NSE shares wipe off Rs 41,000 crore after listing day pop as stock slips below IPO price. Why are analysts still bullish?

After a brief listing-day pop, shares of the National Stock Exchange (NSE) have wiped out all gains and slipped below the IPO price, although analysts remain bullish on the stock.

NSE shares listed at Rs 1,800 apiece on the BSE on September 24, marking a premium of less than 1% over the IPO price of Rs 1,785. Within an hour of the muted debut, the shares jumped over 5% from the IPO price to hit a high of Rs 1,878, pushing the market capitalisation as high as Rs 4.64 lakh crore, before the stock began to decline.

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NSE loses spot on list of 10 most-valuable Indian companies

Shares of NSE dropped to Rs 1,712 apiece on Monday, their lowest level since listing. The stock is now down nearly 9% from its listing-day peak of Rs 1,878 and 4% below its IPO price of Rs 1,785.

The slide has erased nearly Rs 41,000 crore from NSE’s peak market value, knocking the exchange out of India’s top 10 most valuable companies. With a market capitalisation of around Rs 4.27 lakh crore, NSE now ranks 12th, behind Reliance Industries, Bharti Airtel, HDFC Bank, ICICI Bank, SBI, TCS, Bajaj Finance, L&T, LIC, HUL and Sun Pharma, according to BSE data.

Why are analysts bullish on NSE shares?

Growth in the underlying capital markets and broader market sentiment can act as catalysts over the short to medium term for NSE shares, said Sunny Agrawal, Head of Fundamental Research at SBI Securities. He noted that although NSE has a more expensive valuation when compared to global peers such as Cboe, Nasdaq, ICE and Euronext, Indian exchanges can continue to command the premium given the relatively faster growth in domestic capital-market volumes.

“Regulatory intervention remains an important consideration, particularly given the focus on preventing excessive speculation and over-trading. This is especially relevant because close to 60% of NSE’s revenue currently comes from options trading, making regulatory changes in derivatives an important potential overhang,” the analyst said, adding that the revenue mix however is gradually shifting, with the contribution from transaction-based businesses declining.

Macquarie last month initiated coverage on NSE shares with an Outperform rating and a target price of Rs 1,965 apiece, implying an upside potential of more than 14% from the current levels. The international brokerage described NSE as “The Dominator,” citing its leading market share and strong market position. It highlighted NSE’s full suite of services, technology and deep liquidity, which make it a key part of India’s financialization, calling it the “lynchpin” of India's financialization. Strong network effects, profitability, and cash generation further support the business.

Emkay Research has a ‘Buy’ call on NSE shares and a target price of Rs 2,050 apiece, implying 19% upside potential. The brokerage’s positive view on NSE is underpinned by three factors. Firstly, India’s capital market development and growth story has a long runway as wealth creation and financialization gain momentum in India’s journey. Secondly, NSE has demonstrated its resilient leadership position over decades across the business segments of capital markets, and the business model has enough levers to adjust amid changing regulatory and macroeconomic landscapes and deliver profitable growth.

Finally, the brokerage highlighted that strong profitability and cash generation by MIIs, such as stock exchanges, enable them to globally command higher valuation multiples versus other capital market players that are more fragmented and susceptible to competition.

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PL Capital has an ‘Accumulate’ rating on NSE shares and a target price of Rs 1,950 apiece, implying more than 13% upside potential. The brokerage said the stock exchange dominates the exchange landscape with over 93% share in cash market and 100% in stock and index futures, supported by strong liquidity, robust technology and a comprehensive product suite.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.