because these numbers are looking like a very big number compared to our revenue. So how do we — what are our mechanism to kind of set off of this? Do we increase charges or any other way to do it?

Nayan Mehta — Chief Financial Officer

I’ll tell you in one particular way is just that you have mentioned when you look at contribution to SGF, you are looking at the expense side but — means in the consolidated, it obviously doesn’t come apparent in the face of the — this result. In fact, that…

Vikram Kotak — Ace Lansdowne Investments Services LLP — Analyst

Right.

Nayan Mehta — Chief Financial Officer

Our income from clearing corporation has increased quite significantly over the last one year, and that is on terms of the margins and deposits, which we have got, and also in terms of the transaction charges, which were — which our clearing corporation has collected.

Vikram Kotak — Ace Lansdowne Investments Services LLP — Analyst

Right.

Nayan Mehta — Chief Financial Officer

So it’s not that it is a one-way expense and this is the corresponding benefit, which is coming to BSE, which is getting accounted in our financials.

Vikram Kotak — Ace Lansdowne Investments Services LLP — Analyst

So you mean, Nayan [Foreign Speech], that it’s higher than the contribution which you are doing according to you about ROT?

Nayan Mehta — Chief Financial Officer

In some quarters, it will be high. Some quarters there will be a much significant higher contribution, but overall, each SGF contribution increment over a period of time leads to an incremental revenue flow for us.

Vikram Kotak — Ace Lansdowne Investments Services LLP — Analyst

Okay. Okay. Okay, thank you so much. Thank you, Nayan [Foreign Speech].

Operator

Thank you. We have our next question from the line of Santosh Kumar Kesari from Kesari Wealth. Please go ahead.

Santosh Kesari — Kesari Wealth — Analyst

Hi. Am I audible?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Yeah.

Nayan Mehta — Chief Financial Officer

Yeah.

Santosh Kesari — Kesari Wealth — Analyst

Yeah. So I have two questions. One question is that we decided to…

Operator

I’m sorry, Mr. Keshri. Can you speak a bit louder, please?

Santosh Kesari — Kesari Wealth — Analyst

Sure. Am I audible now? Better?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Yeah.

Operator

Yes, please go ahead.

Santosh Kesari — Kesari Wealth — Analyst

Okay. So I just — I have two questions. One question is about CDSL divestment that we are doing now. So I wonder that isn’t the timeline could have been better because now the market conditions are not good and CDSL is also at almost 52 week low, so the realization that BSE is going to get against this investment would be much lesser than it we would have had it been selling a year or so back. That’s one. Even last time when BSE divested 2.5% from 22% to 20%, they sold that INR220 a share. After that, the prices zoomed up to something like INR1,500, INR1,700 level. So it’s a little discerning to realize that as a shareholder we are not earning as much from the divestment as the market participants were buying from the offloading of shares by BSE and get into lot better profit. That’s the first question.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Yeah, so let me give one reply. I don’t know how much that will satisfy you. If it doesn’t, I will ask Nayan to add. As exchange when we want to offload, we have to look at it from multiple perspective. Of course, the return maximization is always there in everybody’s mind whoever has invested into any stock, but as an exchange when we do it, it is also the question of — we have to realize we will not be able to time the market. That is difficult for anybody for that matter. And for exchange, it is much more difficult because we need to call off multiple internal and external processes of taking approvals before we go to the market. So we will not be able to time the market.

In hindsight, it may sometimes come across as a very good move or probably a move where we should have waited, it can come across. So that will be the sum and substance of it. So that’s why always things are done in tranches over a period of time to ensure that we are taking care as much as we can in respect of return maximization without being — without having a capability to timing the market.

Nayan, you want to add something?

Nayan Mehta — Chief Financial Officer

No. I perfectly agree with you. It’s — we cannot set it — There is no way anybody can actually time, not about us.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

So that difficulty is there, but your point is valid always one should expect to maximize returns. But sometimes it doesn’t work for us because we are not able to do that in terms of managing the timing.

Santosh Kesari — Kesari Wealth — Analyst

Yeah. I know that, but the point is that this is the second time on the trot that BSE is not able to realize. But anyway, I take your point. Now, my second question is about SGF. So though many participants raised a question, I just had one limited point and that is that the interest that we are earn out of SGF, does that accrue to the BSE P&L or it is earmarked to the fund and it gets credited there? How does it happen?

