BSE, MCX Shares Plunge as Jefferies Hails NSE's Diversification Ahead of IPO

BSE, MCX Shares Plunge as Jefferies Hails NSE's Diversification Ahead of IPO​

Shares of the Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX) experienced significant declines, falling up to 4% on July 7. This drop followed comments from brokerage firm Jefferies, which highlighted the superior diversification profile of the National Stock Exchange (NSE) as it prepares for its Initial Public Offering (IPO).

Jefferies stated that NSE, which has filed draft papers with SEBI for its Rs 30,000-crore IPO, possesses a more diversified product mix compared to BSE and MCX. The firm noted that NSE boasts over 90% market share across most trading segments.

Jefferies Report Highlights NSE's Dominance in Market Segments​

The analysis by Jefferies emphasized that NSE has successfully developed a technology product suite comparable to global industry peers. Furthermore, the exchange is actively expanding its commodities business.

Jefferies noted that higher clearing market share and premium associated with equity options have significantly contributed to stronger profitability for NSE relative to BSE. The upcoming IPO listing of NSE is seen by the brokerage firm as completing the 'trioka' (a state of completeness).

Data shared indicated that NSE holds a 90% market share in most categories, excluding index options and commodity F&O. Its clearing corporation (NCL) commands an 88% market share in cash and 91% in F&O. A significant aspect is the technology and data offerings suite, which accounted for 13% of NSE's FY26 revenues.

Understanding NSE's Broad Market Offerings​

Jefferies reported that NSE accounts for 70% of Indian exchange revenues overall. The platform offers a wide array of products, including equity cash, index options, single stock options, equity futures, commodity F&O, bonds, and currency derivatives. This variety makes it the most diversified exchange among the surveyed exchanges.

The firm also pointed out that NSE's growth in derivatives has been exceptional. Equity options grew 56% compounded annually over FY20-26, sharply against a 19% growth rate seen in the cash market turnover.

Derivatives Drive Revenue and Linkage to Market Cycles​

Derivatives make up a crucial part of operating revenue for Indian exchanges, accounting for approximately 70%. This is based on the average daily turnover (ADTO) of options premium being 70% of the daily cash market turnover in FY26.

Jefferies explained that this concentration of derivatives means exchange revenues are linked to market performance cycles. Unlike simple price changes, option trading is closely tied to volatility.

Financial Nuances and Corporate Holdings​

In comparison to international markets, while India trades a substantial number of options contracts, it still trails significantly in terms of option premiums, representing only one-fifth of the premium traded internationally.

The NSE's offer for sale mentioned that PSU general insurers are planning to offload a 1.1% stake. Jefferies noted that three out of four multi-line general insurers (Oriental, National, and United) have solvency below the regulatory threshold of 1.5 times. This data could potentially boost the available solvency capital if these insurers divest their stakes.

Operational Costs Weigh on EBITDA​

Certain operational issues impacted NSE's profitability figures for FY25 and FY26. Provisions related to the colocation and dark fiber case stood at Rs 1,390 crore in FY26. Additionally, a payment of Rs 670 crore was made toward the TAP matter in FY25.

However, Jefferies noted that if these one-off SEBI settlement fees are excluded from the calculations, the normalized operating EBITDA margin for NSE has been stable, standing at 76-77%.