DSIJ Mindshare

Dissecting Big Bang IPOs Of BSE & NSE

Lohit Bharambe dissects the two blockbuster IPOs set to hit the Dalal Street while Joydeep R. Ray speaks to the ‘Bosses of the Bourses’ to know what is happening in the ground:

The hottest topic amongst investors is an initial public offer by companies, but the anticipation of the investors is highest when the two big bourses of the country, Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE), plan to self-list themselves. These two premier bourses will be soon coming out with their respective IPOs.

 At the global level, out of the 60 stock exchanges that operate across the world, only around 10 are listed. Some of the largest exchanges, going by their traded turnover, such as the NYSE, Nasdaq, Euronext, Hong Kong Exchange and the Japan Exchange are listed and owned by the public shareholders. This is not surprising as the larger and more profitable exchanges are likely to find more takers.

These listed exchanges have continued to maintain a leadership position in terms of the securities traded, and investor experience in these bourses has not been materially different from those that are not listed. Investors are willing to pay decent multiples to these listed exchanges, with their PE multiples ranging from 17 to over 40.

The interest rate cut cycle in the country is expected to continue in future, giving a fillip to stock market investment. An investment in the stock market for more than one year is right now tax free, although there are chances of increasing the investment horizon of tax bracket to three years from the existing one year in the upcoming Union budget. Reducing the interest rates will give further reduce the flow of investments into regular instruments such as fixed deposits, PPF, EPF, postal deposits and LIC schemes. The money flow from these investments will come into the stock markets.

Further, it will drive volumes in the capital markets with the spread of more financial awareness in the country. The investments can come through the direct route and also through indirect routes such as mutual funds, equity funds, etc. Therefore, the potential of big business will drive robust financial outlook for both the bourses.

Though there is confusion amongst investors about IPOs of stock exchanges, we at Dalal Street investment Journal, present an exhaustive report to clear the confusion and show the right direction to all investors.


On the financial front, BSE’s topline has increased 5.37 per cent to Rs. 658 crore in FY16 as compared to previous financial year. However, the exchange’s EBITDA decreased 17.07 per cent to Rs. 274 crore in FY16 on yearly basis due to the increase of 27.05 per cent in administration and other expenses during the year. Its EBITDA margin contracted by 1125 basis points to 41.64 per cent in FY16 as compared to the previous financial year. BSE’s net profit declined 37.8 per cent to Rs. 330 crore in FY16 on a yearly basis.

On the segmental revenue front, BSE has earned 27 per cent from transactions, 24 per cent from listing, 42 per cent from other sources and 3 per cent each from market data and IT.

On the financial front, NSE’s topline increased 3.45 per cent to Rs. 2,354 crore in FY16 as compared to the previous financial year. The exchange’s EBITDA too rose 1.23 per cent to Rs. 1731 crore in FY16 on a yearly basis. Its EBITDA margin contracted by 163 bps to 73.53 per cent in FY16 as compared to the previous fiscal. NSE posted net profit of Rs. 654 crore in FY16 as against net profit of Rs. 1027 crore in FY15. The exchange witnessed loss of Rs. 7,662 crore towards contribution to core settlement guarantee fund in FY16 as against Rs. 170 crore in FY15. The bourse had cash and cash equivalents and cash at bank of Rs. 8,937 crore as on September 30, 2016.



When both the exchanges requested self-listing to market regulator SEBI, the watchdog showed the red flag for listing on own platform. Sangeeta Lakhi, Senior Partner at Rajani Associates said, “reason for this restriction is because self-listing would give rise to conflicts, since the exchange itself would be responsible to monitor its own compliance of all the regulatory requirements imposed on a listed entity. In our view, self-listing is not in the interest of investors because of the inherent conflict of interest. It sacrifices listing quality, as well as regulatory and supervisory roles. Indian exchanges are not geared up for self-listing because of non-segregation of regulatory functions from the day-to-day operations and due to certain other conflicts arising out of rigorous oversight, which the Indian exchanges exercise over listed companies.”

