Why We're Advising Clients to Skip the NSE IPO: Pre-IPO Hype vs. Post-Listing Valuation Compression

For a decade, the only way to own a piece of the National Stock Exchange was to know the right broker on the unlisted market. As of today, anyone can buy in, through an official ₹22,562-crore offer for sale. We still think most of our clients should sit this one out — and the reasoning comes down to three numbers: a boom that's already fading, a market share with nowhere left to grow, and a price that leaves almost no margin for the business to disappoint.

PERSONAL FINANCE

Aditya Jadhav CFA

9/17/202612 min read

92–93%

of India's cash-equity turnover already runs through NSE — the ceiling on "more of the same" growth

84%

of FY26 profit paid out as dividends, versus roughly 13–17% at rival BSE, which is reinvesting instead

79%

of FY26 revenue came from per-trade transaction fees — the segment most exposed to the fading options boom

THE THREE-PART CASE

1. The volume surge that built NSE's recent earnings was a one-off, and it is already unwinding

2. At 90%+ share of its core markets, NSE's best realistic outcome is to defend, not expand

3. The dividend policy and the asking price both suggest the best case is already in the price

01 - The historic surge in volume won't return anytime soon

Three things had to go right at once for NSE to post the numbers it's posted since 2020, and none of them are going right anymore. A pandemic locked a young, newly digital country at home with savings and nothing else to do with them. Interest rates sat near zero, so that money went looking for a thrill instead of a fixed deposit. And regulators hadn't yet figured out what was happening every Thursday in weekly index options. That was the setup.

We don't think it repeats — not as a guess, but because two of those three levers have already swung the other way, and it shows up in NSE's own numbers.

An investor base that grew fast, then slower, then slower still...

Start with the number that looks great on its own: NSE's unique registered investor base grew from roughly 3.1 crore accounts in FY20 to about 13.2 crore by June 2026. Genuinely impressive. But look at the growth rate instead of the level and a different picture appears. The sharpest single-year jump, nearly 48.5%, landed in FY22 — the year furthest into pandemic lockdowns. Every year since has added investors more slowly in percentage terms, and FY26 came in at roughly 14.5%, the weakest of the past six years.

The base is still growing. The engine underneath it is cooling.

A demographic tailwind that's real, but slowing where it counts

Here's the part every bullish deck leads with: the median NSE investor got seven years younger, from 38 yrs in March 2020 to 33 yrs by June 2026, and the under-30 share of the base rose from 23.5% to 37.9%. Younger cohorts still dominate sign-ups — 59% of new registrations in the June 2026 quarter were under 30, up from 52% in FY20. But a rising share doesn't require a growing number; it just requires older cohorts to slow down faster, which is exactly what's happening. 2025's under-30 share of new investors (55.9%) barely moved from 2024's (54.2%) — a rounding error next to the double-digit jumps of the pandemic years. The demographic story is a genuine, long-run positive for India's markets. It just isn't, on its own, a reason to expect NSE's growth rate to come roaring back.

The options boom that built NSE's revenue is already decelerating

This is the segment that actually paid for everything. NSE's index options premium turnover compounded at roughly 58% a year for eight straight years, peaking near ₹138 lakh crore in FY24 — then it slipped to ₹136 lakh crore in FY25, the first annual decline in eight years. NSE's own average daily options premium turnover kept falling in FY26, down to ₹57,662 crore from ₹62,449 crore the year before. An eight-year winning streak ended, and the trend since has pointed one way.

All of this shows up in NSE's own restated financials, and it tells a cleaner story than "revenue is falling." Revenue from operations climbed from ₹14,780 crore in FY24 to a peak of ₹17,141 crore in FY25 — a 16% jump, right as the options boom crested — then reversed to ₹16,601 crore in FY26, down 3.1%. Profit tells the identical story on a bigger scale: basic EPS went from ₹33.56 (FY24) to ₹49.24 (FY25, +47%) and back down to ₹41.62 (FY26, −15.5%), while return on net worth fell from 45.14% to 33.21% — the steepest single-year drop in three years. FY25 wasn't the new normal. It was the peak. FY26 is what the comedown looks like.