Nayan Mehta — Chief Financial Officer

No. So the interest, which is earned in the settlement guarantee fund remains in that fund and it is not considered as income in standalone or consolidated accounts.

Santosh Kesari — Kesari Wealth — Analyst

So was thinking that as a cost of doing business, right, the contribution to SGF?

Nayan Mehta — Chief Financial Officer

Yes.

Santosh Kesari — Kesari Wealth — Analyst

Okay, okay.

Nayan Mehta — Chief Financial Officer

And this is obviously according to the current regulations, which — SEBI regulations, which we have to follow.

Santosh Kesari — Kesari Wealth — Analyst

Yeah, I agree with that.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Just to add to what Nayan is saying, the contributions to SGF, the contribution are all regulatorily defined…

Nayan Mehta — Chief Financial Officer

That’s right.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

And it goes according to that. Therefore, when NSE contributes the money to SGF which is held by ICCL, any amount of interest earned from the fund has to be retained in that fund is a regulatory requirement.

Santosh Kesari — Kesari Wealth — Analyst

Right, sir. Okay. Thank you so much.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Amit Chandra from HDFC Securities. Please go ahead.

Amit Chandra — HDFC Securities Limited — Analyst

Yeah. Hi, and thanks for the opportunity, sir. Sir, my first question is on the area of investments that we have been doing into the new areas of growth. So we have been investing into the INX, like into commodities, and also into various new products, which are in the trial phase or inception phase or initial phases, but not generating any returns since like many years. So what is our strategy there in terms of monetizing these areas where there is scope to generate like revenues, like maybe in the next one year? So which areas you think is like promising and you should start monetizing?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

It’s a very good question. Some of the investments that we make will be oriented towards national development and overall economic development in mind, which will be the driving force. As a responsible MII, we will be doing some of them like that. To just give the example of GIFT City. When we look at GIFT city, we are trying to promote an exchange, which will be in the face of India for all the foreigners to help them participate in this country’s market and not allowing the Indian markets to be exported outside India. That is the idea behind that and that is the reason why it’s at a very senior level everywhere, thought about as a very good requirement for the country as a whole for development. And that’s the reason why BSE has been the first exchange to get there to setup its own exchange and clearing corporation there. And it is growing in terms of its size and all.

Does it give back money to us in return at this point of time? These ventures many times, as you would appreciate, have slightly long-term gestation period. Some of the things like our mutual fund platform, if you look at it, with minimum investment, it is giving maximum revenue in a short term. Some of these investments like GIFT city and all where it’s a new proof of concept, which we need to provide in the market takes time. That is the reason why MIIs have to get into it because it cannot be taken totally as a commercial venture alone. It may — it will give commercial results, but it is a question of time where after the gestation period only you will be able to reap the benefit. The same thing will be applicable to Power Exchange or Agri market. Agri markets require lot of development. How much it can help in nation’s economic development by helping the farmers, we all know that, but it takes time to bring in people, changing behavior, making them understand.

So if you ask me, within one year, you will be divesting something and making money, it may not be wise to do that in one year to divest some of the investments. Some of them will be making good sense. Like for example, take the case of CDSL, which we invested quite some time before. Today it is yielding lot of results. It’s a question of we waiting, permitting it to grow, supporting it to grow, and then reap the benefit. The same thing will happen with every one of these investments because they are well thought-out investments just not only as a commercial venture, but also as a contribution to the society. That’s the way I look at it.

Amit Chandra — HDFC Securities Limited — Analyst

Okay. And also, sir, you mentioned about focusing on the cash, and the currency side, and also on the derivative side, but this strategy has been there for the last many years and we have been trying to gain the market share and cash. We tried in derivatives, we attained some success there, but again we are back to like around 1% market share. So what has to be done differently there to gain market share or I think it’s an area where it’s very difficult to get some market share from NSE because it’s going — it’s actually getting bigger and stronger. So what’s your views there?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

It’s a fair question, but I’m sure you will appreciate it is just one month for me now in the exchange. Notwithstanding that, I will try and reply you.

