Should You Invest? A Deep Dive into the National Securities Depository Limited IPO

An independent analysis of the National Securities Depository Limited Draft Red Herring Prospectus (DRHP).

Executive Summary

This analysis provides a detailed review of the Draft Red Herring Prospectus (DRHP) for National Securities Depository Limited (NSDL). The document outlines the company's business as India's first and largest depository, the IPO offering (which is entirely an Offer for Sale), and various associated risk factors. The aim is to help potential investors understand the key aspects of this IPO and make an informed decision.

I. Understanding National Securities Depository Limited (NSDL)

National Securities Depository Limited (NSDL) is a SEBI-registered market infrastructure institution and India's first and largest depository, having pioneered the dematerialization of securities in India in November 1996. As of March 31, 2023, NSDL is the largest depository in India based on the number of issuers, active instruments, market share in demat value of settlement volume, and value of assets held under custody (Source: CRISIL Report).

Through its subsidiaries, NSDL Database Management Limited (NDML) and NSDL Payments Bank Limited (NPBL), NSDL also offers a range of IT-enabled solutions, including e-governance, payment solutions, collaborative industry solutions, regulatory platforms, KYC solutions, insurance repository services, and digital banking solutions.

NSDL is a professionally managed company and does not have an identifiable promoter. The IPO is an Offer for Sale by existing shareholders, including IDBI Bank Limited, National Stock Exchange of India Limited, Union Bank of India, State Bank of India, HDFC Bank Limited (SS), and Administrator of the Specified Undertaking of the Unit Trust of India. The company itself will not receive any proceeds from this Offer.

II. Key Positives Highlighted in the DRHP

The DRHP highlights several positive aspects of NSDL:

• Market Leadership and Pioneering Role: NSDL is India's first and largest depository, having pioneered dematerialization. This established position gives it a significant competitive advantage and a strong brand presence in the Indian securities market.
• Diversified Revenue Streams: While depository services form a large portion of revenue, NSDL has diversified into other IT-enabled solutions through its subsidiaries (NDML and NPBL), including database management and payments bank services. This diversification can provide stability and additional growth avenues.
• Growth in Indian Capital Markets: The Indian capital markets have experienced rapid growth, which directly benefits depositories like NSDL due to increased dematerialization and trading volumes.
• Strong Financial Performance: The company has shown consistent growth in revenue and profit after tax.
  • Revenue from operations: Increased from ₹4,675.69 million in Fiscal 2021 to ₹10,219.88 million in Fiscal 2023.
  • Profit after tax attributable to equity shareholders: Grew from ₹1,885.65 million in Fiscal 2021 to ₹2,348.10 million in Fiscal 2023.
  • Net Worth: Consistently increased from ₹10,192.95 million in Fiscal 2021 to ₹14,288.61 million in Fiscal 2023.
  • Zero Total Borrowings: As of March 31, 2023, the company has no total borrowings, indicating a very strong and healthy balance sheet.
• Compliance with SEBI ICDR Regulations: NSDL meets the eligibility criteria under Regulation 6(1) of the SEBI ICDR Regulations, having met the criteria for net tangible assets, average operating profit, and net worth requirements for the preceding three financial years.
• Focus on Technology and Innovation: NSDL continuously invests in technology to introduce new products and services (e.g., e-voting, digital loans against securities, blockchain-based platforms), which is crucial for staying competitive in the evolving financial market.
• Extensive Network: A large network of depository participants and service centers is instrumental in extending its reach and services to investors across India.

III. Significant Risks and Concerns (as detailed in the DRHP)

The DRHP clearly states, "Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in the Offer unless they can afford to take the risk of losing their entire investment." Here are the critical risks that warrant careful consideration:

1. Reliance on Securities Market Volumes

A significant portion of NSDL's business is transaction-based and highly dependent on high trading volumes in the securities market. External factors like investor sentiment, economic conditions, and regulatory changes can affect these volumes, thereby impacting NSDL's revenue and profitability.

2. Technological Risks and Cybersecurity

NSDL relies on complex IT networks and systems. Any disruption due to technical glitches, cyber-attacks, or security breaches could negatively impact its business, reputation, and financial condition, potentially leading to financial disincentives from SEBI. While NSDL has disaster recovery sites and a security operations center, the risk of sophisticated attacks remains.

3. Intense Competition

NSDL operates in a highly regulated environment and faces competition from other depositories (primarily CDSL) and various entities in its diversified businesses (e.g., payments banks, database management). Increased competition could lead to loss of market share or pressure on fees.

