What is the NSE Bonus Issue?
The National Stock Exchange (NSE) of India recently announced its consideration of a bonus issue of equity shares during its board meeting on May 3, 2024. But what does this mean for investors? The bonus issue typically allows companies to reward shareholders by issuing additional shares, enhancing their investment without requiring any extra cash. This announcement has sparked interest, especially among those keen on the dynamics of unlisted stocks.
Understanding Bonus Issues and Their Impact:
A bonus issue involves a company distributing additional shares to existing shareholders for free, usually based on the number of shares already held. This action increases the total number of shares in circulation, which can influence market perception and liquidity.
Why Consider a Bonus Issue?
- Rewarding Shareholders: It allows companies to share profits with shareholders without distributing cash.
- Improving Liquidity: By increasing the number of shares, trading becomes more accessible, which can enhance liquidity in the stock.
- Market Sentiment: A bonus issue often signals a company’s confidence in its future, potentially attracting more investors.
The Current Status of NSE Shares:
NSE in the Unlisted Market Landscape:
Unlike its competitors, the Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX), the NSE operates as an unlisted stock. Despite this, shares of NSE are actively traded in the unlisted market, allowing investors to engage with its performance. Platforms like Unlisted Arena, Unlisted Zone, and Stockify facilitate the buying and selling of these unlisted shares.
Current Share Prices and Trading Trends:
According to Unlisted Zone, NSE shares are trading around ₹4,800, with a 52-week high of ₹4,800 and a low of ₹3,400. Similarly, Stockify lists NSE shares at ₹4,700. Such price ranges indicate healthy interest in NSE shares, making them an attractive option for investors looking to diversify their portfolios.
Growing Awareness and Participation in Unlisted Markets:
Manan Doshi, co-founder of Unlisted Arena, notes that awareness of unlisted shares has significantly increased in recent years. Five years ago, many investors were unaware of opportunities to invest in shares before an IPO. Today, the landscape is different, with heightened participation and liquidity.
Impact of Market Trends:
As observed, unlisted markets tend to reflect the trends of listed markets. For instance, during a bullish phase in the equity market, demand for unlisted shares also rises, which can lead to higher premiums. The example of Tata Technologies, which saw its unlisted shares trading between ₹90 and ₹900 before its successful IPO, illustrates this trend well.
Buying and Selling Unlisted Shares: What You Should Know?
Platforms for Trading Unlisted Shares:
You can buy and sell unlisted shares through various platforms, just as you would in the listed market. However, keep in mind that if you purchase unlisted shares and the company later launches an IPO, you might face a six-month lock-in period before you can sell.
Strategies for Trading Unlisted Shares:
- Research Platforms: Use platforms like Unlisted Arena or Stockify for competitive pricing and to find potential buyers or sellers.
- Understand Lock-in Periods: Be aware of the implications of an IPO on your trading strategy, especially regarding lock-in periods.
- Stay Informed: Regularly monitor market trends and news related to the NSE to make informed decisions.
Is Now the Right Time to Invest?
Investing in unlisted shares, including NSE, can be a strategic move, especially with the bonus issue on the horizon. But is it the right time for you? Assess your financial situation, investment goals, and risk tolerance before diving in.
NSE’s Financial Performance and Shareholding Structure:
Impressive Financial Metrics:
In FY2023, NSE reported a net profit of ₹7,501 crore, bolstered by a revenue of ₹12,650 crore. This performance underscores the exchange’s solid market position and operational effectiveness.
Shareholding Breakdown:
As of March 2024, the shareholding structure reveals that public shareholders hold 56.2%, which includes:
- Insurance Companies: 6.81%
- Foreign Direct Investments: 22.62%
- Foreign Portfolio Investments: 2.2%
The non-promoter holdings, comprising trading members and their associates, stand at 43.8%. Such a diversified ownership structure suggests broad confidence in NSE’s prospects.
The Road Ahead: NSE’s IPO Plans and Regulatory Challenges:
A History of IPO Challenges:
The NSE has faced multiple regulatory hurdles in its quest to launch an IPO. Preliminary documents were submitted to the Securities and Exchange Board of India (SEBI) back in December 2016 for an estimated ₹10,000 crore IPO. However, several discussions and conditions laid down by SEBI have delayed these plans.
Current Regulatory Landscape:
In December 2023, SEBI outlined essential conditions for NSE’s IPO approval, including a glitch-free trading experience and enhanced corporate governance. Meeting these standards is critical for NSE to secure the necessary green light for its public offering.
Comparative Analysis with Listed Peers:
Performance of BSE and MCX:
When comparing NSE’s unlisted status with its listed peers, the Bombay Stock Exchange has shown significant growth, with shares quoted at ₹2,810, reflecting a 249% increase since its issue price of ₹806 in 2017. Meanwhile, the Multi Commodity Exchange has seen its stock soar 298% since its IPO in 2012, now trading at ₹4,108 compared to the issue price of ₹1,032.
Lessons for NSE from Its Peers:
The performance of BSE and MCX serves as a benchmark for NSE. The successful implementation of a bonus issue and a well-timed IPO could catalyze similar investor interest and share price appreciation for NSE, setting the stage for a robust market presence.
Conclusion: The Future of NSE and Its Bonus Issue:
The announcement of the NSE bonus issue is more than just a corporate decision; it reflects the evolving landscape of unlisted shares in India. With growing investor awareness, strategic trading platforms, and the potential for significant returns, the unlisted market is ripe for exploration. As investors, staying informed and adapting to market trends will be key to leveraging opportunities that arise from the NSE’s upcoming decisions.
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