Jefferies initiates NSE coverage with Buy rating
Global investment bank Jefferies has initiated coverage of the National Stock Exchange (NSE) with a Buy rating and a price target of Rs 2,085. This valuation implies approximately 17% upside from the brokerage's reference price. The stock closed at Rs 1,788.95 on October 29, placing the potential upside at roughly 16.5% from that level.
The initiation comes shortly after NSE's stock market debut on September 24. Jefferies projects that the exchange's operating revenue will grow at a compound annual growth rate (CAGR) of 15% between FY27 and FY29. This growth is expected to be supported by stabilising derivatives activity, increased cash market turnover, and expansion in technology services.
Regulatory easing and derivatives outlook
A central pillar of Jefferies' positive outlook is the belief that the impact of recent regulatory restrictions and higher taxes on equity derivatives has largely been absorbed into NSE's earnings. Equity options currently account for approximately 60% of NSE's operating revenue in FY26, making this segment critical to its financial health.
However, the brokerage anticipates that the contribution of equity options to transaction revenue will decline towards 50% over the next five years as other business lines expand. Jefferies notes that NSE has limited direct exposure to further restrictions targeting small retail traders, as low-turnover clients represent only 2-3% of equity options premiums.
A key regulatory development supporting this view is SEBI's October 15 decision to restore the 30-minute volume-weighted average price (VWAP) methodology for settling expiring futures and options contracts. These revised rules, effective December 7, will separate derivatives settlement prices from those determined through the Closing Auction Session (CAS). This move addresses concerns over price volatility associated with the closing auction mechanism introduced in August.
New growth engines beyond derivatives
Beyond its core derivatives business, Jefferies has identified three potential new growth engines: electronic gold receipts (EGRs), commodity futures and options, and a mutual fund ordering platform. Together, these businesses could generate an additional Rs 2,242 crore in annual revenue by FY30.
Electronic gold receipts represent the largest projected opportunity at Rs 1,260 crore, followed by commodity derivatives at Rs 859 crore and mutual fund order processing at Rs 123 crore. It is important to note that Jefferies has not included these potential revenues in its base-case earnings forecasts, as their contribution will depend on adoption rates and trading activity.
More immediate growth support is expected from cash equities and technology services. Jefferies projects cash equity turnover to grow by 16%, aided by IPO activity and an increase in promoter and private-equity stake sales. Additionally, technology infrastructure revenue is expected to grow at a 23% CAGR through FY29, supported by an expansion in colocation services. This segment accounted for about 8% of operating revenue in FY26.
Financial projections and risks
Jefferies expects NSE's EBITDA margin to expand to 78% by FY29, up from 76% in FY26, as revenue growth improves and earlier technology investments deliver operating leverage.
However, the exchange's continued dependence on derivatives remains a key risk. Further regulatory restrictions on equity options could negatively affect trading volumes and transaction revenue. Other potential risks include cybersecurity incidents, disruptions to benchmark indices, and slower-than-expected adoption of newer products. For investors, the central question remains whether NSE can sustain growth beyond equity options while protecting the profitability of its core derivatives business.