Synopsis

Dolat Capital has initiated coverage on NSE with a ‘sell’ rating and a Rs 1,550 target, implying 26% downside from its unlisted-market price. The brokerage expects tighter derivatives regulations, falling options volumes and market-share losses to curb growth, making NSE’s rich valuation difficult to justify ahead of its planned $3 billion IPO.

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National Stock Exchange of India Ltd., the operator of the world’s largest derivatives exchange by trading volume, has received a ‘sell’ recommendation just as it gears up to launch the country’s biggest initial public offering.

Dolat Capital Market Pvt., a local brokerage house, initiated coverage on India’s largest stock exchange with a bearish call, saying tighter regulations on the country’s equity derivatives market would crimp trading volumes and lead to a decline in its market share. As such, the rich valuations that the stock currently commands leave little room for upside, it added.

Analyst recommendations on unlisted companies are uncommon in India and globally, making the call stand out ahead of the listing of its shares on a rival bourse. Indian rules don’t allow self-listing. Dolat set a target price of 1,550 rupees ($16), which is a 26% discount from its current price of 2,085 rupees in the private trading market.

Analysts led by Punit Bahlani wrote that the impact of the decline in proprietary trading volumes and the loss of market share in index options would limit the exchange’s profit and growth rates. While the brokerage said it doesn’t dispute NSE’s long-term structural growth story, it believes current valuations fail to reflect the regulatory headwinds.

Shares of NSE are down 3% over the previous 12 months, according to unlisted share-trading platform unlistedzone.com. The stock exchange currently commands a market value of 5.2 trillion rupees.

India’s derivatives market has undergone sweeping regulatory changes over the past two years to check excessive speculation in derivatives. These include increased contract sizes and restricting options contracts that settle weekly to one benchmark index per exchange.

The report highlights that NSE’s valuations in the unlisted market are higher than global peers even as its profit growth lags.

Dolat is forecasting NSE’s options trading turnover to decline at an annualised rate of about 4% between fiscal 2026 and 2029 as tighter regulations, lower retail participation and a weaker market cycle weigh on activity. In the same note, the brokerage also initiated coverage on listed peers BSE Ltd. and Multi Commodity Exchange of India Ltd. with sell ratings.

The report comes weeks after NSE filed for an estimated $3 billion IPO and targets a September listing, subject to approval from the Securities and Exchange Board of India.

Unlike most unlisted companies, NSE is extensively followed by analysts because its disclosure standards and quarterly financial reporting are broadly comparable with listed peers. The exchange also conducts earnings calls and its shares are actively traded in India’s unlisted market, where price movements and transfer data are disclosed periodically.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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