Self-listing is allowed in most of the developed markets where conflicts of interest are under check because of segregation of regulatory functions. These arrangements provide a very comprehensive framework for fresh demarcation of regulatory functions between regulators and self-listed exchanges internationally. “It is essential that self-listing is not permitted and the exchanges are monitored by each other and not by themselves to avoid conflict of interest and protect investors subscribing to BSE or NSE shares,” says Lakhi.


Issue sizeApproximately Rs 1243.43 crore
Face ValueRs 2
Merchant BankersEdelweiss Financial Services, Axis Capital, Jefferies India, Nomura Financial Advisory and Securities (India)
Book running lead managersMotilal Oswal, SBI Capital Market, SMC Capital. SPARK Capital (co-Book Running Lead)
RegistrarKarvy Computershare
ListingOn NSE
PurposeSale up to 15427197 shares representing 27.43 per cent stake sale by existing shareholders.

The BSE has received SEBI’s green signal for its IPO. The exchange had filed its draft red herring prospectus (DRHP) in September 2016. It has more than 5,500 listed companies and it is the 11th largest in the world by market cap. BSE has segments such as listing, market and the data. The listing segment consists of primary market; market business relates to secondary market for securities and mutual funds, over the counter corporate bond trading and memberships. The data business consists of the sale and licensing of information products.

BSE will sell around 27.43 per cent stake in the exchange through offer for sale up to 15,427,197 equity shares of face value of Rs. 2 each, estimated at around Rs. 1243.43 crore. BSE’s DRHP listed 262 shareholders looking to sell their shares. Singapore Exchange (SGX) will sell 50.9 lakh shares. Other shareholders who have offered to sell their shares include Atticus Mauritius, Mauritius investment arm Quantum (M) Ltd, GKFF Ventures, Acacia Banyan Partners, Caldwell India Holdings Inc. and Bajaj Holdings and Investment.

On the valuation front, BSE IPO’s price band has fixed by its merchant bankers. However, with the available financial data provided by the company in its DRHP, they have come up with a price band of approximately Rs. 805-806 per share or above. With this issue price, the company is valued at approximately 26.55x forward PE multiple of FY17 earnings.

BSE: Top ShareholdersHolding (%)
Deutsche Boerse AG4.7
Singapore Exchange Limited4.7
State Bank of India4.7
Life Insurance Corporation of India4.7
GKFF Ventures4.6
Quantum (M) Limited3.7
Caldwell India Holdings Inc3.7
Atticus Mauritius Limited3.7
Acacia Banyan Partners Limited3.7
Bajaj Holdings and Investment Limited2.8
Selling shareholders
Retaining shareholders


The financial savings in India totalled approximately USD 0.5 trillion in 2015, comprising approximately 56 per cent of bank deposits and only 7 per cent of investments in direct equities. Hence, among financial asset classes, majority of household savings in India are currently in the form of cash and deposits. The government’s effort to increase awareness of capital market is expected to drive higher investment in capital market.

Further, demat accounts in India are less than 10 percent of the number of banking accounts, which gives a huge potential for greater participation of retail in the Indian capital market. Globally, information and data services contribute about 10 per cent to 25 per cent to the revenues of exchanges. In India, exchanges currently earn four to five per cent from these services which we believe can be a potential growth area. The other areas of growth for the exchange are currency and interest rate derivatives and corporate debt.



Issue sizeApproximately Rs 10,000 crore
Face ValueRe 1; After bonus of 1:10
Merchant BankersCitigroup Global Markets India, JM Financial Institutional Securities, Kotak Mahindra Capital Company, Morgan Stanley India Company
Book running lead managersHDFC Bank, ICICI Securities, IDFC Bank, IIFL.
RegistrarLINK Intime
ListingOn BSE
PurposeSale up to 111,411,970 shares representing 22.5 per cent stake sale by existing shareholders.


