Is NSE’s IPO really fairly valued?

Saad (0:00)

Hello folks, you're tuned in to Finshots Daily. I'm Saad, if you're new, you're welcome. If you're returning, welcome back. In today's episode, we talk about the NSE IPO and whether it's fairly valued.

Before we head to the story, here's a quick word from Team Ditto. We're hosting a free two-day insurance masterclass that helps you build real financial security by understanding health and life insurance the right way. Right from understanding how to protect your family, choosing the right cover amount, and knowing what truly matters during a claim, to how hospitals process claims, the mistakes buyers usually make, and how to choose a policy that won't disappoint you when you need it the most. We will explain it all in plain language. Head to the link in the description and save your spot. Now to the story.

NSE needs no introduction. It's India's largest stock exchange and by extension, one of the country's most important financial businesses.

It dominates stock trading, has built a formidable position in derivatives, and earns handsome profits.

Yet until now, you, as a retail investor, couldn't simply buy NSE shares on the stock market because its listing had been delayed for nearly a decade. That changes today, as NSE's IPO opens for subscription. And while we wrote about the IPO a few months ago, a few things have changed since then.

But before we get there, let's give you some context. The IPO is entirely an offer for sale or OFS, which means existing shareholders, such as the State Bank of India, the New Assurance Company, Bank of Baroda, etc. are selling their shares. NSE itself won't receive any of the roughly 22,500 crore rupees being raised. And the upper price band of 1,785 rupees that values the IPO at roughly 4.42 lakh crore rupees. And that brings us back to what has changed in the last 3 months since NSE filed its DRHP and RHP. Its DRHP being its draft red herring prospectus and RHP being red herring prospectus. For starters, the size of the offer and the valuation. NSE had initially planned to sell about 14.8 crore shares through its existing shareholders. That has now been cut to 12.6 crore shares after a bunch of selling shareholders reduced the number of shares they wanted to sell. The valuation has also come in lower than what the market had been expecting. For context, NSE shares were trading at around 2000 rupees per share in the unlisted market last year. But the IPO price band right now tops out at 1785 rupees. So does that mean NSE is finally being offered a fair price? Well, there are a few ways to look at it. Let's start with the most basic one, the price to earning or P-E ratio. Simply put, it tells you how much investors are paying for every rupee of profit the company earns. NSE made a profit of 10302 crore rupees in FY26 and reported EPS or earnings per share of 41.62 rupees. That effectively translates to investors paying about 43 times its FY26 earnings. That's quite a hefty valuation. But to understand how hefty that valuation is, we need to compare it. And there's only one obvious sphere, India's only other listed stock exchange BSE. It trades at about 54 times its FY26 earnings. Looked at through that lens, NSE is actually entering the market at a lower P-E multiple. That might seem strange. After all, NSE is much larger. In FY26, it earned 16,601 crore rupees in revenue from operations, and 10,302 crore rupees in profit, as we mentioned earlier. BSEY comparison reported total income of 4,834 crore rupees and a profit of 2,487 crore rupees. NSE also handles much larger trading volumes across major segments. So why isn't NSE commanding a premium? The first thing you would know by now is options. NSE's biggest strength and right now, also its biggest risk. NSE's business is remarkably profitable because it doesn't need to spend a lot of capital to grow.

After all, it's an exchange, not a company that manufactures something. Once the technology and infrastructure are in place, adding another financial product doesn't cost much. More trading can simply flow through the same platform. And NSE has plenty of trading. In FY26, transaction charges accounted for nearly 79% of its revenue from operations. Equity options alone contributed 9,998 crore rupees, or 60%.

We are stressing on this number because regulators have become increasingly uncomfortable with the rapid growth of short-term derivatives trading.

SEBI changed the rules around index derivatives in 2024, including larger contract sizes and restrictions on weekly expiries. More changes followed last year. That led to lower derivative volumes and a 4% decline in NSE's transaction charge revenue in FY26.

And it showed up in the earnings too. NSE's overall profit fell 15% year-on-year, even as BSE's profit jumped 88%.