The unlisted stock exchange NSE faces a significant uncertainty, as the market regulator SEBI is actively working to curb speculative trading volumes in the domestic options market, IIFL Securities said on Tuesday. NSE’s option volumes have grown at 125 per cent per annum from FY20 to FY24, now accounting for a staggering 400 times cash volumes in FY24. This is against 35 times in FY20, the domestic brokerage noted.
SEBI's proposed measures specifically target equity index derivatives, it said.
"If implemented, these measures could impact NSE’s trading volumes by nearly one-third, resulting in a projected 20- 25 per cent cut in FY26ii EPS. However, note that these projections are not factored into our current estimates, as the final regulations are still pending approval," IIFL Securities said,
Adding to the uncertainty, SEBI directed NSE recently to contribute an additional Rs 2,600 crore to the core Settlement Guarantee Fund (SGF). This increased financial burden would further impact NSE’s FY25 earnings, which prompted IIFL to adjust its estimates by 5 per cent.
"Despite these challenges, the unlisted stock is currently trading reasonably at 15 timers FY26ii EPS. Even after accounting for the anticipated earnings cut, it would still be at a 23-25 times valuation, representing a 30-40 per cent discount compared to listed peers. Clarity regarding the IPO could potentially narrow this valuation gap," it said.
IIFL said NSE has secured the SEBI approval for increasing share capital to issue bonus shares (4:1). With the shareholders’ approval, the company would be able to issue bonus shares now. On the co-location case, the matter is pending in the Supreme Court – the last hearing happened in November 2023, the next hearing is scheduled on September 3.
"But given the delays it is very difficult to given any timelines for the completion of the case. On the IPO, the uncertainty continues as company said it is not in a position to share any timelines," it said.
In FY25 so far, NSE cash volumes are up 55 per cent YoY to Rs 1.3 lakh crore ADTO (average daily turnover. Equity futures volumes are up 53 per cent YoY to Rs 2 lakh crore ADTO. Equity options turnover has seen a sharp deceleration in growth compared with past few years.
"We note, in FY25 Ytd – NSE’ Notional options volumes are up only 13 per cent YoY to Rs 365 lakh crore ADTO; the premium turnover is marginally better at 15 per cent YoY (lowest in last 7 years) to Rs 71,300 crore ADTO. We see low risk to our assumptions and thus estimates. Over FY24-27ii we estimate transaction revenues to grow by 18 per cent PM; while reported profits to compound by 25 per cent Cagr, as we expect SGF contribution to moderate post FY25," IIFL said.