NSE records 2nd highest trading volume this year at 70 lakh in Aug

Brokers say that unusually low prices usually indicate the transactions may have been done with the intention of evading taxes.

Nearly 69.3 lakh shares of the National Stock Exchange of India (NSE) changed hands in August at an average price of Rs 3,036.12 per share.

This was the second highest volume in 2023. Earlier in March, the volume hit around 71 lakh shares. The turnover value for August was at Rs 2,009.87 crore.

In August, foreign portfolio investors bought 1.30 lakh shares, while non-resident Indian investors bought around 60,300 shares. Domestic investors were net sellers of close to 1.91 lakh shares.

In terms of price, the highest recorded during the month was Rs 3,935, while the lowest was Rs 850. The preceding month, the high and low were Rs 3,935 and Rs 1,800, respectively. 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 3,500-3,600 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 the 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 the NSE shares is not surprising.  For the past three years, the 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 percent in FY13 to 93 percent 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.

The NSE’s net profit for June quarter was at Rs 1,844 crore on a consolidated basis, up by 9 percent on a year-on-year (YoY) basis. The exchange's consolidated income from operations came in at Rs 2,987 crore for Q1 FY 24, up 13 percent on-year. On a consolidated basis, earnings per share increased to Rs 37.26 in Q1 FY 24 from Rs 34.13 in Q1 FY 23.

On the trading volumes front, cash markets recorded an average daily traded volumes (ADTVs) of Rs 58,593 crore, up 4 percent on-year. Equity futures clocked an ADTV of Rs 1,04,056 crore, down 13 percent YoY and equity options (premium value) ADTVs stood at Rs 54,210 crore, up 33 percent YoY.

Rival BSE, with a much smaller market share, slower growth in revenues, and less than half the operating profit margin, is quoting at roughly 53 times trailing earnings. Using the same yardstick, NSE shares should command a value north of Rs 5000 apiece, and perhaps well over Rs 7000 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.