The Indian equity market is witnessing a fascinating valuation paradox as NSE gears up for listing. Typically, the undisputed leader of a sector commands the highest premium, but the exchange duopoly is turning this rule on its head.
While the National Stock Exchange (NSE) prepares for its much-anticipated IPO at a projected valuation of around 42.9x P/E, based on SBI Securities' estimates, the smaller BSE is trading comfortably at a steeper valuation. NSE's RHP pegs BSE P/E at 54.28x.
But what explains BSE's steeper valuation against the world’s largest derivatives exchange? The answer lies in size and a low-base effect.
Santosh Meena, head of research at Swastika Investmart, said that BSE currently trades at a clear valuation premium to NSE (roughly 50-60x FY26 PE versus NSE’s IPO pricing of around 40-43x), driven primarily by its faster earnings growth from a much smaller base. He noted that BSE has aggressively gained share in equity derivatives — especially options — lifting its options premium turnover and transaction revenues sharply, while NSE’s growth has slowed or even turned negative in some metrics amid regulatory changes and a higher base.
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Deven Choksey, MD, DRChoksey FinServ calls this a "liquidity premium". The larger company will have relatively moderated growth, while smaller companies will have relatively higher growth rates because of the base effect, he said.
He said that further headroom for growth is much higher in BSE today because NSE is practically commanding 100 per cent market share in the derivatives segment, and any market share that BSE takes is going to be an advantage to it, making the premium justified.
According to the NSE's RHP, its revenue in FY26 was ₹16,601 crore compared with BSE's ₹4834 crore. NSE's average daily turnover volume in the cash segment is nearly 13 times that of BSE, while in the equity futures the gap is steeper.
Meena said that BSE’s improving operating leverage and residual room to expand in cash equities, where NSE still holds ~93 per cent, has justified a scarcity-and-momentum premium for the listed exchange.
However, he added that NSE’s valuation does not fully capture its status as the world’s largest derivatives exchange by contracts traded and its structural dominance. NSE still has ~70 per cent-plus of options premium turnover that drives most revenue, near-100 per cent in futures and cash, and far higher revenue yields per unit of activity.
"Its absolute scale—roughly 3-4x BSE’s revenue and profits, higher margins, and deeper liquidity—should command a premium over time, yet the market is pricing in slower near-term growth, regulatory headwinds that hit the larger player harder, and the absence of a listed scarcity premium once the IPO completes," Meena observed.
Going forward, the right way to value the two exchanges is on a combination of absolute earnings power, sustainable growth rates, and market-share trajectories rather than pure PE multiples or notional volumes, believe analysts.
Choksey said that the exchange business is not a common business, and both BSE and NSE are exclusive in their own space. "Certainly, you require both exchanges in the markets. I think you don't have to value them one against another."
The NSE IPO will open for subscription on September 17 and close on September 21. The price band has been fixed at ₹1,700-1,785 per share. The issue is entirely an offer for sale (OFS), with up to 12.64 crore shares being sold by existing shareholders. No new shares are being issued by NSE.
Disclaimer: Views and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.
 "The valuation puzzle: What makes BSE pricier than IPO-ready NSE?")
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