Buy National Stock Exchange Ltd For Target Rs.2,300 by Motilal Oswal Financial Services Ltd
Deep Roots, Expanding Horizons
* Structural tailwinds for activity growth: India's market cap-to-GDP ratio stands at 131% (FY25) vs. the US at 216% and Japan at 157% (CY24). Matching the US ratio would imply 1.65x the current listed market cap. Demat accounts reached 241m by Sep’26, which is 17% of the population, reflecting structural headroom for growth. India’s ~3% active-participation rate is low even against other emerging markets, so as financial literacy, digital onboarding and distribution improve, participation could rise structurally over the years.
* Market leader in an under-penetrated ecosystem: NSE is India's largest exchange by turnover in the cash market (ADTO of ~INR1.1t) and in equity derivatives (futures ADTO of ~INR1.6t and options premium ADTO of INR577b in FY26). Its active client base of 46m in Sep'26 represents only ~3% of India's population. The number of investors aged <30 years rose from 22.6% of NSE's individual investor base in FY19 to 38.4% in FY26. As this cohort matures over the years, the trading activities and ticket sizes of trades will only increase.
* Strong presence in equities: NSE's FY26 market share is 93% in cash, 99.8% in equity futures and 74.7% in equity options premium. Options contribute ~75% of transaction fees, cash ~12% and futures ~11%. NSE accounts for ~12% of global cash trades, ranking third behind only Shenzhen (SZSE) and Shanghai (SSE), and ranked 5th globally by options contracts traded in 1QFY27.
* Derivatives reset is regulatory, not structural: Options premium turnover rose from INR4t in FY16 to INR191t in FY26 (47% CAGR). SEBI's F&O measures slowed activity in 2HFY25, which recovered in 2HFY26 before hitting the hurdle of prop regulations (Jul’26) and the closing auction session (CAS) regulation (Aug’26). From 7th Dec'26, favorable modification of CAS rules should lead to options volumes recovering to pre-CAS levels.
* Non-transaction annuity engine: Non-transaction revenue formed 17% of FY26 revenue from operations vs. a significantly higher share for global exchanges in data feeds/terminals and clearing. Colocation grew at a ~37% CAGR from INR2.7b in FY21 to INR13.3b in FY26, and we expect a 15% CAGR to ~INR17.6b by FY28E. Listing fees were INR3.5b, and data feeds and terminals saw a 29% CAGR over FY21-26 (est. 15% going forward). This diversification should reduce cyclicality and lend strong visibility for earnings.
* Multi-asset optionality: NSE holds 100% in interest rate futures, 85.65% in corporate bonds and 71.4% in electricity futures (within its first year). With early inroads into the commodity space through new products, NSE is well poised to gain a meaningful position in the segment. Corporate bonds outstanding are only ~17.1% of GDP vs. China at ~38.4%, the US at ~38.2% and South Korea at ~75.7%, leaving a significant headroom for India to catch up. GIFT Nifty and NSEIXGA at GIFT City add dollar-denominated growth.
* Triple moat of scale, margins and technology: For NSE, EBITDA margins have been in the range of 70%+. A largely fixed cost base gives high incremental margins as volumes recover. The strength and scale of the technology is evinced from the peak volume of 21.9b order messages and 201m trades on 24th Mar'26. The capability is to process ~5m messages per second and further investments will only strengthen the platform.
* Earnings recovery with operating leverage: We expect revenue to rise from INR166b in FY26 to INR234b in FY29E (12% CAGR) and EBITDA to clock a 13% CAGR over FY26-29E, with margin expanding to ~77% by FY29E. PAT should reach INR150b reflecting FY26-29E CAGR of 13%, and RoE should recover from ~30% in FY26 to ~43% by FY29E. We initiate coverage with a BUY rating and a one-year TP of INR2,300, based on 40x Sep’28E EPS.
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