The NSE has also filed a DRHP with SEBI for an IPO on December 28, 2016. This is considered as the biggest IPO to hit capital market in recent times. The bourse is India’s leading stock exchange and the world's fourth largest by equity trading, enjoying about 85 per cent domestic market share in the segment. It owns and manages the NIFTY 50 index, a benchmark index for the Indian capital markets. NSE offers coverage of the Indian capital markets across various asset classes, which include equity, fixed income and derivative securities. It offers a trading services segment, a clearing and settlement house, among other segments and offers services, indices, market data feeds, technology solutions and financial education.

NSE will sell around 22.5 per cent stake in the exchange through offer for sale up to 11,14,11,970 equity shares. Ahead of the IPO, under the plan approved by the board of directors, NSE has given bonus shares in the ratio of 1:10 with effect from December 14, 2016.

A total of 27 NSE shareholders will be looking to offload shares, with Tiger Global Five Holdings (1,48,50,000), Aranda Investments (99,00,000), SAIF II-SE Investments Mauritius (99,00,000), GAGIL FDI (86,62,500) and Norwest Venture Partners X FII – Mauritius (78,37,500) offloading the maximum number of shares. IDBI Bank, which is not among the top shareholders, will sell 74,15,680 shares. Besides, SBI (64,28,120), SBI Capital Markets (53,62,500) and Bank of Baroda (10,98,630) will offload shares in the mega issue. LIC is not on the sellers’ list. When contacted, GS Strategic Investment declined to comment on its divestment from one of the major bourses through the IPO.

NSE: Top ShareholdersHolding (%)
Life Corporation of India10.51
State Bank of India10.19
Aranda Investment Pte Ltd5
GS Strategic Investment5
SAIF-II-SE Investment Mauritius5
Stock Holding Corporation of India5
SBI Capital Markets4.33
MS Strategic (Mauritius)3
PI Opportunities3
Tiger Global Five Holdings3
IDBI Bank4.998
 Selling shareholders
 Retaining shareholders

One of the oldest and key investor IFCI is looking to opportunistically divest its non-core holdings after lock-in period. In order to exit non-core assets, IFCI had earlier decided to sell the entire 5.55 per cent stake of IFCI in NSE, and accordingly, 2.5 per cent stake has already been divested by IFCI through the secondary market route. However, in view of the decision taken by the board of NSE regarding listing of its equity shares, remaining 3.05 per cent was put on hold by IFCI.

Valuation Table  
No. of shares for sell1542719711,14,11,970
Issue size in Rs crore1243.4310000
approximate Price band in Rs805-806900-1000
EPS in Rs30.3223.78
Forward P/E FY1726.55X37.85X-42.05X
Book Value in Rs 456.26142.58
Dividend Yield (%)1.5-1.740.8 -0.88

On the valuation front, NSE will decide the price band for the IPO through merchant bankers. According to the DRHP filed by the company and information available in the prospectus, we expect the issue price to be set in the price band of approximately Rs. 900-1000 per share or above. With this estimated issue price, the company is valued at approximately 37.85-42.05 forward PE multiple of FY17 earnings.

"IFCI was disinvesting its stake in NSE in a phased manner to exit non-core assets at valuations as were ruling at that time, there being restrictions on shareholding in NSE. With news that finally NSE had agreed to the request of shareholders, including IFCI, for listing its shares, the general expectation was there would be sharp increase in valuation. That is why our plan of disinvestment in the remaining stake was put on hold. NSE being one of the largest stock exchanges in the world and with growing involvement of retail in cash as well as derivative segments, IFCI expects the valuation of NSE to increase consistently. This will provide opportunity to IFCI to exit from its remaining stake at a still better price" Sanjeev Kaushik, Deputy Managing Director, IFCI


An Afternoon To Remember With The 'BSE Transformer'

From this simple yet aesthetically corner office on the 25th floor of Phiroze Jeejeebhoy Towers in southern Mumbai, one can clearly see the landscape of the beautiful island city. In one of the January afternoons when activities are in their peak in the office of Ashish Kumar Chauhan, Managing Director and Chief Executive of 140-year old Bombay Stock Exchange (BSE), the man does not look anxious or even slightly stressed.

