NSE IPO Size Reduced: Why Morgan Stanley, Insurance Companies Cut OFS Shares

The proposed initial public offering (IPO) of the National Stock Exchange (NSE) is set to become smaller, with the issue size expected to fall to around ₹23,000 crore from approximately ₹30,000 crore proposed in the exchange's original Draft Red Herring Prospectus (DRHP).

NSE filed its updated Draft Red Herring Prospectus (UDRHP) with the Securities and Exchange Board of India (SEBI) and the stock exchanges on Wednesday. The reduction in the proposed IPO size comes after several existing shareholders, including public-sector insurance companies and a Morgan Stanley-linked entity, reduced the number of shares they intend to sell through the Offer-for-Sale (OFS) route.

NSE IPO to Remain Entirely OFS

The NSE IPO will continue to be an entirely Offer-for-Sale issue.

This means the exchange itself will not receive any proceeds from the IPO. Instead, existing shareholders will sell part of their holdings to public investors.

The original DRHP filed in June had proposed the sale of around 14.89 crore NSE shares, representing approximately 6% of the company's equity. Following the reduction in the number of shares offered by some shareholders, the overall issue size is now expected to be around ₹23,000 crore.

PSU Insurance Companies Cut OFS Shares

Several public-sector insurance companies that were part of the proposed NSE IPO have reduced the number of shares they plan to sell.

Under the original DRHP, General Insurance Corporation of India (GIC) had proposed selling up to 1.066 crore NSE shares, while New India Assurance had planned to offer around 1.05 crore shares.

National Insurance Company and United India Insurance Company had each proposed selling 60 lakh shares.

Together, the four PSU insurance companies had initially proposed selling approximately 3.37 crore NSE shares through the OFS.

The reduction in their proposed stake sale has contributed to the decline in the overall NSE IPO size.

Morgan Stanley-Linked Entity Also Reduces Stake Sale

MS Strategic (Mauritius) Limited, an entity linked to Morgan Stanley, has also reduced its proposed OFS.

The original DRHP showed that MS Strategic planned to sell around 1.60 crore NSE shares.

Its decision to reduce the number of shares on offer is another factor behind the smaller proposed IPO size.

NSE IPO Size Falls Despite Strong Investor Interest

The reduction in the NSE IPO size comes at a time when investor interest in the issue remains exceptionally strong.

Reports indicate that institutional investors have shown interest worth approximately ₹85,000 crore in the institutional portion of the proposed IPO.

This suggests that demand from large investors remains robust despite the reduction in the number of shares being offered.

The smaller OFS could potentially affect the overall supply of NSE shares available to investors once the IPO opens, although the final issue size and pricing will depend on the regulatory and IPO process.

Why Are NSE IPO Shareholders Reducing OFS?

The reduction in the OFS appears to be linked primarily to decisions by existing shareholders over how much of their NSE holdings they want to monetise through the IPO.

Since the NSE IPO is entirely an OFS, any reduction by selling shareholders directly lowers the number of shares offered to investors and, consequently, the potential size of the issue.

The move also comes as the market assesses NSE's valuation ahead of its much-anticipated listing.

What Does the Smaller NSE IPO Mean for Investors?

For investors, the reduction in the NSE IPO size does not necessarily indicate weaker demand for the exchange.

In fact, the reported institutional interest of around ₹85,000 crore suggests significant appetite for NSE shares.

The key difference is that fewer existing shareholders' shares are now expected to be available through the IPO.

The NSE IPO remains one of the most closely watched listings in India's capital markets, given the exchange's dominant position in the country's equity and derivatives ecosystem.

Investors will now closely track the final OFS size, price band, valuation and other details as NSE moves closer to its proposed public listing.