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Sen. Tom Cotton asked Merrick Garland, Biden's pick for AG, if he was aware that the Biden signed an executive order advancing "racial equity, not racial equality but racial equity." Was this an appropriate question?It’s a question only someone like Cotton would ask. “Equity” is only slightly different from equality, but Cotton is fishing for a new buzzword, a new bugbear for the Republican party to hammer away with, knowing their constituents won’t bother to actually learn what it means. I guess “socialism” just doesn’t get the same mileage anymore.Equity vs. Equality: What’s the Difference?Equality means each individual or group of people is given the same resources or opportunities. Equity recognizes that each person has different circumstances and allocates the exact resources and opportunities needed to reach an equal outcome.In the illustration below, two individuals have unequal access to a system — in this case, the tree that provides fruit. With equal support from evenly distributed tools, their access to the fruit still remains unequal. The equitable solution, however, allocates the exact resources that each person needs to access the fruit, leading to positive outcomes for both individuals.While the tree appears to be a naturally occurring system, it’s critical to remember that social systems aren’t naturally inequitable — they’ve been intentionally designed to reward specific demographics for so long that the system’s outcomes may appear unintentional but are actually rooted discriminatory practices and beliefs.INEQUALITYEQUALITYEQUITYJUSTICEEquity vs. Equality: What’s the Difference? (emphasis mine)There is a certain modern conservative mindset that simply hates the thought of “equity” and would disagree vehemently that the final illustration describes justice. Even though the person on the left hasn’t lost anything, the fact that they have lost the advantage, they will perceive that the person on the left has been given “a hand,” so the solution will be seen as somehow “evil” or socialistic.EDIT: While it’s a bit off-topic, here is another good example of equity vs. equality:Equality vs. equity in elections: Every country gets the same number of polling places, same number of ballot drop boxes. That is equality; however, it does not take into consideration the population sizes of different counties. Equitable would be to have the same number of ballot boxes per capita sufficient to meet the needs of counties with larger populations.

A recent paper from the University of Bonn and University of California sought to answer the question of which particular assets have the highest long-run returns. It answered that question on the basis of a comprehensive dataset covering total returns for all important assets classes—equity, housing, bonds, and bills—across 16 advanced economies from 1870 to 2015.Over the long run of nearly 150 years, they found that advanced economy risky assets have performed strongly. The average total real rate of return is approximately 7% per year for equities and 8% for housing. The average total real rate of return for ‘safe’ assets has been much lower, 2.5% for bonds and 1% for bills.In terms of total returns, residential real estate and equities have shown very similar and high real total gains, on average about 7.5% per year. Housing outperformed equity before WW1. Since WW2, equities have slightly outperformed housing on average, but only at the cost of much higher volatility and cyclicality.The report finds that equity returns have experienced many pronounced global boom-bust cycles with real returns as high as 16% and as low as −4% over the course of entire decades. Equity returns fell in WW2, boomed sharply during the post-war reconstruction, and fell off again in the climate of general macroeconomic instability in the late 1970s. Equity returns bounced back following a wave of deregulation and privatization of the 1980s. The next major negative event for equity returns was the Global Financial Crisis.The observation that housing returns are similar or greater than equity returns yet considerably less volatile is puzzling. Diversification with real estate is admittedly harder than with equities. Aggregate numbers do obscure this fact although accounting for variability in house prices at the local level still appears to leave a great deal of this housing puzzle unresolved. Before WW2, the real returns on housing and equities (and safe assets) followed remarkably similar trajectories. After WW2 this was no longer the case, and across countries equities then experienced more frequent and correlated booms and busts. The low covariance of equity and housing returns reveals significant aggregate diversification gains from holding the two asset classes.The table below shows the aggregate returns across the different sample countries for equities and housing.While the paper identifies that the returns to risky assets, and risk premiums, have been high and stable over the past 150 years that of course doesnt mean that it will continue to be like that in the future. Any single investor also needs to consider that their investment window for building up assets is around 40 years (between starting work and retirement) although punctuated by key life events that alter the balance of financial priorities (buying a house, funding children and looking after older relatives for example).Although the research misses out on the past two years of gains in both safe and risky assets the report may imply a positive story for future returns on capital. First, the real return on capital appears to be uncorrelated with underlying growth in GDP. This offers some hope for those that expect future growth to slow (perhaps due to demographic factors). Second, the real return on capital in the ten years up until 2015 is low relative to the past 150 years. If you make the assumption that returns are mean reverting over the long run then this could imply higher rates of return in the future.