His Exchange is going to get listed very soon and that too at a rival bourse. Clad in a dark jacket, 48-year old Chauhan picks up his Girnar branded tea-bag carefully from one of the tiny shelves next to his work table--dips it twice, thrice in warm water to make his dose of a cup of tea. The phones on his desk ring in regular intervals of two or three minutes--his Iphone 7 too blinks in almost similar frequency. Chauhan attends all the calls, still remains in sync with our ongoing conversation.

Just behind him, several framed photographs of the man who had earlier transformed the National Stock Exchange (NSE) and now BSE, with the Prime Minister of India, Narendra Damodardas Modi. Born in Bavla, a tiny hamlet on the outskirts of Ahmedabad, Chauhan had to stand patiently in the long queues of the ration shop in his locality when he was young to collect his family's monthly ration comprising of grains, sugar and all. "I was not born rich but now I have enough money," he admits in impeccable Gujarati. "When you have seen the worst days in your first life, then struggled hard, got fairly educated, tasted professional success and getting closer to 50, you don't really wish to mint more money, you don't really chase fame. You do make sincere efforts to give back to the society which helped you to reach here," that is his future plan as he emphasises.

Chauhan who has been spearheading the entire IPO planning and execution of the BSE, had to stop for a while--to check with his men in office whether his air ticket to Chennai for the afternoon was postponed and also to find out whether plans for overseas roadshows are well in place. He comes back, "No, don't think I am planning to join politics. There are other ways and means to serve the society too as I have been doing sitting in this office also through our incubator, through generating employment and various other initiatives."

Gujaratis, no matter, whatever big they achieve in life tend to live with brands associated with Gujarat. Be it Girnar tea bags or Modi. On January 9 during inaugural ceremony of international exchange set up by BSE in Gandhinagar, state capital of Gujarat, Chauhan was seen in close proximity with the Prime Minister, even a man hailing from Gujarat. "Well he inspires a lot. Modi's story in India shows that even poor and downtrodden has a chance to make it big in this country--don't you think so," he asks me while his Man Friday, Yatin Padia, nods in agreement. So being inspired by Modi, you don't wish to join politics or work directly for him, my next question. "PM has phenomenal enthusiasm, during a day though he has a diverse set of works to do, but he still keeps his cool. I have not across anyone else who slogs so hard even being in the top post and still even remembers small things, small people like us so fondly," Chauhan, the man who had introduced Nifty index, equities market and even first screen based trading in the country, talks his heart out. He has even been instrumental in introducing new set of technologies in his present place of work, making it the fastest stock exchange, also ensuring a diverse source of revenue generation for the bourse.

Does the IPO plan give him sleepless nights--"not exactly. I am going to bed by 11.30 at night only to wake up by 6.30 next morning unless I am flying or travelling on work. Even if I am sleep deprived due to heavy loads of work these days, I have learnt the art of sleeping while in a flight," he smiles and adds.

A former CIO of Reliance Group, Chauhan believes technology with a human touch can bring lots of improvement and positive changes in the society. "With the changing scenario and help of technology, in the next 30 years we will create more wealth than we created in the last 10000 years. Faster adoption of newer technology by the young generation will change the country and believe me, it will happen very fast. In fact, it is already happening in the stock exchanges and BSE now leads," he says it with immense pride, brightened eyes. I had promised him that we won’t talk on this day about his IPO or rivalry with NSE but then a journalist is always a journalist. So I hurl this: "As now BSE will be listed on NSE and vice versa, is it time to go for a truce?'" Chauhan does not get irritated, "NSE was also led by me during 1992-2000 in its tech front. BSE has been transformed during my tenure and transforming every moment to be better, faster. There is no fight with anyone anywhere--I am not a boss, just a worker. This IPO won't enrich my bank account, I don't have any personal interest."

