Taking stock of stock exchanges

In today's episode, we'll do one deep dive and cover another story for the day. First we'll talk about taking stock of stock exchanges and then we'll talk about Karlsburg India's IPO resting on one strong beer. Welcome back to the Daily Brief by Zero the where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara today's Wednesday 11th November coming to the first story. So almost every trade you place in India ends up at NSC or BSE and they match your order with someone else's make sure the trade settles and take a small cut. BSE has been listed since 2017 but NSC the far bigger of the two only went public this September. So the July September quarter is the first time India's two stock exchanges have reported results side by side. NSC's revenue from operations came to rupees 4,067 crore and BSEs to rupees 1,433 crore. Both were up from a year ago, NSC by 11% and BSE by 34%, but both slipped from the previous quarter by 11% and 8.5%. Now nearly all of it comes from four places. First, transaction charges on trades, be it cash, futures, options or even mutual fund orders, which is about 75% of NSC's revenue and 79% of BSEs. Second, fees from listed companies, third, charges for market data and for plugging into their systems, and fourth, interest on money, brokers, park with them. It's our first look at the two together so we will go slow going through their income statements and asking what each says about the market and the people trading in it. Let's start with the quirk every trader should know, on options the exchanges fee is calculated on the premium U pay, not on the size of the position underneath it. Premium swell when markets get nervous because protection gets costlier, so when exchanges biggest revenue line cares a little less about whether markets rise or fall and more about how jittery they are. Sure enough, NSC's transaction revenue has closely tracked India VIX, the market's fear gauge, and this quarter both exchanges took a knock. NSC's action charges fell about 15% from the previous quarter as options trading dropped by roughly a quarter. Several things hit at once and neither exchange could say how much each matter. The first was simply calm markets. With volatility low, premiums shrank and BSE's management blamed compressed volatility for the dip. The second was a change to how the market closes. From third august, SEBI introduced a closing auction session or CAS for stocks with futures and options. So earlier, a stocks closing price was its average price over the last 30 minutes of trading. But under CAS, continuous trading in these stocks stopped at 3.15 pm, followed by a 20 minute auction that pulled by and sell orders to discover a single closing price. Now this isn't an exotic idea. The NYSE and the London Stock Exchange use closing auctions too, since much institutional money, especially from passive funds, wants to trade right at the close. In India, that auction price also became the settlement price for options expiring that day. So whether an expiring option paid off now, hinged on a 20 minute auction that could swing sharply on precisely the day traders leased what a surprise. So many simply stepped back. A couple of days in as closing prices swung, Nithyan Garmath, Zeroda CEO, argued that the auction itself wasn't the problem. It had exposed how shallow our markets are. India has over 30 encrow registered investors, but only about 20 to 30 lakh trade on a given day. And closing auctions work best with plenty of market makers and arbitrageers to smooth out prices. And India has far fewer. Shorting in the cash market is hard, because borrowing shares isn't easy. And thanks to how security's transaction tax or STT is levied, futures have become a costly way to trade that options. Now that last point was a headwind of its own. From 1st April, STT on futures went up 2.5 times, charged on the contract's full value, while on options it rose by half and only on the premium. So the same bit is now often cheaper through options. And NSC's future trading fell 12% from a year ago. And then there was the timing. On 1st July, new RBI rules kicked in that make it hard for brokers to get bank guarantees, which many use instead of cash to put up margins with the exchange. Neither exchange could say how much of the slump came from this, but many brokers had extended their guarantees before the deadline, so the real test may come only as those expire. But the slump didn't last. Trading picked up in September and in October, DSE's options trading hit an all-time high as volatility returned. Sabi, meanwhile, was rethinking its auction. After a consultation in September, it decided on 15th October that from 7th December, expiring contracts would again settle on the last 30 minutes average price. So the rebar came before the fix took effect, and Sabi reworked a market-wide rule barely 10 weeks after launching it. Now the cash market, where people buy and hold actual shares, fed better. NSC's average daily cash turnover fell 13% from the previous quarter, but was 24% higher than a year ago. NSC's