IS NSE PRICE JUSTIFIED

A huge number of questions, doubts on NSE have created a sleepless night for many clients from retail to even HNI.  Lack of clarity on pricing and justification of pricing is a major issue in the world of unlisted shares.  Many miss-selling cases have come up from the unlisted world, and it still continues.  Lack of information and herd mindset of investors is also the prime greed, fuelling the mis-selling. Where and when will SEBI get into action for the price discovery mechanism? Are we waiting for a few more hiccups?

 Many clients have come down on the street to have basic insights on NSE and other stocks in the unlisted segment.  Retail is the segment that often gets stuck and bears heavy losses. Does information gap fuel prices?  Retirement clients are at the biggest end of the risk curve when it comes to investing in the unlisted space. The beautiful portrayal of wealth creation often ends up with the wealth destruction of a family for ages.

As India’s most anticipated IPO looms, the National Stock Exchange (NSE) has found itself at the centre of an intense valuation debate. With its unlisted share price skyrocketing from ₹1,500 to as high as ₹2,400 in just two weeks—a stunning 60% rally, and 140% over four years (from ₹740 in 2021), driven by IPO anticipation and strong investor demand.

Investors and analysts are questioning whether the surge reflects genuine fundamentals or is merely a product of IPO-driven hype.

At ₹2,400 per share and a post-bonus share base of 247.5 crore, NSE’s implied market capitalisation now stands at a staggering ₹5.94 lakh crore ($71 billion). While strong financials and resilience against regulatory headwinds offer a solid foundation, the recent price momentum seems to outpace revenue and earnings growth, raising concerns about speculation in the unlisted market.

 From the market Capitalisation: At ₹2,400 per share, with 247.5 crore shares (post 4:1 bonus in May 2024), the implied market cap is ₹5.94 lakh crore ($71 billion). Recent Surge of the share price has risen 60% in two weeks (from ₹1,500)

Bank Nifty weekly options accounted for approximately 47.5% (₹25.96 trillion) of NSE's weekly options premium turnover in the first half of FY25 (April–September 2024), compared to 34.4% (₹18.81 trillion) for Nifty 50

Estimates suggest that discontinuing Bank Nifty weekly options could lead to a revenue drop of 15-20% if NSE had retained Bank Nifty as the weekly expiry product, but opting for Nifty 50 instead could result in a larger 30-35% revenue decline. Some trading volumes may shift from weekly to monthly Bank Nifty contracts, potentially mitigating the revenue loss to an extent. However, weekly contracts are typically more popular among traders due to their shorter duration and higher trading frequency, so the shift may not fully compensate for the loss.

The reduction in the number of expiry days from five to two per week and the narrowing of derivative products are expected to redistribute trading volumes primarily to Nifty 50 and BSE’s Sensex indices, further impacting NSE's overall options turnover.

Ashishkumar Chauhan, NSE’s CEO, noted that the overall option index volumes will significantly decline due to the loss of weekly Bank Nifty and other weekly options series, which could challenge NSE’s financial performance in the short term. This is not a short-term impact, but a permanent one.

NSE’s financial performance for FY25 (ending March 31, 2025) demonstrates robust profitability, despite challenges from SEBI’s regulatory reforms:

• Revenue: Total revenue grew 16.7% YoY to ₹19,176.83 crore, with operational revenue in H1 FY25 up 35% YoY to ₹9,000 crore.

• Net Profit: Consolidated net profit surged 47% YoY to ₹12,187.94 crore, with Q4 FY25 profit at ₹2,650.11 crore (up 6.55% YoY).

• Profit Margins: NSE reported a 74% operating margin in Q4 FY25 (up from 66% YoY) and a 75.59% EBIT margin for FY24, reflecting operational efficiency.

• Earnings Per Share (EPS): ₹169.82 in FY24, with a projected annualised EPS of ₹40 post-bonus, indicating strong returns.

• Dividend: A proposed ₹35 per share dividend (3,500% for FY25) underscores NSE’s shareholder-friendly approach.

• Return on Equity (ROE): 35% in FY24, highlighting efficient capital utilisation

 

Valuation Analysis: Share Price vs. Revenue

To assess whether the share price is inflated, we can use the Price-to-Sales (P/S) ratio and compare it to peers, alongside other contextual factors:

• Price-to-Sales (P/S) Ratio:
• Calculation: Market cap (₹5.94 lakh crore) ÷ FY25 revenue (₹19,176.83 crore) = ~31x P/S ratio.
• Peer Comparison:
• BSE (listed): Market cap ~₹95,000 crore, FY25 revenue ~₹3,600 crore (estimated), P/S ~26.4x.
• Interpretation: NSE’s P/S ratio of 31x is significantly higher than BSE (26.4x) and global peers (8–12x), suggesting a premium valuation relative to revenue. This indicates potential inflation, especially given the unlisted market’s speculative nature.
• Revenue Growth vs. Share Price Growth:
• Revenue grew at a CAGR of 33% from FY22 to FY25, while the unlisted share price surged 140% over four years and 60% in two weeks.
• The rapid share price increase outpaces revenue growth, hinting at speculative momentum driven by IPO expectations rather than purely revenue-based fundamentals.

 Gap Between Unlisted Share Price and Profitability

To assess whether there is a gap between NSE’s unlisted share price and its profitability, we can analyse valuation metrics and compare them to fundamentals and peer performance:

• Price-to-Earnings (P/E) Ratio:

At ₹2,400 per share and an EPS of ₹169.82 (FY24), NSE’s trailing P/E is approximately 14.13x. For FY25, assuming a net profit of ₹12,188 crore and 247.5 crore shares, EPS is ~₹49.24, yielding a forward P/E of ~48.  Some sources (this is the place of manipulators) report a P/E of 35x forward earnings or 45x, suggesting NSE is undervalued compared to BSE, which trades at 52.75x forward P/E. But when NSE’s P/E is attractive relative to BSE, it indicates that its share price may not fully reflect its profitability. The lower P/E suggests potential upside, especially with IPO expectations.

NSE’s revenue and net profit grew at a CAGR of 33% and 36%, respectively, from FY22 to FY25.

• Despite SEBI’s restrictions on weekly options (e.g., Bank Nifty discontinuation), NSE’s profitability remains resilient, supported by diversified revenue streams (equities, derivatives, data analytics) and 14 million new demat accounts in FY24.
•  Strong fundamentals support the recent share price surge, but the rapid 60% rise in two weeks may reflect speculative IPO-driven demand rather than purely profitability. Hence, the recent surge of price from Rs 1500 to Rs ₹2,222 to ₹2,400 per share, with some reports citing a high of ₹2,325 as of June 16, 2025, is totally artificial and has lesser justification at the backend.

 

Is There a Gap?:

 NSE’s unlisted share price (₹2,222–₹2,400) appears undervalued relative to its profitability, given its low P/E (35x–48.74x) compared to BSE (52.75x) and global peers, robust 47% profit growth, and 74% operating margins. However, the recent 60% price surge in two weeks suggests speculative momentum driven by IPO anticipation, which may temporarily inflate prices beyond fundamentals.

The valuation gap indicates potential upside if NSE lists successfully; however, investors should be cautious of risks such as limited liquidity, regulatory delays, and SEBI’s F&O reforms potentially impacting future revenue (e.g., an estimated 15–35% loss from Bank Nifty weekly options closure).

Investors should conduct due diligence and consult SEBI-registered advisors, as unlisted shares carry inherent risks.