NSE investor base quadruples as frenzy shows no sign of ebbing in unlisted market

The number of shareholders has jumped to over 160,000 from 39,201 at the end of March in the anticipation of the Securities and Exchange Board of India (Sebi) giving its no-objection certificate (NOC) for the bourse’s public offer any day now, the person cited above said on the condition of anonymity.

The spurt has driven National Stock Exchange’s (NSE) unlisted share price by 45% to around ₹2,250 apiece from ₹1,550 three months back, driving the market capitalisation of the country’s largest stock exchange to ₹5.6 trillion.

Two merchant bankers Mint spoke with expect the offer price to be higher than the unlisted price. “The offering could be at a valuation of ₹7 trillion, a premium to the current valuation of around ₹6 trillion,” one of the two bankers said.

That translates into an offer price of around ₹2,800 per share, a 24% premium to the current share price or ₹2,250 in the unlisted market.

A 5% issuance by existing shareholders of NSE, whose offering would be a secondary sale, at ₹7 trillion valuation translates into an issue size of ₹35,000 crore, more than Hyundai Motor India’s IPO of ₹27,870.16 crore, the largest till date, which hit the Street in October last year.

NSE will qualify for the 5% offering as its current market cap is above ₹1 trillion.

“A company with a market cap above ₹1 lakh crore can initially offer 5% of its equity capital to the public against the 10% stipulation for a firm with a market cap below ₹1 lakh crore or for PSU companies,” said Sandeep Parekh, managing partner, Finsec Law Advisors. “Furthermore, such a company must, unless otherwise stipulated by the regulator, abide by the 10-25% (free float) rule in two years.”

According to Sebi rules, such a company must comply with a minimum public shareholding norm of 10% within two years and 25% within five years from the date of listing of its shares.

“The issue will be at a premium to the current price of around ₹2,250, given the fundamentals of the company, reflected by the surge in the number of shareholders,” said another merchant banker.

NSE had a market share of 94.2% in the equity cash segment and 79.4% in equity options (including index and stocks) premium turnover as of 31 May, according to exchange data. BSE held the rest.

By size, too, NSE is five times bigger than BSE, which had a market cap of ₹1.15 trillion on Thursday.

Queries emailed to NSE and Sebi went unanswered.

Upon receiving the Sebi no-objection certificate, NSE will have to appoint merchant bankers and lawyers to vet the offer documents and make any changes before submitting it to its board of directors for approval and then to the regulator. The NSE IPO has been hanging fire for nine years, pending regulatory investigations into acts of alleged malfeasance by its former management.

The exchange last month paid ₹1,400 crore to settle the colocation and dark fibre matters with Sebi. The cases relate to its former management allegedly granting preferential treatment to certain broker members in executing trades faster at the cost of their rivals, enabling them to make outsized gains in the bargain.

“Demand for NSE shares, though still good, has come off from what we saw in May-June amid anticipation of the Sebi permission for the company’s IPO,” said Narinder Wadhwa, managing director, SKI Capital Services. “Now, investors are waiting for the Sebi NOC after which demand could once again spurt. The share price is currently around ₹2,200-2,250, down from the peak of around 2450 during May-June.”

Neha Joshi contributed to the story