management said CAS heard expiring options far more than ordinary cash trading. And people kept borrowing to buy stocks. The margin trading book hit a record rupees 1.56 lakh crore in September. And those are cash market purchases. So borrowed money helps keep shares changing hands, and each of those trades earns the exchanges a cash transaction fee. Put the two exchanges trading businesses side by side, and they barely look like the same kind of company. NSC is for practical purposes a monopoly. It handles about 92% of the cash market, and practically all futures, and management says it is close to 100% of monthly index options and single stock options. But it's lost ground in just one corner, weekly index options, where BSE has clawed back a real share since 2023. Now the big tension is that this contested corner is also NSC's biggest earner, weekly nifty options brought in 42% of NSC's revenue from operations. And that's down from 48% the quarter before. But barely changed from 43% a year ago. So NSC isn't diversifying as fast as that drop suggests. But its cash market charges grew a healthy 30%. Now BSE is a different animal. Its average daily options premium rose 50% from a year ago against NSC's 3%, and it was about 36% of index options by premium. But by the notion of value of contracts traded, it's almost as big as NSC. So the gap exists because BSE is essentially an expiry day exchange, and about 77% of its options volume comes from contracts expiring that day or the next. Options that are about to expire are cheap, since there's little time left for the market to move. So for every 100 rupees worth of contracts traded on BSE, traders paid only about 12, BSE in premium, and on NSC about 23, that's why BSE looks big when you count contract value, but smaller when you count premium, which is what its fees are charged on. Outside expiry weeks its share drops to about 67% and in monthly contracts to about 2%. Now BSE has been chipping away at the cash market too. Its cash turnover grew even as NSC fell, lifting its share to 8.1% from 6.8%. And it wants double digits by early 2027. So what's holding it back, BSE says, isn't the product. Many brokers have done the paperwork for clients to trade on both exchanges, but still don't let them trade on BSE. And best price execution which automatically routes your order to whichever exchange offers a better price isn't happening at scale. So BSE is also cheap. Its huge transaction charges are close to nil, and some equity derivatives charges are below NSC's, and in August it said its co-location order flow charges about 20% of market rates. But that may change. This quarter it said it'll raise transaction, co-location, and rack charges at the appropriate time based on market feedback, but it gave no timeline. So in short, NSC is a near monopoly whose single biggest earner sits in the one market it has to share, while BSE is a cheaper expiry day challenger that's bigger by volume than by revenue and has room to charge more. Now if trading had a rough quarter, the primary market had a spectacular one. September saw over 30 main mode listings which is India's most ever in a month. BSE counted 71 main mode IPOs in the first half, which is a record for any half year. And this shows up as listing revenue. The fees companies pay to list and stay listed. NSC is rose from 70% a year ago and BSE is 20%, but in absolute terms it's tiny. NSC's Rs 150 crore listing revenue is under 4% of its total, which is about what weekly nifty options earn it in 5 or 6 trading days. For an exchange, a listing's real value isn't the fee, but the years of trading the stock brings. Now the rest of the revenue is small, but it's where both exchanges are building a future less tied to daily options trading. Take market data. When we looked at NSC's IPO, we saw how global exchanges earn a big chunk of revenue from selling data. But Indian ones don't. BSE's presentation pegs data at 4% to 5% of revenue in India against 10% to 25% in developed markets. NSE's data freed and terminal revenue grew 43% from a year ago to Rs 165 crore. Yet, NSE plans to give away market lens a new investor data tool for free. But BSE is going the other way. From 1st January, it ends its 13-year partnership with Deutsche Berzer, which marketed its data overseas and was sent to global clients directly. And then there's co-location. Rax, inside an exchange's data center, were trading firms placed their servers, so their orders arrived microseconds faster. NSE has about 1,870 member racks and room to spare. BSE's 500 are all taken, so it's building more. Now, a quieter contest is playing out in mutual fund platforms, which distributors and apps use to place fund orders. BSE's star MF is the giant. But NSE's share of orders jumped from 12% to 22% in a year. Now, the most striking growth is in commodities. NSE's commodity options trading grew 10 fold between January and October, mostly in crude oil after it moved crude options expiry earlier and allowed co-location. And on October 8th alone, options covering over a billion barrels of crude changed hands. NSE's