Pick any company that is listed on both the NSE and the BSE and check its trading volume on both exchanges. you will find that the trading volume on the NSE is substantially more compared to the BSE. The situation is the same for most of the stocks.The condition is even worse in the derivatives segment.The derivatives trade volume has drastically fallen for the BSE over last two years. One of the reason for this sudden decline in derivatives volume is that the BSE has stopped providing a liquidity enhancement incentive scheme.In September 2011, we launched a series of liquidity enhancement incentive programs (the "LEIPS") in an attempt to enhance liquidity in our futures and options segment and to compete with the NSE share in the derivatives segment. Under the LEIPS, we lowered our transaction fees and offered volume-based and openinterest-based cash incentives to our members. Our expenses for the LEIPS in FY 2012, FY 2013, FY 2014, FY 2015 and FY 2016 was ₹ 604.9 million, ₹ 955.4 million, ₹ 612.9 million, ₹ 342.5 million and ₹ 172.4 million, respectively. Although equity futures and options turnover on the exchange increased under the LEIPS, we began reducing the incentives during FY 2013 and removed them entirely as of April 1, 2016. As a result of discontinuing the LEIPS, there was a sharp decline in equity derivatives trading on our exchange from FY 2015 to FY2016 and for the three months ended June 30, 2016, decreasing by 99.9% from its height of 2,080,160 equity derivative contracts traded per day in FY 2015 to 1,446 in the three months ended June 30, 2016. We may not be able to maintain or increase trading in our equity derivatives segment and there is no guarantee that we will be able to compete in this segment with the NSE.I’ve often wondered why is there so much more trading volume in the NSE compared to the BSE. Some people say that the NSE’s technology platform is superior to the BSE, but I’ve never personally experienced any delay while buying stocks from the BSE.Let’s go through its financial statements.Income StatementYou can see that “Income from investments and deposits” constitutes a large part of Total Revenue. To see the true operating picture, let’s remove the effect of the investments and deposits. Later in this analysis we will directly deduct the value of investments from expected market capitalization.(in crores)Till 2015, most of the “exceptional items” constituted of “Liquidity Enhancement Incentive Programme Scheme”, after 2016 it also has a “settlement guarantee fund” in it. LEIPS has been stopped completely.After removing investment and deposit income, the performance of the BSE wasn’t so great. The company actually made an operating loss after exceptional items in FY-13. LEIPS was a burden on the profitability of the company and obviously that’s why it was stopped.The two major sources of operating revenue are: Securities Services and Services to Corporates. The third source “Data Dissemination Fees” is a small part of total revenue. Revenue from operations has grown at 8% CAGR from 315 crore to 426 crore. Most of the growth has come from “Services to Corporates” which has grown from 76 crore to 161 crore during FY-12 and FY-16.Now let’s look at these two main sources of operating revenue in detail.Securities ServicesAfter witnessing a decline in revenue of this segment for FY-13 and FY-14 there was a sudden surge in the revenue between FY-14 and FY-15. It’s continuing till now. Remember that bull market started after Modi wave from mid-2014. This seems to be the reason for this surge in Transaction charges and Income from Depository Services.This kind of growth is possible only during a bull market. In a bear phase, transaction and depository revenue will definitely fall.Income from Depository Services is the big part of this segment. This income belongs to CDSL as BSE owns 54% CDSL.Note: NSE earns more than 20 times transaction revenues compared to BSE. This ratio has remained almost constant since 2012.Services to CorporatesAnnual Listing Fees (equity, debt and MF) increased by 61.86% to ` 101.33 Crore compared to ` 65.60 Crore in FY 2014-15. This increase in Annual Listing Fees is mainly attributed to an increase effected in the Fee Schedule.Overall the listing processing fees, reflecting activity in new listings and new issuances were ` 37.76 Crore in FY 2015-16 compared to ` 27.79 Crore in FY 2014-15 up 36% from the previous year on account of many IPOs, Debt Issuance, Direct Listings, new SME listings, QIP Issues, OFS, Mutual Funds Listings.Listing fees on an average is expected to grow at 15–20% over the long term as India is a growing economy and many more companies will get listed on these exchanges.Though the sources