The National Stock Exchange (NSE) has begun the IPO process in earnest. With the appointment of investment bankers and law firms, the listing process is expected to gather pace. However, the timing will depend on secondary market conditions. If the current bear phase persists, NSE may wait for more favourable market conditions.
In January, the Securities and Exchange Board of India (SEBI) issued a No Objection Certificate (NOC) for the proposed initial public offering (IPO) of the National Stock Exchange (NSE). This cleared a major regulatory hurdle that had kept the country’s largest stock exchange from accessing public markets for nearly a decade, following challenges including the dark fibre co-location scam and other regulatory issues.
A few days ago, the Delhi High Court dismissed a petition challenging the NOC for the IPO, paving the way for the exchange’s public issue. Soon after, NSE moved to advance the listing process.
IPO size
The IPO will be purely an offer-for-sale, allowing existing shareholders to dilute a portion of their holdings, while NSE itself will continue operating without balance-sheet infusion. Going by media buzz, the exchange plans to launch ₹24,000-25,000 crore IPO, which would rank among India’s largest public issues.
The listing of India’s most active exchange will benefit the Asia’s oldest exchange — BSE, which lost to the NSE in volume games for the last two decades. As per current regulations, NSE can be listed only on BSE and Metropolitan Stock Exchange of India and self listing is not permitted.
The regulatory framework governing Market Infrastructure Institutions (MIIs) has been undergoing several revisions following their transition into corporate entities and demutualised structures. The move to corporatise and demutualise stock exchanges was first proposed in the 2002-03 Budget, aiming to transform them from not-for-profit, member-owned bodies into for-profit corporate entities, while separating ownership from trading rights and paving the way for them to operate as publicly listed companies.
Comparison
BSE turned into a public limited company on August 8, 2005 and hit the capital market in January 2017. With the NOC now in hand, the exchange is expected to take about 8-9 months to launch the offering. Currently, its rivals BSE and MCX are already listed.
The listing could help BSE retain its marginal lead over NSE in terms of market capitalisation. Currently, the market capitalisation of companies listed on BSE stands at about ₹430 lakh crore ($4.6 trillion), compared with ₹428 lakh crore ($4.7 trillion) on NSE. These figures fluctuate frequently amid market volatility, often altering the relative positions of the two exchanges. Analysts estimate that NSE could command a market capitalisation of around ₹4 lakh crore upon listing, which may allow BSE to maintain its lead on this metric.
According to the latest shareholding data, NSE has nearly 1.86 lakh retail shareholders, making it the largest unlisted company in terms of retail investor participation. Since NSE shares will be traded on BSE, the listing will boost BSE’s trading volumes and, in turn, its fee-based revenue.
Besides, NSE will feature in BSE’s major indices. Mutual funds that track these indices will need to buy NSE shares, potentially raising institutional trading activity on BSE. As a listed entity, NSE will also be required to disclose all corporate developments and price-sensitive information to BSE, enhancing transparency around the country’s premier exchange.
Overall, NSE’s listing will be closely watched by investors and competitors alike. Interesting days lie ahead for India’s exchange landscape.