The National Stock Exchange of India (NSE) has been given a ‘sell’ recommendation by a domestic brokerage before its highly anticipated initial public offering (IPO). Dolat Capital Markets has cautioned that changes in regulatory policies in the country’s derivatives market could impact the exchange’s future growth and valuations. The brokerage set a target price of Rs 1,550 for NSE, which is approximately 26% lower than its current unlisted market price of about Rs 2,085.
Recommendations on unlisted companies are rare in India, making this bearish call by the brokerage significant as the largest stock exchange in the country gears up for what is anticipated to be India’s largest IPO. Dolat Capital highlighted that stricter regulations governing the equity derivatives segment might lead to a decrease in trading volumes and a decline in NSE’s market share, particularly in index options. Despite having a strong long-term growth narrative, the current valuation of the exchange may offer limited upside potential due to regulatory challenges.
Analysts, led by Punit Bahlani, predict that a drop in proprietary trading volumes and a decrease in market share in index options could constrain the exchange’s earnings growth in the upcoming years. Dolat Capital estimates that NSE’s options trading turnover could witness a yearly decline of around 4% between FY26 and FY29 due to stringent regulations, reduced retail participation, and a softer market cycle affecting trading activities. The report also pointed out that NSE’s valuation in the unlisted market is higher compared to several global peers, despite a relatively slower profit growth rate.
Currently valued at around Rs 5.2 lakh crore in the unlisted market, NSE’s shares have experienced a decline of approximately 3% over the last year, as reported by the unlisted share-trading platform UnlistedZone. The brokerage’s recommendation comes at a time when NSE’s long-awaited IPO is facing delays due to ongoing regulatory and legal issues. Notably, issues such as the prolonged co-location and dark fiber cases have contributed to the delay in the IPO process. In its draft red herring prospectus (DRHP), NSE disclosed its proposal to settle regulatory proceedings with the Securities and Exchange Board of India (SEBI) by paying Rs 1,491.21 crore. The exchange highlighted that these matters are still pending before the Supreme Court, SEBI, and other judicial forums, as disclosed in the material litigation section of the IPO documents.