fees are just a 20th to a 50th of those charged by MCX, the incumbent. Yet, commodities are still too small to get their own line and NSE's revenue breakdown. Both exchanges are also placing smaller bets. So, NSE has launched electronic gold receipts, which turn physical gold into tradable units, set up a coal exchange subsidiary, hosted India's first tokenized bond issues for REC and L&T, and a waste RBI approval for corporate bond index futures. BSE has partnered with MSCI on index link derivatives pending regulatory approval, but none move the needle yet. So far, we have looked at what the exchanges earn. But what they spend is just as revealing, and it starts with a puzzle. BSE's revenue fell 8.5% from the previous quarter, yet it's operating margin rose to about 68%. It's highest ever. And the answer lies in its costs. About half go on two items. Regulatory fees paid to SEBI and clearing and settlement charges, both of which move with trading volumes. When volumes dropped, so did they. And this shock absorber is why management calls 65 to 70% margins sustainable. So, the regulatory fee hides a curious detail. SEBI charges exchanges on total trading turnover, not revenue. And BSE's notional options turnover is nearly as large as NSE's. So, this quarter, BSE paid Rs 166 crore in regulatory fees and NSE Rs 171 crore. Which is practically the same, though NSE earns almost 3 times BSE's revenue. But NSE's costs work differently. Only about 18% move with volumes, and the biggest chunk, which is roughly a third, is technology, up 22% from a year ago, and NSE expects it to keep growing in the mid-teens. Now, some of it goes to AI, which NSE runs entirely in-house without public AI models, since most of its data is private. Employee costs rose 18% mostly due to new labor codes. And with costs that don't shrink when trading does, NSE's operating margins slipped to 76% from 78% to the previous quarter, though it was flat from a year ago. Now, you may also see headlines saying NSE's expenses fell 51% from a year ago. So, that's because a year ago, it set aside Rs 1297 crore to settle long-running SEBI cases. But, stripped that out, and expenses rose 10%. Now, all of this flows to profit. NSE earned Rs 2578 crore after tax, up 23% from a year ago, though much of that is last year settlement charge falling away. Adjusted for one-offs, free tax profit grew 9%, and BSE's profit rose 45% to Rs 809 crore. So, one last line reveals what in exchange quietly is. A large pool of money earning interest. So, NSE rolls more than Rs 50,000 crore in Treasury investments, which is about two-thirds its own money, and the rest margin money and settlement funds that brokers keep with it. This quarter, NSE earned Rs 479 crore from these investments, which is about 14% of its free tax profit. That was 30% less than the quarter before, and a big reason its profit fell faster than its revenue, while BSE saw a smaller dip. So, here's the takeaway. An exchange earns not just when people trade, but also on the money that sits with it while they do. Coming to the second story. If you had a beer in Maharashtra or Rajasthan last year, there's roughly a one-in-three chance it was made by Karlsburg India. And most of what Karlsburg India sells is just one beer. Two burks strong. So, Karlsburg India, the Indian arm of the Danish brewer, is now going public. It filed its draft prospectus on October 27th for an IPO that could raise up to Rs 6,660 crore. We have covered India's alcohol market recently, mostly through listed companies. But this DRHP lets us go a layer deeper into how a brewer in India actually makes money, how much of it Karlsburg keeps, and what exactly is on sale. Let's start with the market it sells into. So, India is the world's third largest alcohol market, but beer makes up only about a third of the alcohol Indians drink by volume. And the average Indian adult over 21 years of age drinks about 3.5 litres of beer a year, compared to 30 litres in China and 75 litres in Brazil in FY26. Beer in India comes in two kinds. Strong beer has 5-8% alcohol by volume or ABV while mild beer has under 5%. Strong beer makes up 80% of all beer sold in India. Now the beer market has also grown slowly. At only 3.1% a year between FY20 and FY26, though crystal projects that growth will pick up to 6-7% a year until FY30. And within this, Karlsburg India has poured itself a sizable share of the market. Karlsburg India is the country's second largest brewer. It holds about 22% of the market across 16 key states, which together account for 3/4 of India's beer volume. So what surprised us the most is how much of that business comes from one beer. Two bogs strong. A mainstream strong lager which brought in 72.6% of the company's growth sales in FY26. That share has slipped from 76.5% in FY24, while other premium brands like Karlsburg Elephant and the French wheat beer 1664 Blanc have grown. Now that concentration might be risky to some, but remember that strong beer is approximately 80% of the market. And that's exactly where Karlsburg has placed its bet. So how is all this beer