We walk towards the elevator marked as 'For VIPs' as he adds, "I come from a small village, I studied in a Gujarati medium school, I am close to the roots and still grounded--I wish to remain like this till I breath last." Whether BSE's IPO will be an ultra-success one or not, Dalal Street will say that during the first week of February but Chauhan's success in both the Exchanges are already proven. Beyond doubt, says, his deputy waving me goodbye for now.


Public interest directors (PIDs) have started raising questions with Ramkrishna-led management on issues such as SEBI committee's findings that the exchange gave unfair access to some brokers in high-frequency trading as well as concerns raised by investors over the delay in listing.

Will NSE’s IPO be a non-starter as it has already got tangled in the ‘dark fibres’ of SEBI’s probe? The answer for the question may be YES. The investigation into the unfair access affair came after a Singapore-based anonymous whistleblower wrote to SEBI and the finance ministry claiming a conspiracy between NSE some of NSE officials and NSE members. In that letter, it was clearly mentioned that NSE has violated the norms of fair access and allowed some brokers to benefit by providing a prioritised access through these dark fibres. However, according to the policy of NSE, the links are allowed only through approved ISPs.

A dark fibre is a dedicated communication line without any switch or multiplexer (MUX) and carries data faster compared to a regular line laid by an ISP which works on the transmission control protocol/Internet protocol (TCP/IP) architecture of communication.

However, few trading members were allowed to terminate their links through non-ISPs. That provision gave an advantage to those trading members over others, especially in the aspect of multi-legged orders.

Coming on to algorithmic trading, stock brokers and traders are required to undergo system audits once in six months to ensure that the system programmes are in line with regulations of the SEBI and the stock exchanges. SEBI is currently working on the final guidelines for algorithmic trading. The possible restrictions that could be placed on algorithmic trading include determination of the resting period and fixing a benchmark for order-to-trade ratio.

Going ahead. keeping the IPO in mind, NSE will have to come out clean from this mess by fixing responsibilities and fairly disclosing all the requisite information to the SEBI and public at large to restore its credibility and confidence of the investors. A high level of transparency would be required to clear the clouds over the dark fibre episode in order to ensure smooth sailing for the IPO of the bourse.

Whether this issue of dark fibre will have any impact on the NSE IPO, I doubt it. NSE would have cleaned up before it filed its DRHP. The benefit the brokers derived from the preferential treatment is all done and dusted. Investors eagerly await the two IPOs and it will be a race to the finish as to which of them will garner more subscription. The dark fibre issue is just a common cold, which will heal itself! Sangeeta Lakhi, Senior Partner, Rajani Associates


Former top boss of SEBI, Sandeep Parekh talks about pros and cons of cross-listing to DSIJ. Excerpts:

Another way in which the conflict of interest or opportunities for abuse that may be present in self-listing (such as undue benefits out of its own systems), may be addressed is through cross-listing, where the regulator exchange would ensure that the regulated exchange complies with the applicable norms. Although stock exchanges have resisted cross-listing on the ground that it would adversely affect trade secrets and involve sharing all compliance-related information with a rival exchange who might misuse its dominant position, such concerns may be misplaced. Listed companies need to disclose such information about their operations as are required by shareholders to take informed investment decisions and for effective monitoring by regulating authorities. Hence, if regulations do not mandate disclosure of any information, the listed stock exchange need not provide the same. What is available in public domain, cannot compromise trade secrets by definition.

