Nearly 6 mn NSE shares traded in May; FIIs, NRIs net sellers

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Nearly 5.78 million shares of the National Stock Exchange of India (NSE) changed hands in May at an average price of Rs 2,986.55 per share. In March and April, approximately 1.8 million and 7 million shares were traded, respectively. The turnover value for May reached Rs 1,645 crore.

In May, foreign portfolio investors were net sellers of 22.32 lakh shares and domestic investors were net buyers of close to 37.21 lakh shares.  Non-resident Indian investors net sold around 15.09 lakh shares.

In terms of price, the highest recorded during the month was Rs 3,800, while the lowest was Rs 1,755. Brokers say that unusually low prices usually indicate the transactions may have been done with the intention of evading taxes.

The share price of the exchange in the unlisted market had rallied to Rs 3,500-3600 between 2019 and 2021 amid rising profitability and hopes of an IPO. The average prices have cooled to below Rs 3,000 in the past year.

Brokers dealing in NSE shares say that there is a lag of four-five months, sometimes even more, from the time a deal is struck, and when the shares are transferred after the board approval.

The strong appetite for NSE shares is not surprising.  For the past three years, NSE has been the largest exchange in the world in terms of number of F&O contracts traded and enjoys a monopoly in the space in India. The exchange has been steadily gaining market share in the cash market as well — from 83% in FY13 to 93% in FY23.

Its operating profit margin is close to 70 percent, and it is the number one derivatives platform globally, according to data by the Futures Industry Association. The number of wealthy investors owning NSE shares has risen exponentially over the last five years. At the end of FY21, barely 650 individuals owned NSE shares. That figure now stands at over 4,300, with DMart founder Radhakishan Damani, industry captains, and many reputed stock market investors among the shareholders.

NSE reported a consolidated net profit of Rs 7,356 crore for FY23, which represents a significant 42% increase compared to the previous year's figure of Rs 5,198 crore. Income from operations during FY23 stood at Rs 11,856 crore from Rs 8,313 crore in the corresponding period of the previous year. Furthermore, the total consolidated revenue amounted to Rs 12,765 crore, demonstrating a substantial 44% annual growth. The firm also announced a dividend of Rs 80 per share.

Rival BSE, with a much smaller market share, slower growth in revenues, and less than half the operating profit margin, is quoting at roughly 33 times trailing earnings. Using the same yardstick, NSE shares should command a value north of Rs 4000 apiece, and perhaps well over Rs 6000 if a premium for dominant market share were to be applied.

In January, the Securities Appellate Tribunal (SAT) set aside the order by the Securities and Exchange Board of India (Sebi) against the NSE in the colocation case, imposing a Rs 625 crore disgorgement penalty on the bourse. In March, the Supreme Court refused to stay the SAT order and asked SEBI to refund Rs 300 crore to the NSE subject to the latter giving an undertaking that it would return the money along with interest if Sebi succeeded in its appeal in the Supreme Court. The matter will come up for hearing again in September.