of most of BSE’s revenue are limited to above mentioned sources, NSE derives a good part of its revenue from other sources as well such as Technology services(Application development and e-learning solutions), Datafeed services, Licensing services(Index licensing outside India) etc.Overall, including bull and bear phase, I expect that BSE ltd can show a “revenue from operations” growth of 10–15% over the long term with 20–25% operating margins.Balance SheetThe company is obviously debt free. Non-current liabilities are very less. Other current liabilities(OCL) is the biggest part(1161 crore as on Q1 FY-17) of current liabilities. OCL is mainly include Deposit and Margins Received from Members(350 crore), Deposit from clearing banks, From Companies - 1% of their Public Issue, Income Received in Advance. We can treat some of these liabilities(almost 200 crore) as float, which means though they are indeed a liability, they don’t have a due date and can be kept on the balance sheet indefinitely.On the assets side, the company has lots of investments and cash. The company has non-current investments worth 1196 crore, current investments worth 855 crore and cash balance of 1490 crore as on Q1 FY-17. A large part of non-current invested in bonds and NCDs worth 1162 crore. Mutual funds and bonds/NCDs are a large part of Current Investments. The company obviously enjoys a negative working capital. The company has an equity capital of about 2500 crore.Cash Flow StatementCash flow from operations was negative during three out of the last 5 years on account of a decrease in other liabilities, which is a cause of concern. A company is supposed to generate ample amount of cash from its operations. On the other hand, NSE has a robust cash generation track record.Also, a large part of profit comes from interest and dividend income from investments and deposits, which is included in CFI.The company is paying a good amount of dividend, but it seems like “income from investments” is funding this dividend instead of income from operations, which again is worrisome.ValuationShares before the issue = 109,176,344Price Band = 805–806 per shareExpected market cap = 8800 croreInvestments and cash = 3541 croreMarket cap less investments and cash = 8800 - 3541 = 5259 croreA net profit of Rs 122 crore over an equity capital of 2500 crore turns out to be less than 5% return on equity, which is pathetic.So we’re paying Rs 5259 crore for a business which made an operating profit before exceptional items of 148 crore and a PBT of 100 crore last year. The business looks expensive considering its weak cash flow from operations, modest growth rate, a low ROE and tough competition from the NSE.Edit(21–01–2017): I just came to know that BSE ltd increased its face value from Rs 1 to Rs 2 per share in December after it had already filed its DRHP with the SEBI in September. It means that number of shares which were 109176344 in DRHP have been reduced by half to 54588172 according to this Corrigendum. This also reduces the market capitalization from 8800 crore to 4400 crore. Though the market capitalization is lower than earlier, the operating performance still remains weak.Note: I want to clarify that I’m not trying to predict the price movements(aka madness of market) of the stock after listing. This analysis was just for educational purposes.Edit(03–02–2017): BSE ltd has listed at a huge premium to its IPO price. That means there was something certainly wrong in my analysis. Let’s try to find out my mistake so that we can learn from it in the coming IPOs.I think my major error was that in my original analysis I missed to account for the fact that BSE ltd had increased its Face Value from Rs 1 to Rs 2. This changed its valuation at the offer price of 806 from 8800 crores to 4400 crores.So after removing the net investments and cash worth 3500 crore, the core business was being valued at about 900 crore instead of 5259 crore that I originally expected. Now a valuation of Rs 900 crore for the business which is generating a profit before exceptional items of 148 crore and a PBT of 100 crore does not look so expensive despite considering the negatives.Now Mr. Market is valuing the company at Rs 1100 per share, which turns out to be a market cap of 6000 crore (vs 8800 crore I calculated due to my error). After deducting the investments and cash worth 3500 crore, the core business is being valued at about 2500 crore (vs 5259 crore I had calculated).I think there are two important lessons we can learn from my error:We can make errors of omission while valuing financial assets. So try to confirm the numbers at least twice.There is a fair value for every asset even if the asset is generating low returns.