A new report by Kotak Institutional Equities warns that Indian exchanges rely too heavily on transaction income, which leaves earnings vulnerable to market volatility. While BSE shares rose over 6% today after reporting a 45% jump in net profit, the brokerage suggests that long-term stability requires building recurring revenue from data, technology, and clearing services.
Indian stock exchanges are currently enjoying strong profitability, but a new report from Kotak Institutional Equities highlights a critical long-term challenge for the sector. The brokerage warns that entities like the NSE and BSE rely too heavily on transaction-based income to drive their earnings. While this model has produced impressive margins during periods of high market activity, it creates a risky earnings profile that is highly sensitive to fluctuations in trading volumes.
At the NSE, for instance, transaction fees account for approximately 75% of operating revenue as of the second quarter of the 2027 fiscal year. When trading volumes are high, this concentration boosts profits significantly. This was evident on November 5, 2026, as BSE shares climbed over 6% after the company reported a 45% year-on-year jump in consolidated net profit for the same quarter. However, the Kotak report suggests that to move beyond just cyclical gains, Indian exchanges must replicate the models of global peers such as the Nasdaq, CME, and Intercontinental Exchange.
These global giants have successfully reduced their dependence on trading volumes by building recurring revenue pillars. They provide essential financial infrastructure, including index services, data analytics, and technology licensing, which generate steady income regardless of daily market swings. In contrast, Indian exchanges remain primarily focused on the fee earned from each trade.
A specific structural hurdle prevents local players from easily adopting this diversified model: the lack of full integration with depository services. Currently, Indian exchanges hold only minority stakes in Central Depository Services Ltd (CDSL) and National Securities Depository Ltd (NSDL). This separation limits their ability to offer a unified, comprehensive suite of market services, making it harder to build the recurring revenue streams seen in international markets.
For investors, the primary monitorables moving forward will be how exchanges manage their transition toward these new business areas. This strategy carries its own challenges, including the need for higher technology spending, which could pressure profit margins if not managed well. Furthermore, any changes to derivative trading rules or market compliance regulations remain a constant risk factor that could impact future profitability. As Indian exchanges look to modernize, the shift toward data, clearing, and technology services will be the key indicator of whether they can sustain their current growth rates when market volumes eventually cool down.