So long as there are appropriate policies and procedures to check that listing and compliance standards are maintained and no unfair market practices are adopted by an exchange to favour its own or securities of associate/affiliate companies listed on its platform, or to be unduly strict with a rival exchange listed on its bourse, exchanges should have the freedom to determine appropriate business strategies and trading technologies. Regulatory and commercial functions within a stock exchange that seeks to get listed should be appropriately segregated. Exchanges may have governance arrangements to house regulatory functions or constitute independent committees to oversee such functions; impose information firewalls and restrict access to premises and files; and undertake special reporting to the regulator about conflicts that arise. An exchange’s services and systems should be such that ensures a level playing field for all participants.


“The IPO Aims To Give Quality Returns To Investors”

While NSE top brass declined to come on record on the IPO, a highly-placed source close to India’s biggest bourse told DSIJ:

Does NSE need money in the future to invest in its products and services?

NSE is coming out with an IPO through offer for sale and for not raising fresh capital as investors wanted an exit route unlike BSE. There are very less number of shareholders who are exiting with small number of shareholdings who wanted to get better valuation for their investments which were done in the NSE. There is no fresh money which will be coming from the IPO. The idea for an IPO was to get quality return on investments done and the market regulator also allowed us to do so. NSE is a profitable entity and is coming out with second largest IPO after Coal India which is quite good quality one coming into the market.

Is NSE planning for any further technological upgradation?

This is an ongoing thing. We have been working on technology since 1994, and moving to the next stage, which we would be developing in-house. The Exchange has evolved from unicast to multicast technology since the market started accepting multicast from May 2014.

Earlier when it was unicast, the market wasn’t really prepared and we were expected to format the data and send it to the market.

The market has also matured over a period of time and started accepting data in the new format. Therefore, it is an ongoing process of evolving technology and NSE is continuously working on that front.

Considering the maturity of the Indian financial market today, can we expect more financial products from the exchange?

NSE has evolved and was the first to start products in future and options segment. Several products from the currency segment were also launched by us first. Recently, NSE has launched Bank Nifty weekly contract which has been hugely successful. Various financial instruments have been recently approved and many more are likely to come in near future even in currency.

What are NSE’s plans for investors’ awareness, as participation from the retail investors in the market is very low?

More than half of the taxpayers in the country are investing through the NSE. We are conducting about 1,500 investors’ awareness seminars in various districts in the country. This is an ongoing initiative. There are investor melas where people are invited. We would also be inviting SMEs and even educational institutions. So awareness initiatives are organised at different levels. NSE is focusing on tier-II and tier-III cities for investor awareness programmes.


In a country like India, one of the favourite market for foreign investors among emerging markets across the globe, investors are exaggerating over economic barometers i.e. bourses of the country are going to list on exchanges through cross-listing. The IPOs of BSE and NSE will attract retail investors and other HNIs and anchor investors. Further response towards IPOs and valuations will surge depending on action plans of these bourses. At the same time, Multi Commodity Exchange (MCX) is the only listed exchange in the country. The issue of commodity bourse has witnessed 54.13x subscription on its last day of bidding on February 24,2012. The issue came at a price band of Rs. 860-1032. It has opened at a premium of 34.4 per cent and closed at Rs. 1297.05 on the day of listing.

Considering the IPOs of country's two major exchanges, we at Dalal Street Investment Journal are expecting these IPOs to get higher response from retail investors. On the basis of the experience of commodity exchange IPO listing, the IPOs of these big bourses are expected to list on premium valuations on account of financial awareness in the country and growth prospectus of these stock exchanges. Going ahead, the entire world is keenly watching the BSE and NSE IPOs and the premium at which these IPOs will list on the market.

BSE is world's largest exchange by number of listed companies. At the upper end of the price band INR. 805-806, the stock is available at P/E of 28x based on annualized FY17E earnings. Its EPS is at Rs. 48.5. The exchange’s competitive position in the mainstay cash equities business has declined year after year. BSE has done well with its SME (small and medium enterprises) exchange and with its mutual fund trading platform. The valuation looks attractive compare to other exchange listed which is MCX. Dhruv Desai, Director & COO, Tradebulls


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