Jefferies initiates coverage on NSE with ‘Buy’; here’s why it sees fresh growth potential

The National Stock Exchange (NSE) combines market leadership, structural growth, diversification and a natural hedge against volatility, said Jefferies as it initiated coverage on the stock exchange's shares with a ‘Buy’ rating and a target price of Rs 2,085 apiece, implying more than 17% upside potential.

The international brokerage called NSE a “market leader with new growth optionality”, expecting the company to deliver a 15% revenue CAGR over FY27-29, despite past regulatory headwinds. India has seen an approximately 4x increase in direct equity investors since the COVID-19 pandemic, led by younger cohorts. Yet penetration is only 3% of the population, much lower when compared to 18% in China, Jefferies noted.

Besides structural tailwinds, exchanges offer a volatility hedge, as revenue is positively correlated with the VIX, given that options revenue is premium-based, unlike that of global peers, it explained.


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NSE’s dependence on options is overstated: Jefferies

NSE is the market leader in cash equities, index F&O, stock F&O, and clearing & settlement. While around 60% of operating revenues come from equity options, weekly index options, which have faced regulatory action, account for.40% operating revenues, while the same for BSE stands at around 65%.

Low-turnover clients account for only 2-3%, limiting the risk from SEBI action to protect small traders, the international brokerage said, adding that it sees the equity options share in transaction revenues to fall to 50% from the current 60% over the next 5 years.

NSE’s revenue to accelerate over FY28-29, says Jefferies

NSE’s operating revenue CAGR was 6% between FY24-26, as its equity F&O business was adversely impacted by regulatory changes and higher taxes. “We think these are now largely in the base. Hence, expect growth to improve to 15% over FY27-29 driven by equity options market share stabilizing at 65%, cash equity turnover growing at 16% led by IPOs, promoter/PE sell-downs, and tech infra revenues growing at 23% CAGR,” Jefferies said.

It added that NSE’s tech infra revenues, 8% of FY26 operating revenues and at lower AI risk, could rise to 11% by FY29 as the company adds more colocation racks. Commodity F&O, the new mutual fund ordering platform and EGRs (Electronic Gold Receipts) could add another 15% to revenue and PAT by FY30, which is not part of the brokerage’s base case. NSE is also exploring opportunities in corporate bond futures, GIFT City and Market Lens, it noted.

NSE earnings expectations

Jefferies expects NSE’s EBITDA margin to expand by 200 bps to 78% by FY29 due to benefits from investments made in employees and technology over the last 3 years, revenue growth improving over FY27-29, and scale-up of new businesses.

The international brokerage’s target price implies 15% premium to its fair value for BSE, considering greater diversification, higher optionality, higher dividend yield, and structurally higher margins.

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NSE share price

NSE shares made their much-awaited market debut on September 24, listing at Rs 1,800 apiece on BSE. This marked a premium of less than 1% over the IPO price of Rs 1,785. Within an hour of the muted debut, the shares jumped over 5% from the IPO price to hit a high of Rs 1,878, pushing the market capitalisation as high as Rs 4.64 lakh crore, before the stock began to decline.

Shares of NSE dropped to Rs 1,640.25 apiece earlier this month, their lowest level since listing. However, the stock has now recovered some losses to trade at Rs 1,791 apiece, higher than its IPO price.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.