NSE IPO Review: Finology Deepscan

Hello!

In today’s edition, we’ll analyse the business that dominated most of India’s equity and derivatives trading: the IPO bound National Stock Exchange of India (NSE).

It holds over a 90% share in most major trading categories and accounts for roughly 70% of Indian exchange revenues.

Note: This DeepScan is an educational analysis, not a stock recommendation. Its purpose is to help you learn how we analyse businesses. If you’re looking for actionable stock recommendations, explore Finology 30.

After years of regulatory delays, the National Stock Exchange of India (NSE) is finally moving closer to a public listing.

Why are we covering NSE?

India’s stock exchange market is effectively a duopoly between NSE and BSE. But even within this duopoly, NSE is far larger across most trading segments.

NSE has been India’s largest exchange by cash and equity derivatives turnover for more than two decades. In FY26, it accounted for around 93% of cash-market turnover, almost 100% of equity-futures turnover and roughly 75% of equity-options premium turnover.

Metric	NSE Turnover	BSE Turnover	NSE vs BSE
Cash market	₹260.6 lakh Cr.	₹19.6 lakh Cr.	13.3x
Single-stock futures	₹320.4 lakh Cr.	₹873 Cr.	~36,700x
Index futures	₹73.5 lakh Cr.	₹0.84 lakh Cr.	~88x
Single-stock options, premium turnover	₹17.8 lakh Cr.	₹10 Cr.	NSE almost entirely dominates
Index options, premium turnover	₹124.7 lakh Cr.	₹48.2 lakh Cr.	2.6x

At the centre of this dominance is liquidity.

Imagine Reliance shares are traded on two exchanges. On the first exchange, thousands of buyers and sellers are constantly placing orders. On the second, only a small number of investors are trading.

Even if the second exchange charges lower fees, most investors will still prefer the first one because there is a better chance of getting the order executed quickly and at a price close to what they want.

This creates a powerful cycle:

More traders → more liquidity → better prices and execution → more traders.

Once an exchange reaches this scale, liquidity itself becomes one of its biggest advantages.

NSE’s Business Segments

NSE reports three broad business segments.

Business segment	What it does	FY26 revenue	Revenue share
Trading Services	Runs NSE’s trading platform across equities, futures & options, debt, currency and commodities. It earns mainly from transaction charges on trades executed on the exchange, along with fees from company listings, trading member connectivity and colocation/data-centre services.	₹15,044 Cr.	86.21%
Clearing Services	Handles what happens after a trade is executed. It calculates obligations, manages margins and helps ensure that buyers receive securities and sellers receive money. It also earns associated investment income.	₹1,762 Cr.	10.10%
Others	Includes market data feeds and terminals, Nifty/index licensing and income from certain strategic investments and related businesses.	₹644 Cr.	3.69%
Gross revenue	-	₹17,451 Cr.	100.00%
Less: Inter-segment revenue	-	₹849 Cr.	-
Net revenue	-	₹16,602 Cr.	-

Trading Services

Trading Services is the core of NSE’s business. This is the part that runs the marketplace where investors, institutions and trading firms buy and sell equities, futures & options, debt instruments, currencies and commodities.

NSE earns in several ways:

1. Transaction charges - These are fees paid by trading members, mainly SEBI-registered stock brokers authorised to place trades on NSE. So when an investor places an order through Zerodha, Angel One or another broker, the broker sends the order to NSE and pays NSE a transaction fee when the trade is executed.

2. Listing and book-building services - NSE also earns from listing services. When a company wants its shares or other securities to trade on NSE, it pays listing-related fees to the exchange. NSE also earns book-building fees when companies raise money through public issues such as IPOs. Book building is the process through which investor bids are collected across a price range to help determine the final issue price. NSE provides the infrastructure used for this bidding process and charges fees for it.

3. Connectivity Fees - Brokers, institutions and large trading firms need dedicated electronic connections to NSE’s trading system so their orders can reach the exchange quickly and reliably. NSE charges them for this access and connectivity.

4. Colocation services - Large algorithmic and high-frequency trading firms can place their servers inside, or close to NSE’s data centre. This reduces the time taken for orders to travel between their systems and NSE’s matching engine. NSE charges these members for server racks and related infrastructure. In simple words, these firms are paying NSE to keep their trading computers physically closer to the exchange so they can receive market data and send orders with lower delay.

