Surging Demand: NSE’s Unlisted Shares Rally 20% in Off-Market Transactions

Surging Demand, Unlisted shares of the National Stock Exchange (NSE) in Mumbai have recently experienced a noteworthy surge of over 20% in off-market transactions over the last fortnight, breaking a two-year trend of stagnant movement. This Surging Demand is attributed to heightened demand from affluent individuals and retail investors, constricted share supply, and a shift in commitment from some major investors, according to brokers interviewed by ET.

Factors for Surging Demand:

1. Increased Demand and Limited Supply:
   • The rise in demand from wealthy individuals and retail investors, combined with restricted share supply, has been a key driver of the surge. Large investors reneging on their selling commitments has further intensified the demand, as reported by brokers.
2. Rally in Listed Exchange Operators and NSDL Unlocking Value:
   • The upward trajectory in the shares of listed exchange operators BSE and MCX, coupled with the unlocking of value through the proposed public issue of the National Securities Depository (NSDL), has contributed significantly to the surge. NSE holds a 24% stake in NSDL.

Market Dynamics:

1. Current Share Prices:
   • The stock, trading at approximately Rs 3,100-3,200 a month ago, has surged to a range of Rs 3,800-3,900. It’s crucial to note that these prices are reflective of transactions in the unlisted market and are not official figures.
2. Valuation at Rs 3,900 per Share:
   • At Rs 3,900 per share, NSE would attain a valuation of Rs 1.93 lakh crore, equivalent to 25 times its 12-month earnings, solidifying its position as India’s largest bourse.
3. Comparative Performance:
   • In comparison, BSE shares have witnessed a 220% surge in the past six months, while MCX shares have gained around 94%. Currently, these two exchanges are trading at 87 times and 348 times their trailing 12-month earnings, respectively.

Insights from Market Experts:

1. Sandip Ginodia’s Perspective:
   • Sandip Ginodia, MD of Abhishek Securities, attributes the sharp increase in NSE’s share price to significant demand from retail investors and the non-fulfillment of selling commitments by major investors.
2. Narottam Dharawat’s Insight:
   • Narottam Dharawat of Dharawat Securities highlights the sudden demand surge for NSE shares from both high-net-worth individuals (HNIs) and retail investors, driven by strong upswings in BSE and MCX stock prices.

Anticipated Developments:

1. NSDL’s Public Issue:
   • NSDL, India’s largest depository, is expected to launch its maiden public issue in the coming months with a valuation of Rs 11,000-12,000 crore. NSE, holding a 24% stake, plans to sell 9% of its shares.
2. Financial Performance of NSE:
   • For the six months leading up to September 2023, NSE reported a consolidated revenue growth of 25% to Rs 7,380 crore and an 11% increase in net profit to Rs 3,843 crore, maintaining a robust profit margin of over 50%.

Challenges in Share Acquisition: Purchasing NSE’s unlisted shares poses challenges due to the implementation of stringent compliance measures involving know your customer (KYC), funding source verification, and background checks of investors. Brokers emphasize that NSE takes time to grant approval for such transactions.