made? Two ways. Karlsburg India owns 7 breweries, and it also pays 9 external brewers called co-manufacturers to add more capacity. Its own breweries are running close to full capacity, while the contract brewers made 42% of total volume in FY26 up from 31% in FY24. New breweries are planned, which the company says are needed to meet growing demand. Now making enough beer is a challenge. But getting it to customers is another. And in India, that part works a little differently. So we covered this recently. Running an alcohol business in India can feel like running 28 different businesses because every state has its own rules. In most businesses, a company chooses its distributors. But for Karlsburg India, a few states such as Karnataka, Rajasthan and Odisha are the primary wholesale distributors via state-owned beverage corporations. And these state-owned corporations finally sell it to alcohol shops in a few states. About 40% of Karlsburg India's volume moved this way in FY26. Now the DRHP comes state-owned corporations among its key customers and singles out those at Karnataka and Rajasthan as buyers whose business it depends on. In other states like Maharashtra, it says through private distributors instead. Now both these models bring risks. State corporations pay a late with one corporation owing Karlsburg India rupees 85 crore in overdue bills in June, 2026. For instance, Karlsburg rival United Breweries temporarily halted its kingfisher beer supplies in early 2025 due to a pricing dispute with the Telangana state-owned corporations. The private model, meanwhile, comes with fragmented middlemen and as the DRHP warns, informal retail cartels. Now before diving into Karlsburg's numbers, you first need to understand two fees it pays before it earns anything. Exiles to the state government and royalty to its parent company. So exiles is the tax estate charges on alcohol. Karlsburg collects it as part of its price and hands it over to the state. And because it passes through Karlsburg's invoices, accounting rules count it as revenue. Even though Karlsburg never keeps a rupee of it. An exiles is huge. In FY26, Karlsburg India reported revenue of approximately rupees 8,700 crore and 55% of it was exiles. So the company tracks net revenue which is revenue minus exiles. That came to approximately rupees 3,900 crore. The second fee, royalty, is far smaller. But it does say a lot about who really owns the brand. So to sell a beer with a brand named 2Bog, Karlsburg India pays a fee to the parent company much like a franchise. In FY26, royalties came to rupees 90 crore or 2.3% of net revenue. The license runs for 5 years and if it isn't renewed the company. and he called sell these brands at all. So how does this way in Karlsberg India's revenue? Karlsberg India's reported revenue fell 2.2% in FY26 and some reports described that as a decline. But the company says this was mainly because Uttar Pradesh changed its rules. Customers there now pay excess to the state directly so that tax no longer passes through Karlsberg's books. And net revenue which leaves excess out actually grew 13.2%. Measureed by net revenue Karlsberg's Indian business has been growing faster than its market for a long time. Between FY14 and FY26 its volumes grew 11.8% a year against 5% for the industry. More recently between FY24 and FY26 net revenue grew 14.6% a year which the company attributes mainly to gaining market share. Premium and super premium beers also rose from 21.3% to 24.7% of net revenue over that time. After the state takes its shares in excise the next big cost is materials. In FY26 Karlsberg India spent Rs.1470 crore on packaging, bottles, cans, caps etc against Rs.497 crore on raw materials like Bali. It's also partly why the company recycles 61% of its bottles in FY26. And what's left at the end has been growing. Profit after tax rose from Rs.321 crore in FY24 to Rs.535 crore in FY26. And over the same period EBITDA margins rose from 16.9% to 20.9% of net revenue. The company had no borrowings as of June 2026 and about Rs.1750 crore in cash. But the latest quarter broke that run. In April June 2026 net revenue grew 21% but profit fell approximately 4%. And EBITDA margin dropped from 22% to 17%. Cost rose on several fronts at once, spending on marketing and promotions went up 76% a shortage of aluminium cans linked to the Iran War meant paying more for alternative supply. And since states have to approve beer prices, Karlsberg couldn't pass costs overnight. By its own numbers then Karlsberg India is growing and profitable. But how does that compare with its biggest rival? The knighted breweries, the maker of Kingfisher and part of Heineken sold about 3 times as much beer in FY26. Yet it made less profit at Rs.413 crore against Karlsberg India's Rs.535 crore in FY26. So here's a small note, the DRHP does observe that case counts aren't perfectly comparable since brewers use different pack sizes. Now part of that gap is timing. FY26 was a rough year for united breweries which had blamed partly on unusually heavy rains. It has since bounced back. In July