Trading Services has grown more than 3x over the past five years, with revenue increasing from around ₹4,848 Cr. in FY21 to ₹15,044 Cr. in FY26, a CAGR of roughly 25%.

Transaction charges are the main revenue driver

In FY26, NSE earned around ₹13,057 Cr. from transaction charges, which accounted for ~78.7% of consolidated revenue. Options alone contributed around ₹9,998 Cr., or ~60.2% of operating revenue, while futures contributed ~8.9%.

Revenue source	Revenue	Revenue share
Options transaction charges	~₹9,998 Cr.	~60.2%
Futures transaction charges	~₹1,480 Cr.	~8.9%
Cash-market transaction charges	~₹1,555 Cr.	~9.4%
Total transaction charges	~₹13,057 Cr.	~78.7%
Listing services	~₹352 Cr.	~2.1%
Data connectivity	~₹1,129 Cr.	~6.8%
Data-centre rack charges	~₹205 Cr.	~1.2%

The table makes the underlying revenue concentration much clearer. It is more dependent on options than the broader trading services label suggests.

Revenue share	FY24	FY25	FY26
Transaction charges	82.1%	79.6%	78.7%
Options transaction charges	64.6%	59.5%	60.2%
Futures transaction charges	8.5%	10.1%	8.9%

This dependence on options is not unique to NSE. The Indian exchange industry itself has changed considerably since COVID, with derivatives becoming a much larger part of trading activity and exchange revenues.

Equity options premium turnover grew at a 56% CAGR between FY20 and FY26, compared with 19% CAGR for cash market turnover. By FY26, options premium turnover had reached around 70% of daily cash market turnover, while derivatives contributed roughly 70% of operating revenue for Indian exchanges.

For NSE, this works both ways. It has the deepest derivatives liquidity in India and a large ecosystem around Nifty and single stock derivatives. But it also means that earnings are now more sensitive to any regulation aimed at reducing speculative activity in options.

FY26 gives a good example. Average daily trading volume fell across the major equity segments, with cash market volumes down 6.6%, futures down 14.2% and equity options down 7.7%.

A major reason was SEBI’s tighter derivatives framework, which increased contract sizes, reduced weekly expiries and tightened rules around option premium collection, margins and position limits. This reduced speculative trading activity, and as a result, NSE’s transaction revenue declined 4.2% YoY.

NSE’s Market Share and Competitive Position 

The competitive position remains largely unchanged in most segments. Over the past five years, NSE’s share in the cash market has stayed around 93%, while equity futures remain almost entirely with NSE. The main change has been in equity options, where BSE has started gaining meaningful market share.

Market share	FY22	FY23	FY24	FY25	FY26
Cash market	93%	93%	92.5%	93.6%	93%
Equity futures	100%	100%	99.9%	99.9%	99.8%
Equity options	100%	100%	96.9%	87.4%	74.7%

This table probably tells us more about NSE’s competitive position than most financial ratios.

Its cash-market share has stayed around 93% for five consecutive years, while equity futures remain almost entirely on NSE. This is despite BSE already having the technology, regulatory approvals, broker relationships and brand needed to compete.

The one area where competition has increased is equity options.

BSE relaunched its equity derivatives business in May 2023 and gradually built liquidity around Sensex and Bankex contracts. In just three years, BSE has gone from having almost no meaningful presence in equity options to capturing roughly 25% of the market.

NSE vs BSE: the gap is still wide

BSE is the closest listed comparable because both companies operate multi-asset exchanges and earn from trading, listings, data, connectivity and related services.

Metric (FY26)	NSE	BSE
Revenue from operations	₹16,602 Cr.	₹4,834 Cr.
PAT	₹10,302 Cr.	₹2,487 Cr.
Cash-market share	~93.00%	~7.0%
Equity-futures share	~99.80%	~0.2%
Equity-options share	~74.7%	~25.3%
Equity-options premium ADTV	₹57,662 Cr.	₹19,523 Cr.

NSE’s larger scale also gives it better unit economics. In FY26, clearing charges were only around 1% of NSE’s operating revenue, compared with around 6% for BSE.

