MUMBAI (Reuters) - Shares of India's second-biggest stock exchange, BSE Ltd, jumped as much as 49 percent on their market debut on Friday, after the exchange raised about $185 million in an initial public offering that had been heavily over-subscribed.
Asia's oldest exchange is expected to benefit from a surge in retail investments into mutual funds as well as government efforts to steer more pension money into stocks. The government's scrapping of old high-value banknotes, leading to a surge in bank deposits, has raised hopes some of these savings would be channelled into financial markets.
Investor demand for BSE's stock was also strong due to its attractive valuations.
"They offer a full bouquet of products which is basically the fundamental strength of this exchange," said Deven Choksey, managing director at KR Choksey Shares and Securities.
"I think the way in which BSE has carved out its business model provides confidence to investors. Plus, they are profit making and have cash in the balance sheet."
Shares in BSE were trading at 1,110 rupees at 0630 GMT, having risen as much as 1,200 rupees on the National Stock Exchange, compared with their IPO issue price of 806 rupees apiece.
BSE, which also offers clearing and data, reported a net profit of 760 million rupees ($11.3 million) in the quarter ended September, up 78 percent from a year earlier.
The exchange had 2.5 billion rupees of cash on its books as of Sept. 30.
More than 250 shareholders, including Singapore Exchange Ltd and billionaire George Soros' Quantum, raised 12.43 billion rupees ($184.5 million) in the BSE IPO last week. BSE did not sell any of its shares in the IPO.
BSE's bumper listing augurs well for bigger rival National Stock Exchange, which has filed for an IPO that bankers say could happen towards the middle of the year and raise as much $1 billion.
India's IPO market had its best year in six in 2016 with $4 billion worth of share sales, led by a $900 million issue in ICICI Prudential Life Insurance Co Ltd, the biggest private sector life insurer.
The momentum is expected to continue this year, especially after the government's plan to list $1.6 billion worth of stakes in state-run insurers.
"We could exceed last year's fundraising from IPOs," said Subhrajit Roy, head of ECM origination at Kotak Investment Banking, one of the top IPO advisers last year.
"Issuers were in wait-and-watch mode till budget. Now we should see a pick-up in (IPO) mandate activity," he said, referring to India's federal budget for the coming financial year presented in parliament on Wednesday.
The BSE IPO, the first in India's markets this year, was 51 times subscribed. Demand from institutions and individuals was strong as the IPO had been priced attractively, analysts said.
($1 = 67.3900 Indian rupees)
Editing by Jacqueline Wong