List of FIIs seeking an out from NSE continues to grow longer

Buildings are reflected on the glass windows of the NSE (National Stock Exchange) building in Mumbai, India, December 27, 2016. Picture taken December 27, 2016. REUTERS/Shailesh Andrade - RTX2WSSZ

Certain foreign investors, including Morgan Stanley, are said to be seeking buyers for their shares of India’s largest stock exchange, the National Stock Exchange (NSE), in the unlisted market, dealers aware of the transactions said.

Shares of NSE, though not listed on the bourses, are available for trading in the unofficial market.

According to market buzz, Morgan Stanley is said to be seeking buyers for 7-10 lakh shares of NSE through the auction process with a base price of Rs 2,750-2,800, which is at a sharp discount of 9-15 percent to the last available unofficial quote of Rs 3,000-3,300 for NSE shares.

Ambit Capital is also said to be looking for buyers to offload some NSE shares on behalf of a foreign institutional investor (FII) in an over-the-counter deal, market participants said.

Morgan Stanley and Ambit Capital did not immediately respond to queries sent by Moneycontrol.

Morgan Stanley’s auction price at a steep discount

The proposed base price in Morgan Stanley’s auction is also at a steep 25 percent discount to the highest selling price at which a transaction took place for NSE shares over the past three months -- at Rs 3,750 per share.

The base price of the auction is at a discount of 10 percent to the average of prices at which deals were struck on the counter in October, NSE data showed.

Selling by foreign investors has been rampant in NSE in recent times, likely because of the delay in the exchange’s planned listing. The number of foreign direct and portfolio investors in the exchange have fallen to 37 in September from 51 in March 2022, according to NSE’s latest shareholding data.

Marquee foreign investors like Citigroup, Goldman Sachs and Norwest Venture Partners completely exited NSE in 2021-22, according to a CNBC report in February.

Also Read | This options trader who has South superstars as his neighbours sees Nifty at 19,000 by year-end and 21,000 by next Dec

Caught in corporate governance issues

The listing of NSE has been delayed by several years after the exchange got embroiled in corporate governance issues, ranging from its former executive’s role in the 2015 co-location scam to issues with respect to multiple technological failures.

In 2021, NSE had to halt trading for several hours after its mainframe and disaster recovery sites malfunctioned, leading to intense scrutiny from capital market regulator Securities and Exchange Board of India (SEBI).

Morgan Stanley’s auction of NSE stock comes on the back of a similar transaction by IIFL Asset Management over the past month, dealers said.

Dealers suggested that one-to-one deals in the market for NSE shares were available for around Rs 2,800-2,900 per share, and an auction process was likely the last resort for investors looking to offload bulk quantities in the counter.

Dealers suggested that the sharp discount in the base price for the auction may be an indication of the lack of buyers for a large chunk of the exchange’s shares.

Trading in NSE shares has moderated in the past three months to roughly 200 transactions per month, against 500 transactions per month in May-June. In most of 2021, NSE’s stock saw less than 100 transactions per month.

The decline in trading volume in the exchange’s stock comes despite strong earnings performance from NSE in 2021-22 and the first half of 2022-23. The consolidated revenue of the NSE Group in 2021-22 stood at Rs 9,500 crore, a year-on-year (YoY) growth of 53 percent. This came on top of a 59 percent increase in the previous financial year.

In the first six months of the current financial year, NSE’s revenues jumped 60 percent on-year to Rs 5,486 crore. The company’s net profit rose 55 percent on-year to Rs 3,022 crore while its operating margins expanded 400 basis points on-year to 75 percent.

Also Read | Marketing Musings: The right to win