4. Dependence on Depository Participants (DPs)

NSDL's business growth is significantly tied to its network of DPs. Any inability to attract new DPs, retain existing ones, or if DPs promote competitors, could adversely affect NSDL's market share and profitability. NSDL has experienced a loss of market share due to the rapid emergence of new-age fin-tech brokers.

5. Regulatory Stringency and Compliance

NSDL operates under a stringent regulatory regime (Depositories Act, SEBI D&P Regulations, RBI, UIDAI, IRDAI for subsidiaries). Non-compliance or delays in obtaining/renewing approvals could lead to regulatory proceedings, fines, penalties, or even suspension/revocation of licenses. The DRHP highlights past instances of non-compliance and delayed reporting.

6. Shareholding Dilution Requirement

Principal shareholders, IDBI Bank Limited and National Stock Exchange of India Limited, hold more than the permissible 15% limit under SEBI D&P Regulations and are required to dilute their shareholding by October 2, 2023. Failure to comply could lead to adverse SEBI actions.

7. SEBI In-Principle Approval Deadline

NSDL's in-principle approval from SEBI for listing requires completion of the listing process before April 13, 2024. Failure to meet this deadline may require an extension or fresh approval, which is not guaranteed.

8. Litigation and Contingent Liabilities

NSDL, its subsidiaries, and directors are involved in various outstanding litigation proceedings (criminal, tax, statutory/regulatory, civil) with an aggregate amount involved of ₹5,049.18 million. There are also contingent liabilities totaling ₹1,385.57 million and other commitments of ₹1,917.57 million as of March 31, 2023. Materialization of these could adversely affect financial condition.

9. First Public Offer Risks

As this is the first public offer, there is no formal market for NSDL's Equity Shares. This implies potential price and volume volatility post-listing, and no assurance of sustained trading or that the shares will trade at or above the Issue Price.

10. Concentrated Shareholding Post-Offer

Even after the Offer for Sale, principal shareholders will continue to hold a significant equity stake, which could influence corporate actions and potentially conflict with the interests of other shareholders.

11. Non-Compliance with SEBI Listing Regulations (Regulation 24)

NSDL is currently not in compliance with Regulation 24(1) of the SEBI Listing Regulations regarding the appointment of an independent director on the board of its material unlisted subsidiary (NPBL) due to conflicting SEBI D&P Regulations. An exemption has been sought, but non-receipt could lead to regulatory actions.

12. Intellectual Property Rights

Reliance on intellectual property and trademarks, with some still in the registration process. Inability to obtain, protect, or effectively use these rights could adversely affect the business.

IV. Financial Performance Summary (₹ million)

Particulars	Mar 31, 2023	Mar 31, 2022	Mar 31, 2021
Equity Share Capital	400.00	400.00	400.00
Net Worth	14,288.61	12,116.19	10,192.95
Revenue from operations	10,219.88	7,611.09	4,675.69
Profit after tax attributable to equity shareholders	2,348.10	2,125.94	1,885.65
Total borrowings	-	-	-

*Note: The equity share face value was split from ₹10 to ₹2 on March 10, 2023. Earnings per share and Net Asset Value per share are adjusted retrospectively for this split.

The Verdict: A Strong Company with Inherent Regulatory and Market Risks

NSDL is a well-established, market-leading entity in a critical segment of India's financial infrastructure. Its consistent financial performance, strong balance sheet (zero debt), and diversified service offerings are significant positives.

However, the nature of its business as a market infrastructure institution means it operates under a highly stringent and evolving regulatory environment. The various compliance challenges, the mandatory shareholding dilution by key shareholders, and the inherent dependence on the broader securities market's health introduce substantial risks. The IPO being entirely an Offer for Sale means no fresh capital is coming into the company from this issue.

Recommendation:

This IPO presents a moderate to high risk profile.

• For Conservative Investors: This IPO might be too risky due to the regulatory complexities, market volatility dependence, and the fact that it's an Offer for Sale (no fresh funds for the company).
• For Moderate to High-Risk Investors: This IPO could be considered, given NSDL's dominant market position, strong financial track record, and essential role in the Indian capital markets. However, a thorough understanding of the regulatory landscape and the specific risks highlighted is crucial. Investors should be comfortable with potential short-term volatility and the long-term implications of regulatory changes.

