India's market regulator Sebi has given in-principle approval to NSE's settlement application in the long-running unfair market access case, clearing a major regulatory hurdle for the country's largest stock exchange's IPO plans. The development represents the strongest signal yet that NSE may finally move closer to its long-awaited public listing after years of delays.

Regulatory Breakthrough Paves Way for IPO

Sebi Chairman Tuhin Kanta Pandey confirmed on Thursday that the regulator has accepted NSE's settlement proposal at the in-principle stage. The government has also approved a 2.5% stake dilution in the exchange, with a notification expected soon. Pandey indicated that a no-objection certificate (NOC) for the public offer would be issued later this month.

NSE is currently in discussions with investment bankers and law firms to finalize the prospectus and assess investor appetite for what could become one of India's largest IPOs. Formal appointments of advisers are expected after Sebi issues the NOC.

Long Journey Toward Public Listing

The world's largest derivatives exchange by volume has been attempting to go public since 2016. Its listing plans faced repeated delays due to regulatory investigations into fair market access through co-location facilities and broader governance concerns. Last year, NSE offered to settle the case by paying ₹1,387.00 crore, which Sebi has been evaluating.

The regulatory environment has become more favorable following Sebi's 2024 decision to reduce minimum public float requirements for very large companies. Entities valued above ₹5.00 lakh crore post-listing can now dilute just 2.5% of equity, compared to the earlier 5% requirement.

Market Response and Valuation Surge

Regulatory clarity has reignited strong interest in NSE shares in unlisted and grey markets. Over recent days, NSE's unlisted share prices have risen approximately 10-15% as investors rushed to gain exposure ahead of the potential IPO.

Tejas, Vice President–Marketplace at Qapita, noted that the exchange operates in a near-duopoly market with high entry barriers across regulation, technology, and capital. The renewed regulatory momentum has prompted buyers to step in, pushing unlisted prices higher.

Complex Shareholder Structure Adds Challenges

NSE's unusually large shareholder base of around 1,77,807 shareholders makes it India's largest unlisted company by number of investors. Lawyers working on the IPO are expected to design mechanisms ensuring fair exit opportunities for this wide shareholder base, with priority likely given to long-term institutional investors such as banks and foreign funds. The matter remains pending before the Supreme Court, though the settlement proposal represents significant progress toward resolution.

NSE shares in the unlisted market have witnessed a sharp rally of 10-15% over recent days, driven by renewed IPO speculation and the strongest regulatory signal yet that India's largest stock exchange may finally proceed with its public listing. The surge follows SEBI chief's indication that a long-awaited no-objection certificate could be issued this month, marking what investors interpret as a turning point in a listing process that has stretched nearly a decade.

IPO Timeline and Market Valuation

According to reports, NSE plans to file its draft red herring prospectus by March-end and is currently in discussions with investment bankers and law firms to finalize documentation and assess investor appetite. If executed as planned, the offering could rank among India's largest IPOs in capital market history.

The exchange operates with an unusually large shareholder base for an unlisted entity, making it India's largest unlisted company by investor count. Legal teams are reportedly developing mechanisms to ensure fair exit opportunities for this diverse group, with priority likely given to banks and foreign institutions holding long-term stakes.

Financial Performance Under Pressure

Despite the listing optimism, NSE's recent financial performance reflects regulatory headwinds. SEBI's November 2024 clampdown on equity derivatives, including the ban on multiple weekly contracts to curb excessive speculation, significantly impacted trading volumes and exchange revenues.

These numbers highlight that while NSE maintains a strong long-term franchise, its earnings remain vulnerable to regulatory changes affecting its most profitable segments.

Market Expert Perspectives

Investment professionals present mixed views on current unlisted market activity. Tejas, VP-Marketplace at Qapita, notes that investor reaction was anticipated given the IPO's multi-year development. "NSE's IPO has been in the making for a few years now. Investors have reacted positively to the news, and we are seeing increased buyer interest that has resulted in unlisted trading prices moving higher by about 10% from the pre-announcement date," he stated.

However, Divam Sharma, co-founder of Green Portfolio, expresses caution about current valuations. "We would suggest that investors should not go aggressive and buy NSE shares at these valuations. The IPO should offer better pricing as market sentiments are also weak," he advised, noting the 15% price increase in recent days.

Investment Considerations and Peer Comparison

NSE's strategic positioning as India's largest stock exchange and the world's most active derivatives bourse by contract volume underpins its long-term investment appeal. The exchange operates within a near-duopoly alongside BSE, benefiting from high entry barriers including technology requirements, regulatory oversight, and liquidity needs.

For comparison, BSE shares currently trade at ₹2,767.00, reflecting strong re-rating as cash market volumes improved. While some analysts believe NSE could command a premium given its derivatives dominance, others argue regulatory risks warrant conservative valuation approaches.

Strategic Decision Framework

Investors face a choice between immediate unlisted market exposure and waiting for IPO clarity. Unlisted market participation offers early access and avoids allocation uncertainty but involves higher price opacity, limited liquidity, and potential peak optimism risks. IPO participation may provide clearer disclosures, regulated pricing, and better exit flexibility, though aggressive pricing could limit upside potential.

Market consensus acknowledges NSE as a high-quality asset with strong long-term relevance to India's financial infrastructure. The primary debate centers on timing and valuation rather than fundamental investment merit, with conservative investors potentially benefiting from IPO evaluation against detailed financials, while long-term focused investors might consider staggered exposure strategies.