NSE gets rare 'sell' rating ahead of planned IPO
Mumbai, July 17
The National Stock Exchange of India has received a 'sell' recommendation from a domestic brokerage ahead of its much-anticipated initial public offering, with Dolat Capital Markets warning that regulatory changes in the country's derivatives market could weigh on the exchange's future growth and valuations.
In an initiation report, Dolat Capital assigned a target price of Rs 1,550 for NSE, nearly 26 per cent below its prevailing unlisted market price of around Rs 2,085.
Recommendations on unlisted companies are uncommon in India, making the brokerage's bearish call noteworthy as the country's largest stock exchange prepares for what is expected to be India's biggest IPO.
The brokerage said tighter regulations governing the equity derivatives segment are likely to reduce trading volumes and erode NSE's market share, particularly in index options.
It added that while the exchange continues to have a strong long-term structural growth story, its current valuation leaves little room for upside given the regulatory headwinds.
According to analysts led by Punit Bahlani, a decline in proprietary trading volumes and the loss of market share in index options are expected to limit the exchange's earnings growth in the coming years.
Dolat Capital estimates that NSE's options trading turnover will decline at a compound annual rate of around 4 per cent between FY26 and FY29 as stricter regulations, softer retail participation and a weaker market cycle weigh on trading activity.
The report also noted that NSE's valuation in the unlisted market is richer than those of several global peers despite relatively slower profit growth.
The exchange is currently valued at about Rs 5.2 lakh crore in the unlisted market, while its shares have declined around 3 per cent over the past 12 months, according to unlisted share-trading platform UnlistedZone.
The brokerage recommendation came at the time when NSE's long-awaited initial public offering (IPO) is already delayed with pending regulatory and legal issues continuing to delay the process.
One of the key issues has been the long-running co-location and dark fibre cases. In its draft red herring prospectus (DRHP), NSE disclosed that it has proposed to pay Rs 1,491.21 crore to settle the regulatory proceedings with the Securities and Exchange Board of India (SEBI).
The exchange said the matters remain pending before the Supreme Court, SEBI and other judicial forums and have been disclosed under the material litigation section of the IPO documents.
— IANS
Reader Comments
Finally, some realistic analysis! Everyone was just hyping NSE as the next big thing without looking at the regulatory risks. SEBI's tightening is real and could hit volumes hard. For retail investors, the unlisted market price of ₹2,085 seems too frothy. I'd rather wait for the IPO and see how things settle.
Interesting perspective from an Indian brokerage. Back home in the US, you don't see sell ratings on exchanges often. The regulatory overhang on derivatives is a unique risk factor here. The target price of ₹1,550 seems aggressive but highlights how overvalued NSE might be.
I think this is just one view. NSE is a monopoly in equity markets and even with lower volumes, their earnings will still be huge. The co-location case is a temporary overhang, once that's settled, the IPO could sail through. But yes, the valuation is stretched. Modi ji's market reforms need time to fully impact.
As someone who works in finance abroad, I find the regulatory challenges here fascinating. Index options have been a cash cow for NSE, and if SEBI's stricter rules reduce speculative trading, it will definitely hit top-line growth. Patience might be key before jumping into this IPO.
Respectfully, I disagree with the sell call. NSE is the backbone of India's capital markets. Yes, regulatory changes will hurt in the short term, but long-term structural growth story is intact. The ₹5.2 lakh crore valuation is justified given the moat. Just
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