It is strongly recommended that you consult with a qualified financial advisor who can assess your individual risk appetite and financial goals before making any investment decision. They can provide personalized advice based on your specific circumstances and help you understand the nuances of the depository business and the particular risks associated with this offering.

This analysis is for informational purposes only and does not constitute financial advice.

Disclaimer: This information is for educational purposes only. It is not financial advice. Investing involves risk. Always consult with a qualified financial advisor before making any investment decisions.

SEBI Consultation Paper Summary - Proposed Measures for Regulating Credit Rating Agencies (CRAs) - July 2025

A summary of SEBI's proposals to expand the regulatory scope for CRAs and enhance investor protection.

Executive Summary

The Securities and Exchange Board of India (SEBI) has released a Consultation Paper in July 2025, proposing significant amendments to the SEBI (Credit Rating Agencies) Regulations, 1999. The primary objective is to introduce measures for regulating activities of Credit Rating Agencies (CRAs) that are not currently under SEBI's direct purview. This initiative stems from industry feedback requesting CRAs be permitted to rate financial products/instruments overseen by other Financial Sector Regulators (FSRs), even in the absence of specific rating guidelines from those FSRs (e.g., unlisted securities). SEBI believes this expansion could create synergies and address industry gaps. The paper outlines detailed conditions for CRAs undertaking such non-SEBI regulated activities, focusing on compliance with FSR frameworks, strict segregation of business units, enhanced transparency, and robust investor disclosures. Public comments on these proposals are invited until July 30, 2025.

I. Objective and Background

The consultation paper aims to gather public comments on proposed amendments to the SEBI (Credit Rating Agencies) Regulations, 1999. Currently, CRAs are generally restricted to rating listed or proposed-to-be-listed securities, or financial instruments under the specific guidelines of a Financial Sector Regulator (FSR). However, SEBI has received feedback from stakeholders regarding the rating of financial products/instruments under other FSRs where no specific rating guidelines exist. The proposals seek to address this gap, allowing CRAs to undertake such activities, which are considered adjacent to their core business and could offer significant synergies.[1]

II. Key Proposals for Regulation of CRA Activities

SEBI proposes to permit CRAs to undertake activities not regulated by SEBI, subject to the following stringent conditions:[1]

• **Compliance with FSR Frameworks:** CRAs must comply with any regulatory framework specified by the respective FSR (e.g., RBI, IRDA, PFRDA, IFSCA, MCA, IBBI) for policy, eligibility, risk management, grievance handling, inspection, enforcement, and claims related to the rated instruments.[1]
• **Fee-based and Non-fund Based Activities:** Only fee-based and non-fund based rating activities are permitted.[1]
• **Segregation via Separate Business Units (SBUs):** Non-SEBI regulated activities must be conducted at arm's length through one or more SBUs, segregated by a "Chinese Wall" and ring-fenced from SEBI-regulated activities.[1]
• **Transition Period for Segregation:** CRAs must transfer these activities to separate business unit(s) within six months of the proposal's notification.[1]
• **Separate Grievance Redressal:** The grievance redressal mechanism for non-SEBI regulated activities must be part of the SBU and distinct from that for SEBI-regulated activities.[1]
• **Separate Records and Staff:** SBUs must maintain separate records and distinct staff for non-SEBI regulated activities. While staff can cross the Chinese Wall with Board approval and documentation, key managerial personnel are exempt from this segregation.[1]
• **Shared Resources:** Other resources, including IT infrastructure, may be shared if approved by the CRA's Board of Directors.[1]
• **Ring-fencing Net Worth:** The CRA's minimum net worth must be ring-fenced from any impact arising from non-SEBI regulated activities.[1]
• **Website Disclosure:** CRAs must disclose on their website a list of non-SEBI regulated activities, along with a disclaimer that SEBI investor protection mechanisms are not available for grievances related to these activities. This disclosure must also be prominently displayed in relevant rating reports.[1]
• **Separate Advertising and Webpage:** Advertising, marketing material, and webpages for non-SEBI regulated activities must be separate and distinct from those for regulated activities.[1]
• **Upfront Written Disclosure to Stakeholders:** Before undertaking non-SEBI regulated activities, CRAs must provide upfront written disclosure to clients and other stakeholders, stating that such activities do not fall under SEBI's regulatory purview. Confirmation of understanding must be obtained from stakeholders. For existing arrangements, compliance reports must be submitted to SEBI within six months.[1]
• **Half-yearly Internal Audit Report Undertaking:** CRAs undertaking non-SEBI regulated activities must submit an undertaking in their half-yearly internal audit report, confirming compliance with these regulations, reviewed and approved by their Board of Directors.[1]