And this wasn't the market losing interest on its own — regulators pushed it. SEBI's package of measures effective 20 November 2024 (bigger minimum contract sizes for index derivatives, one weekly expiry per exchange instead of several, higher tail-risk margins on expiry day) cut NSE's notional average daily options turnover by 42% in the first week of December 2024 alone; industry-wide F&O notional turnover fell roughly 37–38% that month. ICRA later found that participation from the smallest derivatives investors (sub-₹10,000 premium tickets) had dropped 49% after the curbs.

Then came a second hit: the July 2025 ban on proprietary trading firm Jane Street knocked another ~26% off NSE's F&O turnover on the day it took effect, relative to the recent run rate.

Two separate regulatory actions, one direction of travel.

Worth pausing on this one: revenue concentration in transaction charges and trading-member concentration aren't things we dug up — NSE lists both among its own top self-disclosed risk factors. The top 10 trading members generated 46.78% of FY26 revenue (up from 44.48% the year before); the top 5 alone accounted for 31.92%. That means NSE's revenue doesn't just depend on one product line holding up. It depends on a genuinely small number of large brokers not deciding to send their flow somewhere else — which is exactly what BSE, NCDEX and MSEI are all trying to convince them to do (more on that in Part 2).

A revenue base still overwhelmingly tied to trading volume

Transaction charges have barely budged as a share of NSE's revenue: 82.07% in FY24, 79.55% in FY25, 78.65% in FY26. Nudge, not shift. And within that number, options on their own still supplied 60.2% of total FY26 revenue — three out of every four transaction rupees, from one product.

Call it what it was: a perfect storm, not a business model. A captive, newly digital young population, near-zero rates, and a regulator that hadn't caught up yet — that's three separate pieces of luck lining up at once. Two of them are gone. NSE's FY26 numbers are what's left when the tide goes out.

02 - At 90%+ market share, there is limited room left to grow

Let's be precise about what "market leader" means here, because it's easy to undersell. NSE holds 92–93% of cash-equity turnover and 99.7–99.8% of equity futures turnover in FY26. Those aren't market-leader numbers. They're monopoly numbers. Which means the best realistic outcome from here isn't growth — it's successfully defending ground already won. And even that "just hold the line" scenario is being tested, right now, in the one segment that actually pays the bills.

The one segment where NSE isn't at 90%+ is the one under the most pressure

Equity options is NSE's single largest revenue line, and, not coincidentally, its most contested. NSE's options market share, by premium turnover, was 78.63% in the June 2025 quarter. It averaged 74.7% for full-year FY26. By the June 2026 quarter, it had fallen to 68.48%. Ten percentage points, gone in twelve months, in the one segment that supplies 60% of NSE's revenue. That's not a rounding error.

BSE's turnaround: from near-zero to overtaking NSE on one metric

Three years ago, this section wouldn't have existed. BSE held close to zero derivatives market share as recently as mid-2023 — it was, functionally, out of the derivatives business. Then SEBI's expiry-day rule changes landed, and BSE relaunched Sensex and Bankex contracts with weekly expiries priced at a fraction of NSE's. Its F&O share jumped from roughly 13% to 19% quarter-on-quarter in early 2025.

By April 2026, BSE's total futures-and-options turnover, by notional value, had overtaken NSE's outright. Over that same stretch, BSE's profit grew roughly 88% year-on-year while NSE's shrank. A company that was nearly irrelevant in derivatives three years ago is now the one gaining.

Two well-funded new entrants are coming for the rest

And BSE isn't the only one circling. NCDEX — historically an agricultural-commodity exchange, of all things — raised ₹770 crore in September 2025 from investors including Kotak Life Insurance, JM Financial, Radhakrishna Damani and market makers Optiver and Citadel Securities, with an equity cash-market launch planned for March 2027 and derivatives to follow roughly a year later.