Amit Chandra — HDFC Securities Limited — Analyst

Yeah.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Well, it is true that there has been lot of efforts put on by the market and the regulator to ensure there are two exchanges at least in India. I’m not looking at it as — to put it differently, I’m not just looking it as growing BSE’s market share. You look at it from a slightly macro perspective. Do you require only one exchange in India or do you require to have two exchanges in India? One need not be — 50% – 50% is not what probably we’ll look at it while other exchange should be vibrant to take care of many of the means whenever any circumstance warrant it. And I am sure, principally everybody agrees now. Principally, people all see having a single exchange as not a good idea. If we start talking in terms of in many countries, it’s only a single exchange, single airline. Why in India there should be more than one exchange? That — the question no longer remains a question. I think the answer is clear in many people’s mind as to why you require more than one exchange, which has to be vibrant and in existence. So then principally, everybody is in agreement, what is the effort going on to ensure the vibrancies of the second exchange? Why is it falling short? What can we do to adapt it, to help it, to grow is the question then. That becomes the strategy.

What I find is while intraday interoperability is required for MIIs, which is not totally implemented by all members for the clients, I feel that is a very important requirement. So this is one idea I’m talking about. Soon we will be reviewing all the areas and we will be coming out with some product differentiation. In the coming days, you will get to see. As I told you, it is just one month and two days in terms of number of days, and in the — the number of days in office is just 20 days.

Amit Chandra — HDFC Securities Limited — Analyst

Yeah.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

You will see certainly some product differentiation happening in cash market and in currency. Everywhere you will see. And you will find this has new products being talked about. So — and you will also see that we going and advocating to be system developers to the brokers and to the clients how is there way to be two vibrant exchanges. It will be on a day-to-day basis helpful for them. For example, if somebody as a client finds a better price in BSE to buy and after some time he finds a better price to buy in NSE, if the brokers do not enable intraday interoperability at the front-end for a client, they are not going to do it. If they are not going to do it, it’s just not BSE losing volumes, it’s actually the client not making money and the broker not making money.

We will earn the money. If the — on a turmoil, if there is this type of an arbitrage facilitated, don’t you think the price decline will be arrested? Because now there are — there is clearly a price finding very imminently happening and fast happening. If it does not happen, you’ll find the stock declining in a very faster pace to touch the bottom and then climbing up slowly back in one exchange. I hope you understand what I mean.

Amit Chandra — HDFC Securities Limited — Analyst

Yeah.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

So to cut a long story short, give me some time. I’m reviewing things. Certainly, you will find new product differentiations, product approvals coming in place, and we talking to brokers to strengthen the entire vibrancy of a second exchange as I would not call it as making BSE’s market share more. Providing a vibrant exchange to the economy is today our prime motive.

Amit Chandra — HDFC Securities Limited — Analyst

Yeah, sir. Thanks for the detailed answer. And sir, my last question would be on what are we planning with the cash that we get from CDSL? So will it be used for investments or will we use for higher share and the shareholder payout?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

So it’s a very, very important question that you’re asking. See, the question of utilizing the proceeds towards further building capability to divert to the shareholders or to make payments will also be governed by regulatory restrictions as to how much what we can do. Clearly, the intention will be to put the money to use for shareholders’ benefit. That would be the driving force because it is the shareholders’ money, which has gone in as an investment that is what is coming back. The effort will be within the four walls of regulations, whatever permitted, will be to maximize or rather optimize shareholders’ wealth. That will be the goal with which we’ll be working.

Amit Chandra — HDFC Securities Limited — Analyst

Okay, sir. Thank you and all the best, sir.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] We have a next question from the line of Prayesh Jain from Motilal Oswal Financial Services. Please go ahead.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yeah. Hi, sir. Just a couple of questions on financials. If I look at depreciation, it’s at INR17 crores versus much lower run rate in the previous quarters. So what’s the reason for same?

Nayan Mehta — Chief Financial Officer

Prayesh, in the current year, there has been a lot of investments in IT, hardware, and software so that has resulted in higher depreciation. So that is the — one of the major reasons for increasing depreciation.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Okay. Okay. Secondly, on the tax rate, it’s been much higher at — in the previous quarter 42%, in this quarter 33%. How should we think about this tax rate and going ahead, how should we look at it?

Nayan Mehta — Chief Financial Officer

For going forward, Prayesh, you can consider 33% to 35% as the normal rate for us. The reason being that we are currently offsetting our MAT credit, which is available with us.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Okay.

