Those of you reading my blog know that I am paranoid about quality of strong, independent and reasonably fair management when I buy a share. To me it does not matter whether the prospects of a business are good or bad – that is at a later date.
So let us talk about the NSE management. Seriously, I have nothing good to say, so I will suffice by saying that I would not really like to invest in that business. If management quality was the only consideration, I would not invest. However, the market monopoly – or the near monopoly position that it has, and an extremely poor competitor – if you were to call it a duopoly at best. Financial Technologies with its mess does not look like a threat to create another equity ‘stock’ exchange, so that competition is out. Will new exchanges come to India? Will NYSE decide to open an India operations center? I am not sure.
So the market position is a huge, huge advantage and like Warren Buffett says this business is perhaps idiot proof. Employee corruption, data leakage, unfair advantages – will harm and cause harm to the participants, but may not create much of revenue loss. The current shareholders are all BFSI players, the members are part of BFSI, and all of them will take this view. So the majority of people taking a view of poor management, but great business prospects will ensure that the issue is a success. Do remember this is a sale by the existing shareholders, and therefore it is well and fully priced, so cannot expect much of a listing premium. If you are a stag you will be disappointed, but hey, markets are not easy to predict. There will be a lot of appetite and unfulfilled appetite will be met by buying on listing – and you could be surprised by a listing premium, but I doubt it.
All the fund managers in India with its unimaginative managers chase about 100 shares – and they will have no choice but to buy NSE on listing or in the IPO, so demand for the shares is assured. Very quickly NSE will be included in the indices – it just walks into many indices and that means a lot of demand from index funds, NPS fund managers, etc.
So on the demand side, clearly, there will be a lot of demand. Indian equity markets are growing – forget what value they are adding to you and me with their trading mindset, but revenues for Nse WILL only grow, and grow at good rates. Again revenue growth is assured.
What more can one want? Fair pricing at the IPO? No, that will not happen, it will be priced very steep and will take a very long time for YOU to make money on that share – on a normal basis. However this IPO and the Icici Prudential Life Insurance IPO are special, the fund managers will hold them for the ‘long term’ and incubate it – so after a few years this will look like a good share. Inspite of the whistle blower case, Moneylife story, leading to the COO story, CEO and her brother resigning story…and ALL THIS MENTIONED in the press, the issue will go through – called media advertising power….
Will it go the Maruti way – somebody suggested this on my Twitter feed. My answer is no. Maruti was not an IPO, Suzuki wanted its company to be listed, and it was an offer for sale by the Gov of India. Suzuki management was and is very strong, that is not true of NSE. Product should be good – that is not true of I Pru Life.
Caveat: I do not have any share of I Pru Life – I think the product where it makes money is morally bankrupt. I have no intentions of applying in the NSE IPO – hey that is the view of a 55 year old blogger, you take your call. Read the prospectus carefully – if you do read it well, it is not worth applying. However if you are sure that it will quote at a premium and you would have sold it off by then, apply. Afterall in passing the parcel, if you are confident of your success, the music may not stop when you are holding the parcel. All the best.
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