Jefferies calls NSE IPO the final piece in India's exchange troika

The upcoming initial public offering (IPO) of the National Stock Exchange of India (NSE) will complete India's exchange troika, according to global brokerage Jefferies, as the country's largest bourse prepares for its long-awaited stock market debut.

 

The listing will see NSE join the BSE, and Multi Commodity Exchange of India (MCX), both of which are already publicly traded, bringing all three major exchange operators onto Dalal Street.

 

NSE is targeting to launch its IPO, estimated at around ₹30,000 crore, in September. The public issue is expected to value the country's largest stock exchange at over ₹5 trillion. If successful, it will surpass Hyundai Motor India's ₹27,870-crore IPO, launched in October 2024, to become the country's largest-ever public offering.

 

India's market turns increasingly options-led

The Indian equity options market has grown at a 56 per cent CAGR over FY20-FY26, compared with 19 per cent CAGR in cash market turnover, Jefferies said.

 

Options premium average daily turnover (ADTO) was approximately 70 per cent of the daily cash market turnover in FY26. As a result, derivatives accounted for around 70 per cent of operating revenues for Indian exchanges.

 

According to Supratim Datta, Prakhar Sharma, and Satvik Kanabar of Jefferies, this has resulted in the linkage between exchange revenues and market performance cycles breaking down, as options trading is closely linked to volatility rather than price movements.

 

Compared with the US market, India trades a higher number of option contracts, but its option premiums are only one-fifth of those in the US, said Jefferies.

NSE leads across key market segments

Established in 1993, NSE accounts for around 70 per cent of Indian exchange revenues, said Jefferies, while noting that the exchange appears to be the most diversified among its peers, offering equity cash, index options, single-stock options, equity futures, commodity futures and options, bonds, and currency derivatives.

 

The exchange commands more than 90 per cent market share in most categories, except index options and commodity F&O, said Jefferies.

 

NSE's clearing corporation, NSE Clearing Ltd (NCL), accounts for 88 per cent market share in cash and 91 per cent market share in F&O. The exchange also has a suite of technology and data offerings, which contributed 13 per cent of its FY26 revenues, and is expanding its presence in commodity F&O.

Regulatory costs weigh on profitability

Jefferies said NSE remains more profitable than BSE due to its stronger equity options business. Excluding one-off Securities and Exchange Board of India (Sebi) settlement costs, NSE's normalized operating Ebitda margin remained stable at 76-77 per cent during FY24-FY26.

 

"NSE's higher clearing market share and premium to notional turnover in equity options has resulted in higher profitability relative to BSE. However, provisions related to the colocation and dark fiber case (FY26: ₹1390 crore) and payment of ₹670 crore in the TAP matter in FY25 have weighed on NSE's FY25 and FY26 operational Ebitda. Given the one-off nature of the Sebi settlement fees, should these be excluded, normalised operating Ebitda margin (76-77 per cent) for NSE has been largely stable between FY24-26," said Jefferies in its report.

Strong balance sheet, limited capex and high payout

According to the brokerage, NSE had ₹28,800 crore in investment assets across government securities and mutual funds in FY26.

 

NSE has provisioned for Sebi actions, while contingent liabilities (FY26: ₹1,050 crore ) largely relate to income tax and service tax disputes.

 

"Strong operating cash flows combined with limited capex (3-3.5 per cent of revenues) resulted in NSE distributing 74 per cent and 85 per cent of earnings as dividends in FY25-26, respectively," said Jefferies. 

Regulatory headwinds, litigation overhang

Jefferies has cautioned investors about regulatory challenges and litigation facing the country's largest exchange.

 

According to the brokerage, NSE has faced regulatory actions related to access to its colocation facilities and servers. The company is in the process of settling these matters with Sebi. NSE also has 20 civil and nine criminal litigation cases pending.

 

Jefferies also said restrictions on weekly index options and higher minimum contributions to the equity derivative core Settlement Guarantee Fund (SGF) impacted NSE during FY25-FY26 as headwinds for the exchange.

OFS may boost PSU insurers' solvency

NSE's offer for sale (OFS) document stated that public sector general insurers will offload a 1.1 per cent stake. The brokerage expects the OFS to improve solvency of PSU general insurers.

 

"We note that three of the four multi-line general insurers (Oriental, National, and United) have solvency below the regulatory threshold of 1.5x. The OFS could increase the available solvency capital with these insurers," said Jefferies. 

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