Nayan Mehta — Chief Financial Officer

For that percent — for that reason, whatever — means all our focus is towards earning taxable income and that which attracts the maximum tax rate to utilize the MAT credit.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Okay, okay, okay. And just one last follow up question on the previous one was — StAR MF, we have earlier kind of hinted at selling that asset completely. Any thoughts — incremental thoughts out there on revenue under a new CEO?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

This is a good question, but look at it this way, the entire retail in a big way is looking towards mutual funds this way these days. If you look at it, when FIIs or rather FPIs, some part of last calendar year, they were exiting India for whatever volatile reasons. We find that suddenly the mutual fund contributions is increasing, right? So there is a good amount of penetration that is happening towards mutual funds because of the clear attractions. You see if as an individual I want to have a balanced portfolio, to buy 20 shares and 30 shares and create a portfolio, manage it, monitor it, it’s not going to be easy for me. When a small investor and more and more of the financial conscience and the financial literacy increase, I feel that mutual fund transactions are going to go up.

If that is the case, is it right time to think about divesting and coming out of it, or is it that we should grow it more organically because these are all linked, right? So the mutual transaction will get linked with multiple things. So should we look at and explore all those areas? What will be on the interest of shareholders and what will create value for the shareholders is one question which repeatedly comes to my mind. While I may not have clear answers, at this point of time, my inner feeling is that we should do more to develop this as an even bigger platform. The amount — see, you saw a lot of new highs we are touching on a daily basis.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yeah.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

If this is what it is, clearly, the market is loving the product and clearly, the market feels that we are serving them, that’s why they are coming to us, right?

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Exactly.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

So if that is phase that in the community is reporting on you, isn’t that you should grow on that same or you should encash it is one question which comes to me repeatedly. I think at this point of time, the indication is more towards at least putting in some efforts to see how do we grow it. Well, this is today’s view. As sometime before Anand said, tomorrow’s factors may be different and your views may differ, but at this point of time, this is a very encouraging area that the faith and love and affection shown by the market to our platform is very high. I’m sure you agree with me.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yes, yes. I absolutely. And mutual fund investing is something, which the entire industry is looking forward to, but the challenge is the regulator seems to be kind of in a mood to even hit the commissions and distribution expenses out there, so do you see any challenge on your expenses, or on your charges that you to levy today, do you see any challenges to sustain those levels or do you think that that should be coming down?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

See, that could be sort of speculative for me to say. I wouldn’t know. And whatever, see, we working under a regulated atmosphere.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yeah.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Within the regulated atmosphere, we need to deliver value to the investors of ours and to the investors in the market. We will strive hard there and we will ensure that we will do things, which will benefit everybody, the market, us, and the shareholders.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

All right. Great and all the best.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Thank you so much.

Operator

Thank you. We have our next question from the line of Vikas Kasturi from Focus Capital. Please go ahead.

Vikas Kasturi — Focus Capital — Analyst

Thank you, ma’am. Moderator, am I audible?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Yes. You are.

Operator

Yes, sir.

Vikas Kasturi — Focus Capital — Analyst

Okay. Okay, great. So welcome, Ramamurthy sir. Sir, I had a few questions regarding StAR MF. So if you could just help me understand a few nuances of this business, sir. So for example, I believe one clear tailwind for this business is that there is a shift from paper-based application or paper-based transaction to a more digital kind of a transaction. So — and I have been totally surprised because every quarter I see a new — StAR MF hitting a new high. So I am just wondering, sir, out of the total universe of all mutual fund transactions, approximately what percentage would go through StAR MF?

Nayan Mehta — Chief Financial Officer

About 50%.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

About 50%. That’s what is my guess estimate.

Nayan Mehta — Chief Financial Officer

So entire universe about 50% of the transaction goes today through the StAR MF platform.

Vikas Kasturi — Focus Capital — Analyst

Okay.

Nayan Mehta — Chief Financial Officer

More than 50%.

Vikas Kasturi — Focus Capital — Analyst

Okay. And so, the other question is, sir, what is stopping the other 50% as in have we not reached those towns or what is stopping the other 50%, sir?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

No. Not necessarily stopping. It’s like this, you see. Today, even — you just go back to the era where you did not have StAR MG right, so some people still prefer to invest only directly, right. So they may go to individual mutual fund websites, register themselves, maintain a user ID, password, very stringently and regularly every second month change it. They like to do that because that is some type of people, that’s what they are used to for the ages. And they do not want the — they feel that if they directly invest, the return for them is some few basis points more. That is one class of investors and they will continue to be that way.

And there are some people who want to go to a single bank and open a bank account and the demat account and the trading account under their trading securities and also a mutual fund in the same bank account, and they have a relationship manager attached to them and the relationship manager comes and tells, you change this portfolio, you do this, you do that, and he gives an advise. And they tell yes to him and he goes and does it in the same platform. So that is another type of investor. So these are all standard set of people who have been in existence for quite some time.

