Some foreign shareholders dumped NSE shares just before SEBI order on Chitra Ramkrishna

While 11.61 lakh shares account for 0.2 percent of NSE's equity base, it must be noted that NSE shares are not traded actively since they are unlisted.

The peak price for NSE shares in January was Rs 3,650, a deal between two domestic investors, but for a small quantity.

There appears to be signs of distress selling by foreign investors in January, because nearly 50 percent of similar transactions in December happened at prices above Rs 2,000 per share, with quite a few of them at Rs 2,800 per share. Incidentally, December too saw many foreign investors and non-resident Indians cutting their exposure to the bourse.

The last time NSE shares saw such frenetic trading was in September, but a vast majority of the transactions were between domestic investors. Otherwise, there were less than 100 transactions in most months of 2021.

While NSE is yet to go public, demand from domestic wealth management funds and high net worth individuals has been quite strong.

Leading foreign investors like Citigroup, Goldman Sachs and Norwest Venture Partners have completely exited the NSE in FY22, while some like SAIF Capital has trimmed its stake.

The widely touted reason for foreign investors cutting exposure to the NSE shares is the delay in the stock exchange’s plan to go public. But some observers says the sudden flurry of selling in January could have to do with more than just the delay in NSE’s listing plan. The timing of the sales—just a few weeks before the SEBI order—and the price, have raised eyebrows. Some market veterans think the sales could be connected the colocation controversy that dogged NSE since 2015. (Read all about the colocation controversy here)

Over the last decade institutional investors stake in the exchange has been steadily coming down, and the holdings of individual investors have been on the rise.

Institutional investors held 87 percent stake in NSE at the end of FY12. That has now come down to less than 50 percent.

Prominent HNIs who own stake in NSE include Radhakishan Damani, owner of the DMart chain of retail stores, besides other well known stock market investors and some industry captains as well.

NSE’s share price has more than doubled from around Rs 1,000 in June 2020, as many domestic investors are betting that the bourse will eventually get the long awaited SEBI approval for going public. Brokers dealing in the market for unlisted shares say that the NSE stock is quoting around Rs 2800-3000 at present.

“Investors don’t seem to be too bothered about the controversy, they are confident that once the crisis blows once investigation is concluded, it is a matter of time before the shares list,” said a market participant tracking the space.

For the nine months ended December 31, 2021, NSE reported revenues of Rs 5,551 crore, with an operating profit margin of 76 percent and a net profit margin of 54 percent.

Earlier this year, Chennai-based Spark Capital initiated coverage on National Stock Exchange with a buy rating and a target price of Rs 3950.

Excerpts from the report:

“National Stock Exchange (NSE), the undisputed leader, is the best way to take exposure to India’s capital market. After posting strong growth in FY21-22E, the risk of moderation in market volumes remains. However, historical data suggest that any correction in the market is short-lived & shallow.

Moreover, with favorable macros, there is a durable long-term growth opportunity in NSE. Further, NSE’s efforts to diversify revenue from equities (GIFT city, Data, Index License, IT & Education subsidiaries, and other securities like currency) should reduce the cyclicality. Fixed cost model and cash rich balance sheet are other USPs of this business model which shall result in EBIDTA/PAT margin expansion.”