The BSE Ltd’s initial public offer (IPO) is set to open on 23 January 2017 (hey tomorrow!). So, technically you have a chance to own a bit of a stock exchange. Nowhere in the world have they tried to kill the stock exchange – there is no unregulated market place for shares. Today you can buy many products without an intermediary, but shares will go through ONLY a stock exchange. Wow monopoly industry. As mutual funds and ULIP sales increase the need for an exchange is even more.

BSE is hawking 15.4 million shares through an IPO of equity shares, with a face value of Rs 2 each. This is an offer for sale from existing shareholders (which means when you buy you make them rich) and that BSE will not get funds for its internal use. Some of the shareholders are exiting fully and the others are exiting partially. About 35% of the issue is reserved for retail investors. I do not see much of a scope of immediate appreciation in the market.

Should you invest in the BSE as a listed product at a price around Rs. 800? Take a look:

For:

• Duopoly pricing – no question of ceasing to exist
• Old – you are getting a part of the history
• All shareholders are members – as of now – and thus will want to do business in their ‘own’ exchange
• Sentimentally attached means the existing shareholders may not sell in a hurry
• Good growing business in a well regulated industry, growth is almost guaranteed
• Good location, good franchisee, lots of good will and will find a lot of institutional shareholders
• Annuity business

Against:

• Quality of management not too great
• Professional management – an euphemism for saying ‘nobody is responsible’
• have not won any battle, skirmish, or war against NSE
• NSE is far more efficient, better ability to attract talent
• NSE’s market share is far better
• All the shareholders are Olympic champions – there will be inside information? No clue.

Personally I do not like IPOs, and will not apply. I do not like a share which is so aggressively priced when the revenues are falling. The smart shareholders may exit and with falling revenue if the pe falls, you are likely to be stuck with a poor share. I am not sure if there is any money on the table for the stag in this share. After sometime I may take a position….

Caveat: I will not be buying shares in the IPO for sure. This has nothing to do with my liking or not liking the share, it is just that I would like a price discovery by the market. I do not think this post is an offer to buy or sell. I do not make any money if you buy or do not buy the share. I do not have a forward or a short position in the share, nor is it my responsibility to tell you what I am doing with my money, time, and management skills.