III. Public Comments and Timeline

SEBI invites comments, views, and suggestions from the public on these detailed proposals. The deadline for submitting comments is **July 30, 2025**. Comments should be submitted through the online web-based form provided on the SEBI website. Instructions on the link should be reviewed before submission. For technical issues, contact Ms. Nishtha Tewari, AGM, via email.[1]

Works Cited

• 1 Consultation Paper on Measures for Regulation of Activities of Credit Rating Agencies (CRAs), https://www.sebi.gov.in/reports-and-statistics/reports/jul-2025/consultation-paper-on-measures-for-regulation-of-activities-of-credit-rating-agencies-cras-_95142.html

Disclaimer: This information is for educational purposes only. It is not financial advice. Investing involves risk. Always consult with a qualified financial advisor before making any investment decisions.

SEBI Bulletin Summary-JUNE 2025

A concise overview of the Indian capital market's performance and policy developments.

Executive Summary

The Indian securities markets continued their upward trajectory for the third consecutive month in May 2025, driven by favorable factors such as easing trade tensions and softening inflation. Benchmark and broader indices rebounded, with increased traded value across segments. Foreign portfolio investment in Indian equities reached its highest level since September 2024, and mutual fund assets surpassed ₹72 lakh crore. Key highlights include a significant increase in IPOs, robust growth in demat accounts, and positive trends in equity derivatives. SEBI also introduced several policy developments aimed at enhancing ease of doing business, investor protection, and market efficiency across various segments, including stock broking, KYC processes, REITs/InvITs, corporate bonds, and derivatives.

I. Capital Market Review

In May 2025, the Indian securities markets maintained their uptrend for the third consecutive month, despite some volatility. This positive momentum was supported by factors like de-escalation of border conflicts, easing trade tensions, and softening inflation. Broader indices outperformed benchmark indices, and overall traded value increased. Foreign portfolio investment in Indian equities was the highest since September 2024, and mutual fund assets under management (AUM) exceeded ₹72 lakh crore by month-end.[1]

Trends in Resource Mobilisation by Corporates

• **Equity Issues:** Thirteen IPOs raised ₹5,684 crore in May 2025, a substantial increase from ₹255 crore in April 2025. Ten of these IPOs were on the SME platform, raising ₹408 crore. Fund mobilization through Qualified Institutional Placements (QIP) and preferential issues moderated, while rights issues increased.[1]
• **Debt Issues:** The amount raised through private placement of debt issues in May 2025 increased by 3.5% compared to April 2025.[1]

II. Trends in the Secondary Market

• **Broad Market Indices:** Sensex and Nifty gained 1.5% and 1.7% respectively in May 2025. Market capitalization on both exchanges increased by 4.9%. The average daily price-to-earnings (P/E) ratio for May 2025 was 22.7 for Sensex and 22.2 for Nifty.[1]
• **Sectoral Indices:** Most sectoral indices, except BSE FMCG, BSE Utilities, Nifty Healthcare, Nifty Pharma, and Nifty FMCG, saw gains. BSE Industrials led with a 14.3% gain, followed by BSE Capital Goods (13.5%), Nifty Media (13.0%), and Nifty Realty (7.2%).[1]
• **Market Turnover:** Gross turnover in the equity cash segment increased by 40.2% at BSE and 22.4% at NSE. The combined Average Daily Turnover (ADT) at BSE and NSE was the highest since September 2024.[1]

III. Trends in Depository Accounts

Demat accounts continued to grow in May 2025. NSDL added 3.3 lakh accounts (0.8% growth), and CDSL added 18.5 lakh accounts (1.2% increase). By the end of May 2025, the total number of demat accounts in India reached 19.7 crore, with NSDL holding 4 crore and CDSL holding 15.7 crore accounts.[1]

IV. Trends in Derivatives Segment

• **Equity Derivatives:** Turnover in the futures segment increased by 27.8% at BSE and 4.6% at NSE. Premium turnover in options rose by 13.5% at BSE and 13.3% at NSE.[1]
• **Currency Derivatives:** The combined turnover across BSE, NSE, and MSEI in the currency derivatives segment increased by 0.2%. NSE's turnover increased by 0.7%, while MSEI's decreased by 16.6%.[1]
• **Interest Rate Derivatives:** BSE reported no activity, while NSE's turnover decreased by 8.6%.[1]