The difference is also visible in options trading. Exchange revenue is largely linked to option premium turnover, while SEBI fees are charged on the much larger notional turnover. NSE sees more trading outside expiry days, when option premiums are generally higher. This allows it to generate more premium revenue for the same amount of notional turnover. As a result, SEBI fees were around 5% of NSE’s operating revenue in FY26, compared with 14% for BSE.

BSE, however, has been growing much faster because it is gaining market share from a smaller base. Its consolidated operating revenue increased from around ₹1,371 Cr. in FY24 to ₹4,834 Cr. in FY26. Equity derivatives revenue alone increased from ₹1,415 Cr. in FY25 to ₹3,134 Cr. in FY26, as premium ADTV rose from ₹8,977 Cr. to ₹19,522 Cr.

This also means the growth drivers for the two exchanges are different. BSE still has room to grow by gaining market share, particularly in derivatives. NSE already controls most of the market, so its growth will depend more on overall market activity, higher participation and better monetisation of related services.

• BSE is primarily a market-share-gain story in derivatives.

• NSE is primarily a market-leadership plus industry-growth story.

Why has BSE been able to take options market share but not cash or futures?

Liquidity tends to be self-reinforcing, but index options give exchanges more room to build differentiated products. BSE already had several advantages in place. Sensex was a recognised benchmark, brokers were already connected to the exchange, and it had the required clearing infrastructure and relationships with market makers.

By relaunching Sensex derivatives with a different expiry day, BSE gave traders another opportunity to deploy capital during the week without asking them to move away from the already liquid contracts on NSE.

Traders who actively traded expiry day options could therefore trade NSE contracts on Thursday and Sensex on Friday, rather than choosing between the two on the same day. This helped BSE attract trading activity and gradually build liquidity in Sensex options.

There is some historical context that needs to be understood regarding derivatives, though.

BSE had tried to build a derivatives business much earlier, but the liquidity did not last. From 2011, it used Liquidity Enhancement Incentive Programmes (LEIPS), under which brokers and market makers were paid to bring trades and provide buy and sell quotes. Volumes increased while the incentives were active, but dropped sharply once they ended. For example, average daily turnover in BSE 100 futures and options was ₹24,416 Cr. during one incentive scheme, but fell to just ₹9.9 Cr. after it ended. Similarly, Sensex options turnover averaged ₹25,210 Cr. during another scheme, but dropped to ₹38 Cr. after the incentives were withdrawn.

The same pattern continued later. BSE’s equity derivatives segment averaged 4.32 lakh contracts per day in FY16, but this fell to just 498 contracts per day in FY17 after BSE discontinued its liquidity incentive programme. Traders were participating mainly because of the incentives. Once those stopped, activity moved back to NSE, where most buyers and sellers were already present.

The 2023 relaunch took a different approach. BSE spoke to around 350 brokers before redesigning the product. It relaunched Sensex derivatives on 15 May 2023 with a lower lot size and a Friday expiry, instead of competing directly with NSE’s major Thursday expiries. This gave traders another expiry day to deploy capital. Capital tied up for NSE’s Thursday expiry became available again for BSE’s Friday expiry.

BSE also had to improve access to the product. At the time of the relaunch, only eight brokers had the complete systems required to trade BSE derivatives and only two software vendors supported the segment. BSE worked with brokers and technology vendors to widen access, and the number of participating brokers eventually crossed 400.

The results were very different from the earlier incentive-led attempts. Within about five months, more than 350 members and 10 lakh unique client codes had traded BSE derivatives.

Cash equities are much harder to shift

Reliance Industries is the same stock whether it trades on NSE or BSE. If NSE already offers much deeper liquidity, a large institution has little reason to move its order to the less liquid exchange.

The same difference is visible in options. BSE has become a serious competitor mainly on Sensex expiry days, when trading activity is concentrated. On regular trading days, NSE still sees much higher activity.

This matters because institutions, hedgers and market makers need enough liquidity throughout the week to enter, exit and adjust positions easily, not just on expiry days.

NSE’s scale remains difficult to replicate

As of March 2026, NSE had 12.91 crore unique registered investors, 1,325 trading members and 2,978 listed entities. It also accounted for 51.2% of all equity-derivative contracts traded globally in FY26.

