Whalesbook
Profit Jumps Amidst Revenue Headwinds
The National Stock Exchange of India (NSE) announced a robust 15% quarter-on-quarter increase in net profit, reaching ₹2,408 crore for the third quarter of fiscal year 2026. This profit surge was primarily fueled by a sharp 48% reduction in consolidated expenditure, which settled at ₹1,234 crore, and a significant 92% surge in operating EBITDA to ₹2,851 crore. Transaction charges, the exchange's core revenue driver, saw a healthy 9% sequential increase to ₹3,033 crore, reflecting increased trading volumes in equity cash and derivatives segments. Listing services revenue also posted an impressive 25% QoQ growth. Despite these quarterly gains, a broader perspective reveals a year-on-year decline in consolidated income for the nine months ended December 31, 2025, which stood at ₹13,354 crore, down from ₹14,780 crore in the corresponding period last fiscal. This performance dichotomy highlights a short-term rebound overshadowed by a longer-term revenue trajectory concern.
Competitive Landscape and Regulatory Scrutiny
While NSE continues to dominate the Indian stock exchange landscape, holding over 90% market share in many segments, recent data indicates a shifting competitive dynamic with BSE Ltd. expanding its market share in certain areas, particularly in the futures and options (F&O) segment where NSE's share dipped to 61% in H1 FY26 from 74% in FY25, while BSE's share grew to 38%. This intensified competition, alongside ongoing regulatory vigilance, forms a critical backdrop for the exchange. NSE has recently flagged 'dabba trading' – an illegal, off-market trading activity promising assured returns – and filed police complaints against associated entities. This action underscores the exchange's commitment to maintaining market integrity and protecting investors from fraudulent schemes that operate outside regulatory oversight and offer no investor protection mechanisms.
The Looming IPO and Valuation Narrative
Preparations for NSE's long-awaited Initial Public Offering (IPO) are gathering pace, with the market regulator SEBI having removed a key hurdle by issuing its no-objection certificate. Unlisted NSE shares have seen significant investor interest, with recent trades valuing the exchange at approximately ₹5.3 trillion ($58 billion), reflecting a substantial re-rating. This valuation places NSE among the world's most valuable exchanges, potentially surpassing Nasdaq Inc. and nearing Deutsche Boerse AG's valuation. While some reports suggest NSE's unlisted shares are trading below their estimated fair value of ₹4,000 per share, based on an EPS of $49.2 and a sector P/E multiple of 83, its favourable earnings profile compared to peers like BSE and MCX supports a premium valuation. The IPO, expected to involve a stake sale by existing shareholders like Temasek and LIC, is anticipated to be one of India's largest public offerings. The narrative around the IPO is bolstered by NSE's substantial financial growth, with revenue surging from ₹3,028 crore to ₹16,434 crore and net profit from ₹1,708 crore to ₹8,306 crore between FY19 and FY24.
Market Context and Sector Outlook
The operational performance of NSE is intrinsically linked to the broader Indian capital markets, particularly the derivatives segment. India's derivatives market has witnessed substantial growth, with a significant increase in retail investor participation, although data suggests a high percentage of retail investors incur losses. While NSE leads in derivatives contracts volume, competition from BSE has intensified. The exchange's strategy to shift derivatives expiry days from Thursday to Tuesday is aimed at regaining market share. The growth in trading volumes, a key revenue driver for NSE, is influenced by macroeconomic factors, investor sentiment, and regulatory policies. The exchange's proactive stance against illegal trading activities like 'dabba trading' is crucial for maintaining investor confidence and the overall health of the market.