The National Stock Exchange (NSE) IPO: A Long-Awaited Milestone

The National Stock Exchange (NSE) has been on the cusp of launching its Initial Public Offering (IPO) for several years now, with discussions and plans dating back to its Draft Red Herring Prospectus (DRHP) submission in December 2016. Despite the anticipation surrounding this significant event, the IPO has faced numerous delays due to regulatory hurdles and market conditions. As the largest stock exchange in India, the NSE’s IPO is not just a financial event; it represents a pivotal moment in the evolution of India’s capital markets.

NSE IPO Details

The NSE’s IPO, as initially outlined in its DRHP, was intended as an offer for sale (OFS). This means that existing shareholders will sell their shares to the public, and the NSE itself will not receive any funds from the IPO. The DRHP indicated an offer of approximately 11.14 crore shares to the public, which sets the stage for a significant influx of investment into the exchange.

The shares will be allocated to various categories of investors, including:

• Qualified Institutional Buyers (QIBs): Maximum 50%
• Non-Institutional Investors (NIIs): Minimum 15%
• Retail Individual Investors (RIIs): Minimum 35%

This diverse allocation strategy aims to ensure broad participation from different segments of the investment community.

Why is the NSE IPO Getting Delayed?

Several factors have contributed to the prolonged timeline for the NSE’s IPO:

Regulatory Issues

The NSE has faced intense scrutiny from the Securities and Exchange Board of India (SEBI) regarding various regulatory matters, particularly concerning co-location facilities and algorithmic trading practices. These investigations have necessitated thorough resolutions before SEBI can grant final approval for the IPO.

Co-Location Scandal

The co-location scandal, which involved allegations that certain brokers received preferential access to the NSE’s trading systems, has raised significant concerns about corporate governance. The resolution of these issues is critical for restoring investor confidence and ensuring a smooth IPO process.

Market Conditions

Market conditions play a crucial role in the timing of IPOs. Companies often choose to delay their offerings until the market is more favorable, as unfavorable conditions can lead to poor performance post-IPO. The NSE is likely waiting for a more opportune moment to launch its offering.

Key Investors in NSE

The NSE’s ownership structure reflects a blend of institutional and individual investors, underscoring its importance in India’s financial landscape. Notable stakeholders include:

• Life Insurance Corporation of India (LIC): Holding a significant 10.72% stake, LIC’s investment showcases its long-term commitment to the NSE’s growth.
• Stock Holding Corporation of India: With a 4.44% stake, this organization emphasizes its alignment with the NSE’s critical role in capital markets.
• SBI Capital Markets: The investment banking arm of the State Bank of India holds around 4.4%, with SBI directly owning an additional 3.23%.
• Radhakishan Damani: The retail magnate and founder of DMart owns a 1.6% stake, reflecting confidence from high-net-worth individuals.

This diverse ownership highlights the trust placed in the NSE by various financial powerhouses and influential market participants.

Will NSE IPO be India’s Largest IPO?

The NSE has expressed its ambition to launch an IPO that could potentially surpass Hyundai’s record for the largest public issue in India. The primary motivation behind the IPO is not price discovery, as the exchange does not have a traditional promoter, but rather to enhance transparency and accountability.

Sriram Krishnan, Chief Business Development Officer of NSE, emphasized that the IPO aims to increase accountability to the market, stating, “We are valued at around Rs 4.75 lakh crore in the unlisted market, and as India’s largest exchange, we should be accountable to the market.” If the NSE decides to offload 10% equity in the IPO, it could amount to approximately Rs 47,500 crore, making it the largest public issue in Indian history.

Financial Performance of NSE

Between 2019 and 2024, the NSE demonstrated remarkable financial growth. Its revenue surged from Rs 3,027.79 crores to Rs 16,433.61 crores, while net profits increased from Rs 1,708.04 crores to Rs 8,305.74 crores during the same period. Profit before tax also saw substantial growth, rising from Rs 2,576.21 crore in FY19 to Rs 11,184.28 crore in FY24.

This impressive performance was achieved through an asset-light business model, without relying on debt. By FY24, the company’s total assets had expanded to Rs 65,464 crore, up from Rs 19,978 crore in FY19. The NSE’s revenue streams are robust and diversified, with 73.8% derived from transaction charges, 5.4% from co-location charges, and 10.79% from other fees, reflecting strong operational efficiency.

NSE Share Price

As of January, NSE’s shares are trading at Rs 1,800 per share in the unlisted market. In November 2024, the exchange implemented a significant corporate action by issuing four bonus shares for every share held. This effectively quintupled the total number of shares in circulation, making them more affordable for investors and enhancing liquidity in the unlisted market.

Before You Go

While the NSE’s IPO may be on the horizon, specific dates and details remain uncertain. Investors are encouraged to stay informed and await official announcements from the NSE and SEBI regarding the IPO launch. As the situation evolves, the NSE’s IPO promises to be a landmark event in India’s financial history, with implications for investors and the broader market landscape.