What are the disadvantages of listing a company in NSE?

Listing a company on the National Stock Exchange (NSE) in India comes with several disadvantages, which can be summarized as follows:

High Costs

• The process of listing on the NSE involves significant costs, including the initial listing fee, which is size-dependent and can range from Rs. 20,000 to Rs. 50,000. Additionally, there are annual fees, legal and professional fees, and marketing and promotion costs2.

Regulatory and Compliance Burden

• Companies must comply with stringent regulatory requirements, including those set by the Securities and Exchange Board of India (SEBI), the Companies Act, 2013, and other relevant laws. This compliance can be time-consuming and costly2.

Financial Prerequisites

• To list on the NSE, companies must meet rigorous financial criteria, such as a minimum paid-up capital of INR 10 crores, positive net worth over the preceding three years, a profitability threshold of INR 15 crores, and a minimum turnover of INR 30 crores. These prerequisites can be challenging for some companies to achieve2.

Corporate Governance Requirements

• The NSE mandates strict corporate governance standards, including the requirement for a diverse and independent board, transparent operations, and comprehensive disclosure of material information. These requirements can add to the administrative and financial burden2.

Time Commitment and Distraction

• The listing process is lengthy and time-consuming, requiring significant time and resources from the management team. This can distract from the company's core business activities and potentially lead to missed growth opportunities3.

Public Information Scrutiny

• Listed companies must disclose financial reports and other sensitive information publicly, which can be a challenge for companies accustomed to keeping such information confidential. This scrutiny can also expose the company to competitors3.

Short-Term Focus

• Public companies often face pressure to meet short-term revenue and profit estimates, which can shift the management's focus away from long-term business goals. Missing these estimates can lead to a drop in the stock price3.

Risk of Non-Completion

• There is a risk that the IPO process may not be completed if capital markets are not favorable, resulting in wasted time and resources spent on audits, legal services, and other preparations3.

Higher Weighted Average Cost of Capital

• Raising equity through an IPO can increase the company’s weighted average cost of capital (WACC), as the cost of equity is generally higher than the cost of debt3.

These disadvantages highlight the significant commitments and challenges associated with listing a company on the NSE.