Running a market of this size requires a large technology setup. NSE operates 7 data centres, more than 14,000 physical and virtual servers and over 2 lakh trading terminals across 1,400 cities and towns. It also has 2,694 full-rack equivalents, while its systems can process around 50 lakh messages every second with response times measured in microseconds.

This scale gives NSE two clear advantages.

The first is a high technology barrier to entry. A new exchange cannot simply build a trading platform and start competing. The system has to remain reliable even during highly volatile trading days, while also meeting strict requirements around regulation, market surveillance, cyber security and disaster recovery.

The second is operating leverage. Once the core infrastructure is in place, trading volumes can grow without costs rising at the same pace. This is one of the main reasons exchange economics improve with scale.

However, NSE cannot monetise this position without limits. Its market leadership does not give it complete freedom over pricing or product design. SEBI can influence transaction charges, contract structures, expiry days, margin requirements and the number of products exchanges are allowed to offer.

The impact of regulation has already been visible. SEBI’s reforms introduced from late 2024 included larger minimum contract sizes, allowing each exchange only one weekly-expiry benchmark index, upfront collection of options premiums, additional margins around expiry and tighter position monitoring. These measures contributed to lower derivatives volumes in FY26.

From April 1, 2026, the government also raised STT on futures from 0.02% to 0.05% of contract value and on the sale of options from 0.10% to 0.15% of premium value, further increasing the cost of derivatives trading.

In our view, NSE is likely to remain the dominant Indian exchange, while BSE continues to hold a meaningful position in index derivatives.

Listing Services

NSE earns listing revenue when companies list shares, bonds or other securities on the exchange. This includes one-time listing fees, processing and book-building fees when companies raise capital, and recurring annual listing fees as long as the securities remain listed. In FY26, NSE earned around ₹352 Cr. from listing services.

BSE is actually larger in this business. In FY26, it earned around ₹389 Cr. from listing fees and another ₹104 Cr. from book-building fees, supported by its larger base of listed companies and stronger SME listing franchise.

So while NSE dominates trading, listing is one area where BSE has a stronger position.

Data connectivity

This has already become a meaningful business for NSE, generating around ₹1,129 Cr. in FY26, or 6.8% of operating revenue.

NSE is much larger than BSE here because significantly more trading activity and high-frequency participation take place on its platform.

Colocation / data-centre rack charges

NSE earned around ₹205 Cr. from rack charges in FY26, up from ₹154 Cr. in FY25.

BSE is also scaling this business as its derivatives volumes grow. By FY26, it had around 500 colocation racks, up from 300 in FY25. BSE earned roughly ₹171 Cr. from colocation, connectivity and related throttle charges combined in FY26.

The scale difference is much larger when we combine comparable infrastructure revenues. NSE generated roughly ₹1,334 Cr. from connectivity and colocation in FY26, compared with around ₹171 Cr. for BSE, making NSE nearly 8x larger on this measure.

This is another benefit of NSE’s deeper trading ecosystem. Since most liquidity is already concentrated on NSE, more brokers and algorithmic traders need high-speed access to its systems.

Clearing Services

Clearing Services handles what happens after a trade is executed. NSE carries out this business through NSE Clearing Limited (NCL), which acts as the central counterparty between buyers and sellers. It calculates settlement obligations, collects margins and collateral, and ensures that trades are completed even if one party defaults.

In FY26, NSE’s Clearing Services segment generated around ₹1,762 Cr. of revenue. Direct clearing and settlement fees were only around ₹251 Cr., with the remaining revenue largely coming from investment income earned on clearing-related funds.

BSE performs the same function through BSE Clearing Limited, but NSE Clearing is much larger. In FY26, it had around 88% share in cash-market clearing and 91% in equity-derivatives clearing.

Beyond trading and clearing, NSE also earns from market data, index licensing, connectivity, colocation and its international exchange at GIFT City. These businesses are still small compared with transaction revenue, but they give NSE more ways to earn from its existing ecosystem and gradually reduce some dependence on trading volumes.

Business Economics and Financials

Over the past five years, NSE has grown at a healthy pace. Consolidated revenue from operations increased from around ₹5,625 Cr. in FY21 to ₹16,602 Cr. in FY26, a CAGR of roughly 24%. PAT increased from ₹3,573 Cr. to ₹10,302 Cr. over the same period, also growing at around 24% CAGR.

