The National Stock Exchange (NSE) is generating immense buzz even before its anticipated IPO. Its privately traded shares are experiencing a surge, shrinking the discount to its listed competitor, BSE Ltd. This surge has been dramatic: a 40% jump since last week!
Sanat Mondal, head of private markets at Sanctum Wealth, explains the shift: "NSE shares traded at a 50% discount to BSE's just five or six months ago. Now, that discount has narrowed to only 10-15%."
Despite the excitement, uncertainty remains about the NSE's IPO timeline. This poses a significant risk for investors in the unlisted market.
Mondal emphasizes the IPO's impact on valuation: "NSE trades at a discount to BSE primarily due to IPO uncertainty. Fundamentally, these are similar companies with comparable profit margins."
NSE's Dominance: Commanding over 90% of India's equity volume in cash and derivative segments, NSE dwarfs BSE in size and scale. Motilal Oswal projects impressive growth: "We foresee 15% revenue and 22% net profit CAGR over FY24-27, driven by retail volume growth in F&O (futures and options)."
Strong Financials: Saurabh Rungta, CIO at Avendus Wealth Management, highlights NSE's robust business model, noting its high profit margins (over 65% of revenue) and substantial cash reserves. He also points to over 1 lakh unlisted shareholders (up from 39,201 in March), reflecting strong investor confidence.
The "Stock of India": Sunil Chandak, founder of Gennext Investrade, boldly proclaims NSE as "the stock of India," symbolizing the nation's growth potential.
Market Capitalization: This exuberance has propelled NSE's market capitalization to a staggering ₹5.87 lakh crore, surpassing blue-chip giants like ITC Ltd and Larson & Toubro Ltd.
IPO Risk and Private Market Rush: The intense demand creates a real risk of under-allotment in the IPO. Consequently, many retail investors are rushing to the private market to secure shares before the IPO, but supply is dwindling.
Valuation and Future Returns: Experts predict limited post-IPO gains, given the significant valuation appreciation already seen (almost 230% in three years). The lack of promoters and widespread share ownership will likely exert downward pressure on share price after the lock-in period.
Caution in Unlisted Markets: While the private market offers access to exciting companies, including OYO, Chennai Super Kings, and PharmEasy, experts warn against unrealistic expectations. The illiquidity and lack of transparency present significant risks.
Risks of Unlisted Investments: Investors need to be aware of potential downsides, including: difficulty exiting investments, the lack of regulatory protection, and the possibility of inflated valuations due to hype and manipulation.
Due Diligence is Crucial: Thorough due diligence, understanding the risks, and a long-term investment horizon are crucial for navigating the unlisted market successfully.
