A clutch of 20 investors, including Share India Securities, SKI Capital Services, Zerodha and Groww have committed to participating in the ₹700 crore preferential offering by National Commodity & Derivatives Exchange Ltd (NCDEX), which aims to launch equities and equity derivatives trading on its platform within a year.
While Share India informed the stock exchanges about investing ₹28 crore for 1.58% of the post-issue capital of NCDEX on Tuesday at ₹197.34 apiece, SKI Capital Services’ founder and managing director Narinder Wadhwa confirmed a commitment to “picking up stake” in India’s largest agri derivatives exchange.
Based on Share India’s investment, NCDEX is valued at ₹1,770 crore on a post-issue capital basis. Though this pales in comparison with the listed stock exchange BSE’s market cap of ₹1.02 trillion and the unlisted NSE’s ₹5.2 trillion valuation, analysts expect another entrant into the equities space to increase the competition, especially in the hugely popular weekly index options space.
A person aware of the fundraising said that Zerodha and Groww had also committed to participating in the preferential offer.
A Zerodha spokesperson declined to comment, and a query to Groww remained unanswered until press time.
“While I can’t name the prospective investors at this stage, I can tell you the exchange’s preferential allotment has received very good response from brokers, HNIs and high-frequency traders (HFTs),” said Arun Raste, managing director and chief executive officer at NCDEX.
Raste declined to provide names as the offer process was still underway and prospective investors were seeking board approvals. He, however, confirmed the size of the preferential allotment at ₹700 crore. He added that 20 investors had expressed interest in the offering, of which half had made investment commitments.
Raste said the exchange would seek board approval on the quantum raised and shareholder approval thereafter at its annual general meeting on 25 September.
Existing shareholders of NCDEX include NSE (15%), Life Insurance Corp. and Nabard (11.1% each), Oman India Joint Investment Fund (8%), Punjab National Bank (7.3%) and Canara Bank (6%).
While institutional shareholders can hold up to 15% of an exchange’s equity, a single broker can hold 4.99%.
NCDEX shares in the unlisted market traded at ₹325, up from ₹250 a month ago, according to a market analyst.
NCDEX was set up in 2003 and offers futures trading in guar and its derivatives, spices and raw cotton.
NCDEX received an in-principle approval from Sebi to set up an equities segment in late July and is gearing up for the launch, preceded by the fund raise, which will see it offer a cash segment, where shares are exchanged between investors; and a derivatives segment, which is home to the popular weekly index options currently offered by NSE and BSE.
“You can’t get volumes without people and vice versa — it’s a bit like a chicken-and-egg situation,” said independent market analyst Ambareesh Baliga. “So my guess is shareholder brokers will initially drive liquidity through weekly index options of the prospective entrant to induce participants to trade on a new segment,”
The exchange is in talks with its existing vendor LSEG regarding the technological aspects of the new segment, including additional servers at the main site, disaster recovery and near recovery sites, member connectivity, and colocation within the stipulated timeline. According to Raste, depending on the outcome, it could use its existing vendor or appoint a new one.
“We initially aimed at raising ₹500 crore but then decided to increase the offer size to the upper limit, given the requirements of technology upgradation in a challenging geopolitical environment,” said Raste. “Around two-thirds of the proceeds would be used for technology and related services with the rest going toward manpower, etc.”
