FPIs offload NSE shares amid IPO delay, increased BSE competition
What's the story
Foreign portfolio investors (FPIs) are exhibiting a bearish trend toward the National Stock Exchange (NSE), as data reveals a significant sell-off of NSE shares. Over June and July, foreign investors have sold NSE stocks worth ₹3,500 crore. This marks six consecutive months of net selling by FPIs, with the last instance of net buying recorded in January.
Sell-off surge
FPIs' selling volume surges in recent months
The volume of FPIs' selling has seen a significant increase in recent months. In June and July, a total of 7.31 million and 9.83 million NSE shares were traded respectively, with over 50% of the volume attributed to foreign investors selling 4.76 million and 3.78 million shares, respectively. This surge in sell-off activity by FPIs is a notable departure from previous months when they offloaded between 5-9% of their holdings.
Influencing factors
Market factors influencing sell-off
The sell-off is attributed to uncertainties surrounding NSE's delayed initial public offering (IPO) and increased competition from BSE in the equity derivatives sector. The co-location issue has also played a role in this trend. Experts suggest that proposed norms for the equity derivatives segment could further reduce volumes, impacting transaction fee revenue — a major income source for the exchange.
Market shifts
NSE's declining dominance and share trading volume
NSE's declining dominance in the currency derivatives segment following new regulations from the Reserve Bank of India (RBI) has also affected investor sentiment. Despite this, July witnessed the second-highest volume of NSE shares traded this year at 9.83 million, with a turnover of ₹4,377.66 crore. However, foreign investors reduced their stake in the exchange to 24.08% during the June quarter, down from 24.81% in March and 25.15% in December 2023 quarter.
Financial performance
Share price and Q1FY25 earnings
NSE's share price averaged at ₹4,282.15 in July, an increase of over 8% from June's average price of ₹3,946.54. The exchange reported strong earnings for the June quarter, with a consolidated net profit for Q1 FY25 up by 39% year-on-year to ₹2,567 crore. Revenue from operations also saw a significant rise of 51% to ₹4,510 crore during this period.