September 2026 its volumes grew 16% and its net revenue 24%. But the gap is also structural and it starts at the gross margin which is what's left after paying for materials. Karlsberg India kept 50% of its net revenue in FY26 against 44% for united breweries. But the gap widens further down. Karlsberg's bitter margin was 20.9%, which is more than double united breweries 9.2%. Now part of that gap comes down to where the two companies sell. United breweries management in October explained it had yet to win price increases in states that account for nearly 30% of its business, including Telangana and Anthropadesh. Karlsberg India meanwhile had a relatively small presence in both states. As the DRHP states, Karlsberg India, which is the Indian arm, won't receive any money from this IPO, as it's entirely an offer for sale. South Asian breweries, the parent Singapore holding company, is selling up to 15% of the company so the money goes to the parent. In early 2026 Karlsberg Group CEO Jacob Anderson stated it was purely driven by whether it created value for Karlsberg shareholders. And it comes down to valuation. This listed alcohol companies in India trade at 40 to 80 times their yearly earnings. And Karlsberg isn't alone in noticing, but no record is preparing a potential Indian listing and Coca-Cola is exploring one for its Indian bottling business. When we last looked at India's alcohol companies recently in June 2025, we argued that the higher you climb up the price ladder, the more stable things seem to get. Karlsberg India complicates that, as its profits rest on a mainstream strong beer that sells in the middle of the price ladder. And the DRHP also lists what could go wrong, including demand towards low and no alcohol drinks and a few risks that stand out beyond the ones we've already mentioned. One of them is in Rajasthan, the company's second largest state by sales. On October 1, 2026, the state's pollution control board revoked the Alvar brewery's permission to operate over alleged emission breaches that the company disputes. And separately, its Haryana brewery was flagged in a national inspection drive, though no action has been taken there yet. The supply chain is concentrated too, about 70% of its purchases come from just 10 suppliers and the contract brewers that make over 40% of its beer bring risks of their own. One in Odisha was suspended for about two months in FY26 after scoring poorly on quality checks. And then there's the parent. The brands, the royalty rate and the permission to build new breweries all stay with it, and it will still own about 85% after the IPO. It can raise the royalty in future, and that rate below a sebi threshold wouldn't need minority shareholders approval. And yet, through all that complexity, one strong beer has become big enough to carry most of the company. Now coming to the dead bits. One, the national company law tribunal or NCLT has officially declared formal video-con industries promoter Venugopal Dhooth bankrupt to recover over Rs 12,668 crore owed to the state bank of India. The proceedings which follow SPI's invocation of Dhooth's personal guarantees in 2018 include the appointment of a bankruptcy trustee to manage the process and submit a preliminary report within 90 days. Two, the directorate general of trade remedies has recommended quantitative restrictions on soda ash imports for two years to protect domestic manufacturers from pricing pressure. The proposed quotas are about 7.55 lakh tons in the first year and 7.93 lakh tons in the second, but the recommendation still needs government approval. Three, Indian oil cooperation plans to acquire its own crude oil and liquefied petroleum gas vessels to reduce logistics costs and manage exposure to rising shipping risks in West Asia. The state draft refiner which is secured board approval and issued tenders for the acquisitions currently relies on a time charted fleet that has provided substantial savings amid rising freight rates and wore-risk insurance premiums. Four, the securities and exchange board of India's revised settlement regulations went live on November 7 introducing a dedicated online portal for filing applications, calculating amounts and accessing support. The updated framework establishes application fees of Rs 25,000 for individuals and Rs 35,000 for others sets minimum settlement thresholds and introduces a fast track processing mechanism for eligible cases under Rs 10 lakh. Five, Anthropic has agreed to pay about $3.4 billion for commitments to 1.7 gigawatts of gas fire generators for its data centers according to the financial times. The deal is the largest known single purchase of power generation equipment by an AI company and gives Anthropic more direct control over the infrastructure powering its computing needs. For our wonderful audience here is a personal note, I'll be taking a break from the daily brief for a bit and it's been such a pleasure working on the series and you've made this journey so incredibly special and memorable. I'm your host Akshara Maya, thank you so much for watching and farewell. [BLANK_AUDIO]