Now, you are having a new paradigm. You are bringing in an exchange platform where you are using these distributor and trading members who are used to these type of plans to make more and more people understand this and accept this. So these are all a new set of people in my opinion who are coming in. That’s why you will always, in my opinion, have all types of people. Like for example, there are some people who will go to kirana stores, some people who will go to a mall, some will do online order entry for getting even their groceries. So I think it’s this multiplicity of the market is what is making it vibrant and interesting, and I think that will continue.

I think we will not be able to say that at some point of time 100% of the volume of all mutual fund transactions will come only through StAR MF because people with different requirements and different preferences will continue to exist. That’s actually what in my opinion helps in innovation. That’s what I see in this. I’m not sure how much you agree with me.

Vikas Kasturi — Focus Capital — Analyst

Sure. I’ll take your view, sir. Sir, a related question on StAR MF. So is there — so does this bring in some sort of stickiness for the mutual fund distributors. Suppose he has 10 clients and users StAR MF for this transaction, so is he kind of getting locked into the StAR MF in any way, sir?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

I feel so because what happens is see, today everything is technology. So if somebody is bringing their clients into it, they need to also develop something from their front end. Every technology is an investment, so there is a cost associated with it. So people would like to maximize the benefit arising out of it. So willingly, there is clearly a — and also, there is clear — some of the activities which they need to do, they are able to depend on the exchange platform to get that done for them, right. So clearly, there is a benefit for the investor because it’s one-stop shop-all, right. And for the distributor, it becomes helpful because part of his work is being taken care of by the MII, which is operating it and for MII it’s beneficial because it is bringing in more clients to it. Slowly and steadily, they also should start looking at BSE equities. There is a synergy capability available here. It’s a big set of clientele whom you are serving. At some point of time, this may spill over to other segments as well. It’s a question of time. It’s a question of how we put it across. So I think if you — answer to your question shortly, I feel there is stickiness and that’s why people are building on it and that’s why it’s growing.

Vikas Kasturi — Focus Capital — Analyst

Got it, sir. And one last comment from my side. Not a question, but more like a comment. Sir, I’ve been a shareholder of BSE for over four years now. And so, my request to you is that there is a cliff due to invest in newer products because these tend to give us the exponential growth like StAR MF and CDSL has shown us, so that’s just my humble request to you, sir. Thank you very much.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

No, our humble [Foreign Speech] to you for continuing to be our shareholders. We really appreciate the faith that you are reposing in us and it is our promise that we will do whatever we can in our powers to ensure that your interests are taken care of. And we will certainly always be looking for newer products through which we can serve the market and serve our investors.

Vikas Kasturi — Focus Capital — Analyst

Thank you, sir.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Santosh Kumar Kesari from Kesari Wealth. Please go ahead. Mr. Santosh Kumar Kesari, please go ahead with your question.

Santosh Kesari — Kesari Wealth — Analyst

Am I audible? Am I audible?

Operator

It is very low. Mr. Kesari?

Santosh Kesari — Kesari Wealth — Analyst

Am I audible? Sorry for…

Operator

Please speak.

Santosh Kesari — Kesari Wealth — Analyst

Hello? Hello, am I audible?

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Yeah, you are audible, but there is a good amount of disturbance from your line.

Operator

Mr. Kesari?

Santosh Kesari — Kesari Wealth — Analyst

Hello? Am I audible?

Operator

Sir, there is a lot of disturbance on your line.

Santosh Kesari — Kesari Wealth — Analyst

Okay. Sorry about it. I’ll reconnect then.

Operator

You’ll get back in the queue?

Santosh Kesari — Kesari Wealth — Analyst

Yeah. I’ll get back in the queue. Thank you.

Operator

Okay. Thank you. I will now like to hand the conference over to Mr. Anand Sethuraman for closing comments. Over to you, sir.

Anand Sethuraman — Head, Investor Relations

Thank you, everyone, for all your questions. Should you have any further questions or requests for any particular data as such, please write to us at Bse.IR@bseindia.com With this, we would like to conclude this call. Thank you.

Operator

Thank you.

Sundararaman Ramamurthy — Managing Director and Chief Executive Officer

Thanks to everybody for your interest in us. Thank you so much.

Operator

[Operator Closing Remarks]