MSEI (the old MCX-SX) has raised somewhere around ₹1,000–1,240 crore, reportedly including entities linked to Zerodha and Groww — India's two largest discount brokerages by client count — to fund a cash-equity relaunch, backed by a SEBI-approved Liquidity Enhancement Scheme.

Sit with that for a second: if two of India's biggest order-flow originators have a financial stake in where that flow lands, they have a direct incentive to send it somewhere other than NSE. That's precisely the kind of flow that rebuilt BSE's derivatives franchise from nothing in three years.

NSE's revenue mix is also the least diversified among large global exchanges

Here's a pattern every major exchange group figured out years ago, except NSE: stop depending so much on people actually trading.

ICE's transaction-and-clearing revenue fell from 88% of its total in 2005 to 49% in 2025, as it built out data, benchmark and post-trade businesses (and bought the NYSE along the way).

LSEG went from 46% to 32% after Refinitiv. Deutsche Börse sits near 50%, having built roughly €4.2bn of recurring data, post-trade and software revenue.

Nasdaq's transaction share was already down to 18% back in 2005 — two decades ago. NSE still draws 78.65% of its FY26 revenue from transaction charges.

Every peer spent the last twenty years walking away from exactly the kind of revenue NSE still leans on, right as regulation turns against the volumes underneath it.

Strip away the near-monopoly framing and here's what's actually happening:

NSE is playing defense against a rival that's already beaten it on one key metric, plus two new entrants backed by the very brokers who control its order flow — and it's playing that defense with a revenue base that's less diversified than any comparable exchange in the world. That's not a company positioned to expand. It's one trying not to shrink.

03 - The best case is already in the price

Here's a question worth asking before you look at a single valuation multiple: what does NSE's own management think NSE is worth investing in? Not what they say in the RHP's forward-looking section — what they actually do with the cash. That, plus a straight comparison against the one listed peer, tells you almost everything about whether there's upside left, or whether it's already spoken for.

Dividend policy: cash returned, not cash reinvested

NSE's dividend payout ratio rose from roughly 54% to 84% in FY26 — ₹35 per share (including a ₹10 special dividend) against FY26 EPS of ₹41.62 — sitting on top of a debt-free balance sheet with roughly ₹68,198 crore parked in treasury investments.

Compare that with BSE, which pays out only about 13–17% of profit and keeps the rest. That retained cash isn't sitting idle either: it's funding the technology and pricing push that took BSE's derivatives share from near-zero to overtaking NSE in three years.

Paying out 84 cents of every profit rupee is a decision, not an accident. It's management telling you, in the clearest language a company has, that it doesn't see a reinvestment opportunity inside its own business worth keeping the cash for.

No obvious pivot away from transaction volume

Look at what a broker facing the same pressure actually did about it.

Angel One saw core broking revenue slide from over 65% of the total to 60.1% in a single year — and instead of fighting that, it built around it: its Ionic Wealth Management arm crossed ₹10,000 crore in assets under management in a short window, and its asset-management subsidiary got SEBI approval in November 2024 to launch passive funds and ETFs.

Recurring, asset-based income, structurally insulated from any one month's trading activity.

NSE has no version of that move available to it. Its licensing income from the roughly US$99.2bn of passive assets tracking its Nifty indices is real, but it's small change next to ₹13,057 crore of annual transaction revenue — and as regulated market infrastructure, NSE simply cannot become a wealth manager, an asset manager, or a lender.

Whatever diversification is realistically open to it — new derivative products, data services, colocation — still runs on the same base of active traders whose growth is slowing (Part 1) and whose flow three separate competitors are now chasing (Part 2).

