The restrictions imposed by the Securities and Exchange Board of India (Sebi) to curb speculative trading in futures and options market have had the desired effect. In an interview with Business Today, Ashish Chauhan, Managing Director and CEO of NSE (National Stock Exchange), says the number of contracts has fallen by 50–60%, and the premium traded value has decreased 25–30%, because of Sebi’s actions. Edited excerpts:
Siddharth Zarabi: The equity cult in India has spread far and wide across the country and the National Stock Exchange is present in nearly every pin code. Has the way Indians approach equity investing fundamentally changed?
Ashish Chauhan: This can be answered in many ways. Currently, we have more than 19,300 PIN codes in India. And NSE is not present in only 28 PIN codes-most of those are airports, where you can't normally stay, which means that we can’t do KYC (of an investor). When I began in 1991-92, there were only around a million people investing in stock markets.
I have seen this growth. Why are people investing in stocks? There’s a theory in economics which says that low per capita income countries do not have a good capital market. Why? Because poor people cannot save. And even if they do, they don’t trust even their brothers.
How will a person sitting in Srinagar or Dibrugarh or Jorhat put five hundred or a thousand rupees in a company in Salem, Tamil Nadu, which he or she is never going to visit? It’s a great leap of faith to invest money sitting 2,000-kilometers away, without knowing the promoters.
The reason this happens is trust, the trust of ordinary, poor Indians in other poor entrepreneurs. This is significant because nearly 85 million households, out of India’s nearly 350 million households, are investing in the markets.
SZ: How much of a role has technology and ease of use played in the rise of the equity cult?
AC: For me, technology is everything. All change that happens is primarily due to technology. And the stock markets in India have played a pivotal role in ushering in information technology into the country.
In the early '90s, when NSE was conceptualised, there weren’t many computers in India. Getting a telephone line used to take five years and keeping it working was a bigger challenge.
At that time, our policymakers visualised an exchange that would be completely automated, with screen-based trading, a concept that didn’t exist globally. The NASDAQ was essentially a quote screen, you had to call someone to place a trade. There was no screen-based order matching.
India’s policymakers decided to set up an automated exchange. I was part of the implementation team, and we wondered how we’d do it without basic infrastructure like telephone lines. That’s when we decided to use satellites, and the rest is history.
With the setting up of NSE in 1994, information technology slowly began seeping into India. NSE was India’s first digital public infrastructure. It was the country’s first fintech and remains the largest. More importantly, it was the mother of the IT revolution in India. It brought about the transparency that was missing from traditional exchange floors that could only accommodate a few hundred people at a time.
With screen-based trading, millions could view the market, and later, access it via mobile phones. The marginal cost of servicing an investor has dropped to nearly zero. Earlier, to expand access, you had to go to places like Ladakh and set up a branch. That was true for banks as well. But when mobile and Aadhaar-based infrastructure matured, and during Covid, Sebi allowed video KYC, brokers could reach rural and remote investors much faster.
SZ: Has the ease of access also increased risk-taking?
AC: Yes, there are many perspectives, everyone interprets things based on their point of view. It’s like the story of blind men describing an elephant.
To give you a perspective: in the last three years, despite some market downturns, retail investors, not promoters, have made Rs 30 lakh crore after accounting for derivative losses.
Only 2% of the 110 million investors trade in derivatives once a month. It is a small fraction of the population. Interestingly, 88 per cent of these derivative traders also invest in equities, which suggests they may be making money in equities even if they lose in derivatives.
It is like health insurance, if you don’t fall ill in a year, is your insurance a loss? There is a possibility that ease leads to overdoing. Greed can become uncontrollable. That’s why Sebi has taken steps to make sure derivatives don’t fall into the hands of those who don’t fully understand them. People may feel regulators are tough, but that’s for the market’s long-term good. I have seen tough regulatory decisions that seemed harsh initially but ended up bringing more investors into the market. Just because something becomes easy doesn’t mean it’s bad.
SZ: Have the recent curbs imposed by Sebi on derivatives achieved what they were supposed to?
AC: Broadly, yes. But everything is a work in progress. Sebi’s first measures came into effect around October–November. More measures are being implemented. So far, the number of contracts has fallen by 50–60%, and the premium traded value has gone down 25–30%. That was the intended outcome, to break the speculative momentum in options trading.
That momentum has been broken. People are also becoming more aware. Our stance has always been: if you don’t understand the instrument, don’t touch it. This is especially true for retail investors.
Derivatives are not where they should be playing.
Margins have been increased, lot sizes expanded, and intraday margins are being revised. And one key piece of advice, don’t believe in stock tips or stop-loss advice on television or WhatsApp.
SZ: Exchanges like NSE have made it easier for entrepreneurs to access capital. Given the IPO(initial public offering) boom of the past few years, what’s your outlook for 2025? Will the IPO gravy train continue?
AC: The markets have been consistently strong over the last two-three years. When markets are good, volumes go up and IPOs follow.
In the last six months, markets have been relatively weaker, so the number of IPOs has dipped. But the momentum hasn’t disappeared. We still see a lot of activity in the IPO space. Many companies are planning and filing their draft prospectuses. So, depending on how the market performs over the next few months, we may see a pickup again.
SZ: Is enough being done to educate retail investors about overpriced IPOs?
AC: There are multiple sides to this.
In the past, we had the Controller of Capital Issues, who would not only approve IPOs but also decide what price the company could charge. I remember in 1992–93, when Tata’s IPO came out, there were massive queues and millions of applications.
When the stock underperformed, people blamed the regulator, saying it didn’t know how to price IPOs. That led us to move from a prescription-based to a disclosure-based system, as followed globally.
Let’s be honest, a bureaucrat or an exchange official like me, who works for a salary, may not be the best judge of how to price a company. If I knew that well, I’d probably be a fund manager myself. So, take everything, even my views, with caution.
Under the disclosure regime, people now assume that investing in an IPO guarantees quick profits. But that’s not how markets work. Some IPOs will do well, others won’t. Even profit-making companies can list at valuations that aren't sustainable and go down. A Mercedes is a good car, but not if it’s priced at Rs 100 crore. The same principle applies to stocks, even good companies can be overpriced. As for loss-making companies, some of them may have strong future potential. Investors sometimes subscribe based on that belief. Think of Amazon. It was loss-making for 20 years after its listing and is now a highly profitable company. So, we must increase awareness that there’s no guaranteed money to be made just by applying for IPOs. Risk is inherent, and people must understand that.
SZ: FIIs have been pulling out large sums from Indian markets. Meanwhile, domestic institutional investors (DIIs) have been stepping in. What’s your view on this shift?
AC: FIIs have more flexibility. If they see better opportunities elsewhere, they’ll reallocate. In the last year, interest rates in the US, the primary market for many FIIs, have gone up significantly. When that happens, the cost of capital increases. If you’ve borrowed to invest, you feel the heat daily. So, they pull out of emerging markets like India.
Also, many FIIs now follow passive investment strategies. They just allocate based on indices like the MSCI Emerging Markets Index. But DIIs have filled that gap, a sign of increasing maturity and confidence in our markets.
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