The growth was not completely linear. Revenue peaked at ₹17,141 Cr. in FY25 before declining slightly in FY26 as trading volumes moderated after regulatory changes.

The more useful number, in our view, is the normalised EBITDA margin. Despite changes in trading volumes, it remained broadly stable at around 76-78% between FY24 and FY26.

FY26 reported profitability was also affected by a ₹1,391 Cr. provision related to the colocation and dark-fibre matters. This makes the decline in reported earnings look weaker than the underlying operating performance.

The business is also not very capital intensive. Total capex remained at around 3-3.5% of revenue from operations between FY24 and FY26. Technology accounts for most of this spending, representing around 72% of total capex in FY26, 82% in FY25 and 92% in FY24.

Combined with high margins and low capital requirements, this allowed NSE to maintain a high dividend payout, at around 71% of earnings in FY25 and 84% in FY26.

Coming to Future Growth Opportunities

1. Growth in India’s Capital Markets

NSE is already dominant across most major trading segments, so future growth is unlikely to come from large market share gains. The bigger opportunity is the continued growth of India’s capital markets and earning more from the ecosystem NSE already controls.

Between FY26 and FY30, cash equities are expected to grow at around 14%-16% CAGR, equity options at 9%-11%, equity futures at 16%-18%, currency and commodity futures at 15%-20%, and currency and commodity options at 20%-25%.

Given NSE’s ~93% share in the cash market and near-total dominance in equity futures, a large part of this industry growth should naturally flow through its platform unless it loses meaningful market share.

2. Data, Connectivity and Technology

The second opportunity is to earn more from the ecosystem NSE has already built.

These revenues already contribute around 12% of NSE’s operating revenue, compared with roughly 20-30% globally.

NSE’s member colocation capacity increased from 934 full-rack equivalents in FY24 to 1,680 in FY26. As algorithmic trading, institutional participation and demand for low latency access increase, these services can grow without requiring NSE to depend entirely on higher transaction volumes.

3. Commodities

Commodities are one of the few major exchange segments where NSE is still relatively small.

MCX continues to dominate most commodity derivatives, which means NSE has much more room to gain share here than it does in cash equities or equity futures. NSE has already started building liquidity in selected contracts. It captured 71.4% of electricity-futures lots traded between its launch in July 2025 and March 2026, although this share moderated to 53.5% in Q1 FY27.

Commodity contracts are closely linked to the physical market, so MCX’s advantage goes beyond trading volumes. As of March 2026, MCX’s clearing ecosystem had 10 bullion vaults, 14 metal warehouses and 10 agricultural warehouses, compared with just 1 bullion facility and 3 metal warehouses for NSE. This matters because commodity contracts can end in physical delivery. Refiners, jewellers, metal traders and other hedgers therefore prefer an exchange where storage, quality testing and delivery infrastructure are already well established.

NSE has gained commodity market share occasionally, but these gains have so far been concentrated in individual contracts rather than across the segment. Its notional market share reached around 9% in April 2025, but 99% of NSE’s commodity turnover came from crude oil. When activity in crude slowed, the gains reversed quickly and crude options premium turnover fell from ~₹52 Cr. per day in April to ~₹25 Cr. in May, and by June, its overall commodity notional market share had fallen back to around 2%.

This business is still small, so it will not materially change NSE’s earnings in the near term. But it is strategically important because even modest market share gains could create an additional revenue stream without requiring NSE to build an entirely new technology platform.

4. NSDL Gives NSE Exposure Beyond the Exchange

NSE also owns a ~15% stake in National Securities Depository Limited (NSDL), giving it exposure to another important layer of India’s capital market infrastructure.

NSDL benefits from the growth in demat accounts, securities held in electronic form, capital raising and overall market participation. As India’s financial markets continue to deepen, the value of this infrastructure should also grow.

Key Risks In the Business

1. Regulation is the biggest risk

NSE has strong market power, but it does not have complete freedom to monetise it. Around 60% of FY26 operating revenue came from options transaction charges, which makes regulatory changes in derivatives particularly important.

Recent measures around weekly expiries, contract sizes, margins and surveillance have already reduced trading activity, while higher STT has increased the cost of derivatives trading further.

