NSE jumps 5% on Day 1: Why brokerages are betting on the ‘wealth creation runway’

Emkay on NSE: Long runway for wealth creation

Emkay has set a target price of Rs 2,050 for the stock, implying an upside of nearly 15% from its issue price of Rs 1,785 per share. The brokerage highlighted three key factors for its positive outlook on the stock.

Emkay said India’s capital market development and growth story has a “long runway” as wealth creation and financialisation gain momentum in the country. The exchange has shown resilient leadership over decades across the business segments of capital markets, the brokerage said.

“Strong profitability and cash generation by MIIs (market infrastructure institutions), such as stock exchanges, enable them to globally command higher valuation multiples versus other capital market players that are more fragmented and susceptible to competition,” Emkay said.

The brokerage expects NSE’s earnings per share to register a compounded annual growth rate of 13% over FY27-FY29, mainly due to strong 19% CAGR growth over FY22-FY26.

“NSE commands uncontested leadership across cash and derivatives, driven by a self-reinforcing liquidity flywheel. In the cash segment, NSE holds 93% market share while retaining near-monopoly in the equity futures and stock options segment. While BSE has captured market share following its derivatives relaunch, we believe index options are transitioning to a phase of stabilisation following several regulatory rejigs,” Emkay said.

The brokerage added that despite concerns over derivatives turnover, the growth in Indian derivatives, including on NSE, has been similar to that of the US in recent years. “In the global context, NSE’s non-transaction revenues are relatively smaller; hence, in a scenario of moderation in transaction volumes, nontransaction revenue growth, along with tweaking in transaction charges, can support profitable growth,” it said.

PL Capital on NSE:

PL Capital has a price target of Rs 1,950 for NSE, reflecting an upside of 9% from the issue price. While NSE commands a near-monopoly in the cash equities and futures trading volumes in India, its share in index options has eroded recently. 

The exchange has maintained more than 90% market share in the cash segment for several years, with nearly 100% share in futures. However, its share in index options has declined to 65% so far in FY27 from 72% in FY26 and from around 97% in FY24, PL Capital said.

Regulatory curbs on weekly expiries, the introduction of the closing auction session, and prop trading rules have shrunk overall industry volumes and are likely to result in lower growth over FY29 from FY26.

The brokerage expects NSE’s revenue to grow at a compounded annual growth rate of 11% by FY29 over FY26, despite its revenues growing at 25% CAGR in FY21-FY26, due to the shrinking share in index options. “We expect EBITDA margin to recover to 76% by FY29 (vs. 71% in FY26) as one-offs get adjusted, in-line with annual profit growth of 11% on a compounded basis. NSE’s IPO values it at Rs 4.4 trillion, with P/E of 32x on FY29 earnings estimates,” PL Capital said. 

NSE: Brokerages bet on growth runway

Both the brokerage report highlights NSE’s strong leadership position and the prospects of steady revenue growth moving forward. They believe that the business model also has enough levers in place to adjust to changes in regulations and macro-economic landscapes.

Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.