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The valuation puzzle: What makes BSE pricier than NSE? Analysts decode
NSE IPO: BSE's improving operating leverage and residual room to expand in cash equities, where NSE still holds ~93 per cent, have justified a scarcity-and-momentum premium for the listed exchange.
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 National Stock Exchange (NSE) is bringing 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. Also Read | NSE IPO draws 'unexpectedly large' demand
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.