V. Corporate Debt Market

The total value of corporate bond trades settled through clearing corporations and off-market in May 2025 was ₹2,28,676 crore, encompassing both listed and unlisted bonds.[1]

VI. Foreign Portfolio Investors' (FPIs)

FPIs reversed their April 2025 outflow trend, becoming net buyers of securities worth ₹30,950 crore in May 2025. Equity and debt segments saw net inflows of ₹19,860 crore and ₹12,155 crore respectively. However, hybrid and mutual funds experienced withdrawals of ₹689 crore and ₹376 crore.[1]

• **Equity Segment:** Primary market witnessed FPI inflows of ₹1,777 crore, and the secondary market registered ₹18,083 crore.[1]
• **Debt Segment:** Outflows of ₹9,359 crore were seen under the fully accessible route (FAR), while debt general limit and debt VRR saw inflows of ₹19,615 crore and ₹1,899 crore respectively.[1]

VII. Fund Management Activities

• **Mutual Funds:** Gross funds mobilized in May 2025 totaled ₹10,56,702 crore, with net inflows of ₹29,108 crore after redemptions. Cumulative net assets under management increased by 3.1% month-on-month to ₹72,19,611 crore. Mutual funds net purchased ₹55,411 crore of equities but net sold ₹82,894 crore of debt securities in the secondary market.[1] Hybrid schemes had the highest net inflows (₹20,765 crore) among open-ended schemes, while income/debt-oriented schemes saw net outflows.[1]
• **Portfolio Management Services (PMS):** Total AUM in the portfolio manager industry increased marginally by 0.8% in April 2025 (compared to March 2025) and by 13% compared to April 2024. The number of clients increased by 1%.[1]

VIII. Commodity Derivatives Markets

• **Market Trends:** At the end of May 2025, MCX iCOMDEX Energy index was up by 4%, Base Metal by 3.1%, Composite by 1.8%, and Bullion by 0.6%.[1]
• **Turnover:** Pan-India turnover of commodity derivatives decreased by 11.6% to ₹61.4 lakh crore, mainly due to a decline in options trading. Futures accounted for 13.3% and options for 86.7% of the total turnover.[1]

IX. Policy Developments in Indian Securities Market (May 2025)

SEBI introduced several key policy changes in May 2025:

• **Ease of Doing Business:** Streamlined processes for SEBI-registered stock brokers to operate in GIFT-IFSC without prior approval.[1]
• **Investor Protection:** Mandated KYC Registration Agencies (KRAs) and Registrars to an Issue and Share Transfer Agents (RTAs) to publish Investor Charters on their websites and through other channels to enhance transparency and awareness.[1]
• **REITs/InvITs Disclosures:** Revised disclosure requirements for REITs and InvITs, mandating audited financial statements and more rigorous continuous compliance reporting.[1]
• **AIF Managers Certification:** Extended the timeline for Alternative Investment Fund (AIF) managers to clear the NISM Series-XIX-C certification examination to July 31, 2025.[1]
• **Corporate Bond Market:** Simplified cash flow disclosure in the Corporate Bond Database and revised Electronic Book Provider (EBP) platform provisions to enhance efficiency in private debt placements.[1]
• **Internal Audit & Rating Agencies:** Included Cost Accountants and DISSA qualifications for internal audit teams of Credit Rating Agencies (CRAs) and permitted CRAs to use Expected Loss (EL) based rating scale for municipal bonds.[1]
• **Regulatory Arbitrage:** Extended the timeline for compliance with provisions addressing regulatory arbitrage with Offshore Derivative Instruments (ODIs) and FPIs with segregated portfolios to November 17, 2025.[1]
• **Market Infrastructure Institutions (MIIs):** Revised norms for internal audit mechanisms and audit committee composition, and established a uniform framework for KMP appointments/terminations, including cooling-off periods.[1]
• **Equity Derivatives:** Finalized settlement days for equity derivatives contracts (Tuesday or Thursday) and introduced measures to enhance trading convenience and strengthen risk monitoring, including new OI calculation methodology and recalibrated position limits.[1]

Works Cited

• 1 SEBI Bulletin - June 2025, https://www.sebi.gov.in/reports-and-statistics/publications/jun-2025/sebi-bulletin-june-2025_94820.html

Disclaimer: This information is for educational purposes only. It is not financial advice. Investing involves risk. Always consult with a qualified financial advisor before making any investment decisions.