NCDEX gets ready for equities, derivatives launch

NCDEX's Ambitious Leap into Equities: A Risky Gamble or Smart Diversification?

The National Commodity & Derivatives Exchange (NCDEX) is making headlines with its ambitious expansion into the equities and equity derivatives market. Following Sebi's in-principle approval on July 29th, NCDEX is rapidly preparing for launch, having already hired 60 tech specialists and numerous other staff across various roles.

Fueling the Expansion: Funding and Valuation

This significant expansion is being fueled by a ₹700-crore preferential issue, attracting investment from notable players like Groww and Zerodha. The market's enthusiasm is evident: NCDEX shares, trading at ₹345 in the grey market (peaking at ₹355 mid-August), show a dramatic increase from ₹210 at the end of May (source: Sharescart). This reflects a strong belief in the company’s potential.

CA Aditya Sesh, founder of Basiz Fund Services, is bullish on NCDEX's prospects, highlighting its lack of legacy issues and potential competitive edge. He stated, "Shares of both BSE and CDSL gave me 1,000% returns... NCDEX is bound for IPO soon. I will definitely buy." Other market experts share this anticipation.

Navigating the Competitive Landscape: Challenges Ahead

However, not everyone shares this optimism. Independent brokerages express skepticism about the new segment's viability.

• Valuation Concerns: At its recent allotment price, NCDEX is valued at approximately ₹1,770 crore, significantly less than its ₹2,300-crore grey market valuation. This pales in comparison to giants like the NSE (₹5.2 lakh crore) and BSE (₹88,000 crore).
• Intense Competition: One domestic brokerage CEO commented, "The NSE is aggressive, the BSE is already struggling and the NCDEX will take time to scale." Another CEO pointed out NCDEX's past loss of market share to MCX, which currently boasts a market capitalization of ₹37,728 crore and a near-monopoly in commodity derivatives.

Shareholder Structure: NCDEX's major shareholders include the NSE (15%), LIC and NABARD (11.1% each), Oman India JIF (8%), Punjab National Bank (7.3%), and Canara Bank. Regulatory limitations restrict institutional investors to a maximum of 15% and brokers to 4.99% each.

A Bold Diversification Strategy:

This foray into equities marks a significant diversification for NCDEX, requiring a substantial investment of ₹600 crore. The exchange plans a phased rollout of equities, equity derivatives, ETF baskets, and agri-infrastructure REITs. Only time will tell if this bold move will pay off, or if it will be overshadowed by the established giants in the market.