NSE's bonus announcement, and some unintended consequences!

Stock exchange NSE's management recently announced bonus shares for investors, in what was widely viewed as a good move for shareholders waiting for several years for a listing of the bourse. Howver, this announcement of a bonus now has some unintended consequences. According to many investors and brokers, the private deals for selling shares have gone into jeopardy as the sellers are not honouring their commitments.

On May 3, the NSE management announced four bonus shares for each held in NSE along with a dividend of Rs 90 per share. Unlike other listed exchanges, NSE is an unlisted entity whose shares are traded privately.
 
Many investors who spoke with Zee Business complained that now sellers are not honouring their sale commitments as after the bonus announcement, NSE share prices have gone substantially up. As the share transfer process sometimes takes 2-3 months because of various regulatory and other formalities and processes, the investors expecting the transactions to be complete are in a tizzy. In many cases, sellers are either seeking higher rates or do not want to sell, expecting a further rise in the stock price.

NSE के बोनस शेयर के ऐलान के बाद क्यों और किसके बीच हो रहा है कलेश? जानिए @BrajeshKMZee से। #NSE #NSEIPO #NSEBonusShare #StockMarket #UnlistedMarket pic.twitter.com/riCr25Ex0U

— Zee Business (@ZeeBusiness) May 22, 2024

Meanwhile, the brokers who are negotiating the deal are also in an odd position, because they have received and transferred the money to sellers. On the other hand, buyers are making the brokers accountable for the lack of transfer of shares and insisting that brokers must ensure the commitment is honoured. As the shares are unlisted, there is hardly any defined mechanism to deal with such grievances. Such matters can be settled through civil courts in a process that may take years.

According to websites tracking such unlisted stocks, NSE shares were in the range of Rs 3,700-3,900 during November-December 2023. In March-April this year, the price jumped to Rs 4,800 per share. After the announcement of bonus shares, the price jumped to Rs 6,500 per share in private deals.

Analysts find that NSE shares are cheaper than BSE shares in terms of valuation. Many a time, the wealth managers also advise investors to buy such unlisted shares where they see good potential. NSE is one such stock because of its dominant position in equity and equity derivatives volumes.
 
The interest of retail investors is increasing in the stock, which has more than doubled in a year.

According to NSE data, the number of public shareholders, which stood at 5,097 as of March 31, 2023, has now reached 11,949. People tracking the private market of NSE shares say that the issues related to the commitments not being honoured are with retail investors only, and there is no issue whatsoever of any institution going back on its commitment. 

The NSE management has been trying to list the company, but it's believed that the regulator has been hesitant to give the necessary approval due to past legal and other legacy issues.

On a recently concluded conference call, NSE MD and CEO Ashish Kumar Chauhan responded to a question about the IPO by saying that "the situation remains as it is". Chauhan is credited for listing Asia’s oldest stock exchange, BSE, in 2017.

NSE had earlier filed a DRHP in December 2016 but then withdrew the same in 2017 due to the ongoing investigations into high-frequency trading scams.