The regulatory concern is understandable. According to SEBI’s latest study, 87.7% of individual equity-derivatives traders lost money in FY26.

Regulation keeps volume growth and revenue per trade under pressure.

Options premium ADTV and transaction revenue will therefore be more useful indicators to track than simply assuming higher capital market participation will translate into similar earnings growth.

2. Regulatory and governance history remains an overhang

The National Stock Exchange has also faced regulatory issues over the way brokers connected to its trading system. Some brokers use colocation, where their servers are placed inside the exchange’s data centre to reduce the time taken for orders to reach the market. The concern in these cases was whether certain brokers received, or could receive, faster access than others.

The National Stock Exchange also faced a regulatory issue related to the system brokers use to connect to the exchange. SEBI found that brokers could potentially send orders without passing through some of the usual access and security checks. It also pointed to delays in appointing NSE’s information security head and gaps in encryption.

NSE paid around ₹643 Cr. to settle the matter in FY25 and provided around ₹1,391 Cr. in FY26 towards settlement of the colocation and dark-fibre matters.

An exchange is expected to provide fair and equal access to all market participants, so issues around preferential access matter more here than they would in a normal business.

3. Rising Competition in Clearing

Historically, trades executed on NSE were also cleared through NSE Clearing, allowing the group to capture both trading and clearing economics. That changed after SEBI introduced interoperability among clearing corporations in 2019.

Today, a trade executed on NSE can be cleared through another authorised clearing corporation.

There are already signs of this. NCL’s share of cash-market clearing declined from 94.2% in FY25 to 88.4% in FY26, while its equity-derivatives clearing share fell from 95.7% to 91.0%.

The immediate financial impact has not been large, but structurally this could increase competition between clearing corporations, put pressure on fees and reduce some of the advantage NSE gets from owning both the trading and clearing infrastructure.

4. BSE could continue taking share in index derivatives

BSE’s growth in Sensex derivatives shows that traders are willing to use a competing index product if enough liquidity develops around it.

Even a gradual shift in options trading towards BSE can slow transaction-revenue growth and reduce NSE’s ability to grow faster than the overall market.

Coming to Valuations…

The IPO is priced at around ₹1,700-1,785 per share.

The OFS also reduced from around 6% of equity to ~5.1%, as some existing shareholders are reportedly unwilling to sell at the lower valuation.

NSE reported PAT of ₹3,120 Cr. in Q1 FY27 compared with ₹2,924 Cr. in Q1 FY26, taking trailing 12-month PAT to roughly ₹10,500 Cr. On this basis, the reported IPO price band values NSE at around 40-42x trailing earnings.

This creates an interesting valuation gap. NSE generates more than 4x BSE’s profit, but at the reported IPO price, its market capitalisation would be only around 3.1-3.3x BSE’s.

The valuation multiple also reflects this gap. BSE currently trades at roughly 47-48x trailing earnings, which means NSE could list at a discount compared to BSE.

However, BSE deserves some valuation premium because its growth runway is different. BSE is still gaining derivatives market share from a relatively small base, while NSE already dominates most of the segments in which it operates. BSE’s operating revenue grew at around 86% CAGR between FY24 and FY26 compared with only 6% for NSE, although such a large difference is unlikely to sustain indefinitely.

In our view

NSE has built a strong position in India’s capital market infrastructure. It has a leading presence in cash equities, derivatives, clearing, market data, connectivity and exchange technology, which makes the overall business difficult to replicate.

A large part of this advantage comes from liquidity. Since most trading already happens on NSE, brokers, institutions and traders naturally prefer the exchange where they can execute orders more easily. More trading brings more liquidity, which then attracts even more trading activity.

This scale also improves the economics of the business. NSE operates with high margins, needs relatively little capital to grow and generates a large amount of cash. As trading volumes increase, costs do not rise at the same pace, which helps profitability improve further.

Disclaimer

Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The information and analysis provided herein are for educational and informational purposes only and do not constitute investment advice, a research recommendation, or an offer, solicitation, or recommendation to buy, sell, or hold any security. Investors should exercise their own judgment, conduct independent due diligence, and consult professional advisers before making investment decisions. Finology Ventures Private Limited, its affiliates, directors, employees, and research analysts shall not be liable for any loss or damage arising from the use of or reliance on this information.