In March, approximately 7.1 million shares of the unlisted National Stock Exchange (NSE) were traded. This was the second-highest monthly volume since the bourse began publishing share transfer data in January 2021.
The average price of all trades combined was Rs 2,947 per share, slightly lower than the Rs 2,980 recorded in February but 22% higher than the same period last year.
The turnover value of Rs 2,113 crore in March was second only to Adani Enterprises, which earned around Rs 8,400 crore. Every month since December 2022, the NSE has been among the top five most active traded stocks in terms of value. The heavy trading interest in NSE shares is there despite lack of clarity on the bourse’s long-awaited initial public offering.
NSE business model, unlike any other business, do not need huge capital investments year on year, except technology upgradation.
Why NSE Business Model is excellent?
Brokers dealing in NSE shares report a four-to-five-month, sometimes longer, lag between the time a deal is struck and when the shares are transferred following board approval.
The strong demand for NSE shares is unsurprising. With a 93 percent market share in the equity segment, a near monopoly in the equity derivatives segment, and a dominant player in the currency derivatives segment, the NSE is India’s leading stock exchange. According to data from the Futures Industry Association, its operating profit margin is close to 70%, and it is the world’s leading derivatives platform.
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.
Foreign portfolio investors purchased 13.6 lakh shares in March, while domestic investors purchased nearly 29 lakh shares. Non-resident Indian investors sold approximately 4.2 million shares. During the month, the highest price was Rs 3,300 and the lowest was Rs 2,800.
The difference between the high and low prices during a month has shrunk to around 20%. Last year, the gap was as wide as 50-200 percent in some months, leading brokers to suspect that some transactions were being conducted solely to evade tax or to pass off unaccounted income as trading profit.
For the nine-month period ended December 31, 2022, NSE’s consolidated revenues rose 50 percent to Rs 8,320 crore and consolidated net profit rose around 55 percent to Rs 4,590 crore. Operating profit margin was 73 percent and earnings per share Rs 109, which if extrapolated works out to around Rs 144 for the full year.
With a much smaller market share, slower revenue growth, and less than half the operating profit margin, rival BSE is trading at around 33 times trailing earnings. Using the same yardstick, NSE shares should be worth more than Rs 4000, and possibly more than Rs 6000 if a premium for dominant market share is applied.
The Securities Appellate Tribunal (SAT) overturned the Securities and Exchange Board of India’s (Sebi) order against the NSE in the colocation case in January, 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.
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