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The much-awaited initial public offering (IPO) of the National Stock Exchange Ltd (NSE) opens this week with a valuation paradox: at ₹1,700-1,785 a share, NSE is being offered at a roughly 30% discount to rival BSE Ltd on FY27 earnings estimates, despite being nearly three times its size. The apparent bargain, however, comes as NSE’s dominant derivatives business faces a weaker growth outlook—and investors have little room for an earnings miss. The upper end of the price band is about 6% below NSE’s latest unlisted market price of around ₹1,900, fuelling investor interest ahead of the ₹22,569 crore IPO, which opens on 17 September. Grey market activity suggests NSE could list at an 11-12% premium to its offer price. But the valuation gap may not be the opportunity it first appears to be. “(The) gap is not a genuine headroom (for an upside),” cautions Kush Gupta, director at SKG Investments and Advisory. BSE delivered stronger earnings momentum through fiscal year 2026 (FY26) as NSE’s growth slowed, he said. The discount could narrow if BSE’s low-base advantage fades or NSE restores investor confidence by sustaining its FY27 earnings recovery, Gupta added. A fragile recovery NSE reported 13% year-on-year growth in operating revenue and 7% growth in profit in the June quarter of FY27 (Q1FY27), helped by a 16% rise in equity options premium average daily turnover, according to its red herring prospectus (RHP). Higher trading volumes and better price realization drove a 16% increase in options transaction revenue, which accounts for more than 60% of operating revenue. That marked a recovery after a weaker FY26, when operating revenue contracted 3% and premium average daily turnover fell 8% as regulatory measures to curb speculative options trading weighed on activity. Raj Gaikar, equity research analyst at SAMCO Securities, finds this encouraging, noting that the sharpest regulatory impact is behind the market and NSE’s market share is likely to stabilize in the near term. “Regulation has reset this business, not ended it,” he said. But the recovery has not restored NSE’s competitive position. Its share of the equity options premium market fell to 68.5% in Q1FY27 from nearly 97% in FY24, according to its RHP. The shift accelerated after the Securities and Exchange Board of India (Sebi) limited each exchange to one weekly index expiry in late 2024, redistributing trading activity and allowing BSE to capture liquidity that had previously been spread across NSE’s multiple weekly expiries. BSE consequently reported much stronger growth through FY26, with momentum continuing into the June quarter of FY27. Its equity options premium average daily turnover rose nearly 96% year-on-year, translating into 62% growth in both revenue and profit, according to NSE’s RHP. Another hit to derivatives? The recovery is now facing another test. Sebi’s new Closing Auction Session (CAS) has pushed index option volumes lower by adding uncertainty around final settlement prices, according to an August report by Nuvama Institutional Equities. NSE’s total monthly derivatives turnover fell to ₹33.5 trillion in August, the first month after CAS was introduced, from ₹42.6 trillion in July. It was the lowest turnover since November 2023, when it stood at ₹33.8 trillion, according to NSE’s derivatives turnover and business growth data. BSE’s August turnover was almost 40% lower month-on-month at ₹32.2 trillion, its lowest since June 2025. As a result, NSE's transaction revenue could fall 7–10% sequentially in the September quarter, said Karthick Jonagadla, smallcase manager, founder and CEO of Quantace Research. He expects BSE to report a sharper mid-teens decline, given its greater dependence on options, whose volumes were particularly affected by CAS on expiry days. Sebi has since proposed changes to CAS, including delinking derivative settlement prices from the cash-market close, to reduce price uncertainty and improve participation. Hence, Jonagadla views the current disruption as a transition in market structure, rather than a structural destruction of trading volumes. “September volumes and Sebi’s settlement-rule review will determine whether Q3 begins to normalize,” he said. Changes to bank guarantee rules could add another drag on derivatives activity, with tighter collateral requirements raising capital intensity for brokers and potentially reducing the profitability of high-frequency trading strategies, Nuvama said. “The impact is likely to be gradual but could cap the recovery into FY28,” the report noted. These factors could structurally reset the growth trajectory of NSE’s derivatives business, said SKG’s Gupta. He expects the business to increasingly depend on market volatility rather than a sustained rise in trading volumes, limiting growth to low double digits at best. Jonagadla expects NSE’s derivatives business to either contract 5% or grow 3% in FY27, followed by 8-12% growth in FY28 and FY29. At this juncture, even a 5% cut to NSE’s FY28 earnings estimates would roughly halve the stock’s current headroom for upside relative to BSE, he added. A second engine, but too small NSE does have a more stable source of growth in colocation, connectivity, data feeds and index licensing services. These businesses generated ₹1,956 crore in FY26, growing annually at 18% since FY24. Their growth is largely decoupled from Sebi’s derivatives crackdown cycle, offering the clearest operating leverage over FY27 to FY29, said Gupta. But at below 12% of overall revenue, they cannot offset a structurally weaker derivatives franchise, he added. Jonagadla said NSE’s investment case hinges on its core business stabilizing first, with recurring revenues then providing greater earnings visibility and supporting a valuation rerating over the long term. That leaves NSE with a narrow path to justify a valuation closer to BSE’s: its derivatives franchise must first stop losing momentum, while its recurring businesses need to become large enough to reduce dependence on trading volumes. “If derivatives don't recover as FY27 progresses, the ‘quality business’ argument won't protect the multiple,” said SKG’s Gupta.
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