The active-to-passive shift compounds the problem

And there's a slower current running underneath all of this. Nifty-linked passive assets reached ₹8.14 lakh crore by March 2026 — roughly 73% of all Indian passive fund assets. Inside that category, lower-turnover index funds grew from 6.2% of passive AUM in 2021 to 22.4% in 2026, while the more actively-traded ETF wrapper shrank from 89.2% to 65.1%.

Household savings are drifting toward buy-and-hold instead of trade-often, and that's disinflationary for exchange turnover per rupee of assets, even while NSE's own licensing fee on the underlying index grows only slowly alongside it.

What the valuation gap actually says

NSE's confirmed price band is ₹1,700–1,785 a share, against FY26 EPS of ₹41.62. Do the division and you get a P/E of 40.9x at the floor and 42.9x at the top of the band — noticeably cheaper, on paper, than BSE, which has traded in a 44x–54x range depending on the reference date. Here's the table before the argument:

So does the discount to BSE mean NSE is actually the bargain here?

We don't think so, and it's worth explaining why rather than just asserting it. A lower multiple attached to a business with falling revenue, falling profit, a near-ceiling market share, an eroding grip on its own highest-margin segment, and a management team paying out 84% of profit instead of reinvesting it — that's not automatically undervaluation.

It's just as easily the market pricing a mature, ex-growth incumbent correctly, next to a rival that's actually taking share and compounding profit and getting rewarded for it.

The grey market seems to agree there's little bargain left. In the days before subscription opened, NSE's unofficial grey-market premium traded in a ₹186–210 range over the ₹1,785 top of the band — implying a market-expected listing price of roughly ₹1,971–1,995. That happens to land almost exactly inside the ₹1,900–2,020 fair-value range GaanBaru computed using a blended relative and forward-earnings approach (about 35–36x FY28E P/E).

GMP is an unofficial, thinly-traded number and shouldn't be mistaken for a forecast — but if it's even directionally right, most of the gap between the offer price and any reasonable fair-value estimate is already spoken for before the stock has traded a single share on-exchange.

That same independent framework by GaanBaru, scoring an IPO across issue quality and business quality on a five-star scale — landed on roughly 3.25 out of 5 for NSE. Not a blanket rejection. A conditional one: reasonable within, or below, that fair-value band; not obviously so above it. Even a moderate, structured second opinion arrives at caution rather than conviction, which is about as close to consensus as you get on a business this widely covered.

An 84% payout ratio, a discount multiple next to a faster-growing rival, and a grey market already pricing in most of the estimated fair value before listing — three different signals, pointing the same way. This reads like a business, and a market, that already expects NSE's best growth to be behind it, not ahead.

The other side of the argument

We'd be doing you a disservice if we pretended this were the only reasonable reading, so here's the honest counter-case.

NSE still holds an extraordinary moat: 93%+ cash-market share, the world's largest derivatives franchise by contract count, a debt-free balance sheet with a large treasury, and operating margins that beat every large global exchange peer.

The long-running governance overhang from the co-location and dark-fibre matter — once a genuine red flag — is now settled and fully paid, ₹1,491 crore closed out as of July 2026, though the DRHP's audit report still carries disclosed emphasis-of-matter paragraphs tied to related governance and conflict-of-interest issues, which is worth reading in full rather than taking our word for.

The IPO itself is a pure offer-for-sale — NSE receives none of the proceeds — so anyone buying in is simply acquiring a stake in an already-profitable, cash-generative near-monopoly at whatever price the market sets. Some investors want exactly that: yield and stability from a dominant franchise, the way they'd approach a toll road or a regulated utility, not a growth stock.

And the lower P/E next to BSE could just as easily be a fair discount for scale and lower risk as it could be a warning sign.

Where you land depends on your own return objectives, time horizon, and how you expect the competitive and regulatory picture in Parts 1 and 2 to actually play out.

We've told you where we land. You don't have to land there too.

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aditya@gaanbaru.com

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Aditya Jadhav CFA

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