India’s NSE Listing Saga: Punish People, Not Institutions

The country has a shining winner in NSE. Yet, the bourse has been stuck in regulatory hurdles for years now.

Two thousand and twenty-two (2022) AD shoved the global economy into a deep funk. Excessive ‘COVID-19 cash’, inflamed by Russia’s invasion of Ukraine, created a flagellation reminiscent of the post-Lehman subprime crash of 2008. While economic fundamentals are nowhere near as ravaged, the sense of doom is comparable.

Just look at what India weathered until mid-year. Foreign investors pulled out $30 billion from our stock markets, causing them to plummet by 15% in six months. The rupee aged to an octogenarian, touching 80 to the US dollar, even as the Reserve Bank of India (RBI) threw a sink of $80 billion in defending our proxy “national pride”, ie, a strong rupee.

• The National Stock Exchange (NSE) a crown jewel that we have hidden in plain sight – in fact, we are doing all we can to smother its glory under a shroud of mistakes that are long past and have been completely corrected.

• At about $3 trillion, it’s the ninth-largest by the market value of listed companies.

• It’s not that sinners should be pardoned just because they’ve created excellence. But people commit crimes, not organisations.

• In any case, NSE is virtually listed, with a shareholding base of nearly 4,000, a majority of whom are high-net worth individuals. Its shares are quasi-liquid and get rapidly exchanged on non-market platforms.

• If the government is still squeamish, it should let NSE list on a more mature overseas exchange, with institutional spirit and comprehensive disclosures. If anything, this shall be a win-win, with several billion dollars flowing into our economy.

But this meltdown is a pretty sight compared to the horrors playing out at the “dizzyingly sexy” intersection of digital/millennial assets. Cryptocurrencies such as Bitcoin and Dogecoin are at a quarter of their peak values. The carcasses of much-fancied ‘unicorns’, whose market values soared even as losses plunged to new depths, lie strewn in a financial graveyard. Zomato, Paytm, Policy Bazaar, Nykaa, Car Trade – you name ‘em – have destroyed from a third to four-fifths of investors’ wealth. The toxic icing on the ‘cake’ is skyrocketing inflation, high interest rates and shrinking trade and capital flows, all amidst a pervasive global gloom.

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In short, it was a perfect storm from January to June. While July brought some respite from unrelenting crises, it’s a blip whose strength is questionable. It’s just too early for the world to relax or celebrate.

But it’s not too early for India to seize the moment, to build on the creeping optimism and sentiment that “India may, perhaps, be the least affected large economy in this mayhem”. That’s correct. By almost any count, we are sitting prettier than many peers – okay, most of the good news is trapped in our formal, corporate economy, with the rural and informal sectors still struggling, yet this is one heck of an uncommon circumstance. It’s not often that we can be the world champions of an economic recovery. So, we must build on the tempo, put all our assets on display, strenuously sell our opportunity – and, of course, trot out all our crown jewels to dazzle a cynical tribe of investors.

Does India Really Understand NSE's Worth?

While there are many stories to tell, I will fasten on to a sure-shot winner, a real thoroughbred. But it’s a crown jewel that we have cruelly hidden in plain sight – in fact, we are doing all we can to smother its glory under a shroud of mistakes that are long past and have been completely corrected. Yet, we are keeping its exciting future shackled and imprisoned to a fleeting past, as if three decades of stellar achievements have been totally obliterated by a few years of a few people’s alleged misdemeanours. Yes, you have perhaps guessed it by now. I am talking about the National Stock Exchange of India, the much-pilloried NSE.

For the naysayers, let me give just a few objective data points:

• It’s the largest derivate exchange globally, bigger than NYSE, Nasdaq, London, Hong Kong and Shanghai

• At about $3 trillion, it’s the ninth-largest by the market value of listed companies. Just imagine the blue skies it could soar to, since barely 5% of India’s GDP is captured on NSE, as opposed to over 50% in the US. So, as India’s economy expands and formalises, NSE could grow tenfold in value!

• It’s prodigiously profitable. It operates at over 75% margins, with profits compounding at over 50% for two previous years. It’s given a dividend of Rs 42/share. It commands 90% market share, and over Rs 2 trillion, or $25 billion, of market cap

• It’s a world-beater in digital technology, a pioneer of dematerialised transactions, with perhaps the shortest and most secure trade settlement cycle on earth

I can go on and on, but the point should be irrefutably clear – in NSE, India has created an institution that has led the world in innovation. Unfortunately, we can’t say that about too many homegrown champions. But when it comes to NSE, we cannot be challenged. We’ve got an astonishing winner here. Period.

Let NSE Fly

It’s not my case that sinners should be pardoned just because they’ve created excellence. No, sir. By all means, let the law punish those who have broken it. But why punish an inorganic institution that cannot conceivably have any ‘mens rea’? People commit crimes, not organisations.

If later leaders have cleaned up the mess that may have been created by a few executives, who are now facing prosecution and their own fate, let the judicial process go forth unhindered for them. But again, I ask, why imprison an institution that is a global bellwether, whose credentials are unimpeachable, whose potential is immense?

In any case, who are we fooling? NSE is virtually listed, with a shareholding base of nearly 4,000, a majority of whom are high-net worth individuals. Its shares are quasi-liquid and get rapidly exchanged on non-market platforms. So, why live in denial? Why not bring that which is happening “off the counter” onto a regulated, recognised platform?

But if our policymakers are still squeamish about exposing “vulnerable” retail investors to “unquantifiable risk”, if they still want to nanny the rush of first-time millennial punters, then so be it. Let NSE list on a more mature overseas exchange, with institutional spirit and comprehensive disclosures. If anything, this shall be a win-win, with several billion dollars flowing into our economy. More importantly, it shall exacerbate the buzz around India’s promise.

So, why have we shackled NSE, a ‘raging bull’ in stock market terminology, inside a regulatory penitentiary?

PS: Full disclosure, I own a few thousand shares of NSE.