NSDL IPO GMP hints at 17% listing gains but pre-IPO investors still nursing losses

Economic Times

01-08-2025

In a move that blindsided many investors, National Securities Depository Ltd (NSDL), India's oldest depository, has set the price band for its Rs 4,011.6 crore initial public offering at Rs 760–800 per share, a sharp 22% discount to its last unlisted market valuation of Rs 1,025. The markdown has left early investors nursing notional losses, even as grey market premiums of around 17% point to potential listing gains for public market participants.
ADVERTISEMENT As of August 1, in the grey market, NSDL shares were trading at a premium of 16.75% over the IPO's upper price band, suggesting a potential listing gain of Rs 134 and an estimated debut price of around Rs 934 per share.
The demand for the Rs 4,011.6 crore IPO has remained strong, which was subscribed 3.56 times by the second day of bidding. Non-institutional investors led with 6.84 times subscription, followed by retail investors at 3.26 times and qualified institutional buyers at 1.59 times.
'The market response signals that the IPO price was set with a deliberate safety margin — not 'too low' per se, but purposefully discounted to foster solid demand and deliver tangible upside,' said Nitin Jain, Senior Research Analyst at Bonanza. 'The strong GMP and oversubscription both reinforce the notion that the pricing left money on the table for new investors, a move that may benefit long-term secondary market stability.'In contrast, investors who bought NSDL shares off-market, some paying as much as Rs 1,275 apiece, are now sitting on deep paper losses.
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Anirudh Garg, Fund Manager and Partner at INVasset PMS, said the sharp discount 'stems from a shift in investor sentiment and a recalibration of inflated unlisted valuations.' According to Garg, 'Between April and June 2025, NSDL's unlisted shares soared to Rs 1,275, fueled by regulatory tailwinds and heightened institutional interest. However, by July, prices cooled to Rs 1,025—signaling that prior valuations may have factored in speculative exuberance rather than grounded fundamentals.'
Garg said that 'the IPO pricing reflects a more realistic entry point based on financial metrics,' highlighting NSDL's FY25 revenue of Rs 1,535.18 crore, profit after tax (PAT) of Rs 343 crore, and return on equity (ROE) of 17.1%. With Rs 464 trillion in assets under custody and a 68% market share in demat value, NSDL remains 'a systemic infrastructure play.'
ADVERTISEMENT Anirudh Garg called the pricing 'strategic,' aimed at ensuring 'robust investor participation, smooth listing, and long-term alignment with fundamentals.'Nitin Jain, Sr. Research Analyst at Bonanza, echoed similar concerns about inflated grey market expectations. 'Unlisted share prices are often driven by hype, scarcity, and anticipation of an IPO, rather than by fundamentals,' he said. 'The unlisted market is less liquid, and a few participants can push prices higher, resulting in valuations that aren't always sustainable or based on rigorous earnings multiples.'
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The IPO is a pure offer for sale (OFS), with existing shareholders exiting part of their holdings. There is no fresh capital being raised, which analysts believe also contributed to the conservative pricing.
'The full OFS structure does contribute to more conservative pricing, as IPO investors recognize there is no 'growth money' coming into the company,' said Jain. 'It encourages benchmarking valuation to public market comparables and often results in a more moderate price to ensure post-listing stability and appeal, compared to unlisted or pre-IPO exuberance.'
ADVERTISEMENT "'In an OFS, existing shareholders exit partially or fully, and no new money flows into the business. As such, there's a greater emphasis on offering fair value to public investors, especially when there's no immediate growth capital deployment. The discount also aligns with the broader IPO trend of recalibrating inflated unlisted premiums," Anirudh Garg said.NSDL's asking price implies a price-to-earnings (P/E) multiple of 46.6, considerably below its listed peer CDSL, which trades at a P/E of 66.6. While the difference has raised questions, analysts argue that the discount is not unwarranted.Jain said, 'The P/E gap between NSDL (46.6) and CDSL (66.6) largely reflects structural and performance differences between the two depositories.' He noted that while both operate as regulated duopolies, CDSL's stronger profitability and leaner, retail-focused model justifies its higher valuation.Garg explained that 'NSDL is a diversified infrastructure institution with deep regulatory integration and a broader scope of services.' However, 'over 50% of its revenue comes from banking services (like e-KYC and CRA for NPS), but this contributes only 1% of profits—pointing to thinner margins in these segments.'Despite that, Garg said, 'NSDL's FY25 financials remain strong… While the lower P/E reflects relatively modest profitability, it also offers investors a valuation cushion.'For pre-IPO investors who entered at the Rs 1,200+ levels, the IPO price has been a bitter pill. But analysts say the reaction may be short-lived.'The initial markdown in NSDL's IPO pricing caused short-term discomfort for pre-IPO investors,' Garg said. 'However, the subsequent market response has made it clear that this is not a reflection of any structural weakness.'Jain added that 'the pain for late-stage, pre-IPO investors arises largely from market cycles and the shift from speculative unlisted pricing to more disciplined public valuations.'
NSDL's case is not an anomaly. Recent IPOs like HDB Financial Services and Tata Technologies have followed a similar trajectory. HDB's issue, for instance, was priced at Rs 740, a 40% discount to its Rs 1,225 unlisted value, and listed at Rs 835. Today, it trades around Rs 760, still below the entry price for many grey market investors.'The steep discounts in recent IPOs, including NSDL's 22% markdown... signal a broader market recalibration,' said Garg. 'These discounts are not merely about timing but reflect a correction of inflated valuations that had built up in the unlisted space.'Jain concurred that 'the deep IPO discounts are a correction of prior unsustainable premiums in the unlisted market… The era of easy, pre-IPO arbitrage appears to be over—for now, realism and caution are firmly back.'As India's primary markets mature, analysts caution investors to look beyond grey market whispers and focus on fundamentals.Garg said, 'The discounting trend is a sign of normalization, not distress, and reflects a healthier, data-driven approach to primary market pricing.'In the end, the message is clear: in the unlisted market, 'strong stories don't always mean strong returns—especially when your investing horizon ends on listing day.'
Also read | NSDL IPO subscribed over 5.03 times on Day 3, GMP rises to 17%. Check reviews, other details
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