Kotak Urges Indian Exchanges to Diversify Revenue Streams

Kotak Institutional Equities released a report stating that Indian stock exchanges must diversify their revenue streams beyond transaction-based income to sustain their next phase of growth. The firm notes that while domestic exchanges maintain strong liquidity, high operating leverage, and superior profit margins compared to global peers, their heavy reliance on trading activity leaves earnings vulnerable to regulatory changes and market fluctuations.

To mitigate these risks, the report suggests that Indian exchanges adopt the business models of international peers such as Nasdaq, the London Stock Exchange Group, and Deutsche Börse. These global entities have successfully expanded into indices, connectivity services, technology licensing, and data analytics.

Kotak specifically identifies a gap in the Indian market regarding depository businesses. The report observes that domestic exchanges currently hold only minority stakes in the National Securities Depository Limited and Central Depository Services Limited rather than full ownership, which limits their integration compared to global standards.