Top stock to buy today: Jefferies India sees 29% upside in NSE share price in upside scenario | Target price, rationale
Calling NSE a hedge against volatility, the Jefferies India report said that India has seen a 4x increase in direct equity investors since COVID, led by younger cohorts. Yet penetration is only 3% of the population vs. 18% in China. Besides structural tailwinds, exchanges offer a volatility hedge, as revenue is positively correlated with the VIX, given that options revenue is premium-based, unlike that of global peers.
“NSE is the market leader in cash equities, index F&O, stock F&O, and clearing & settlement. While c.60% of operating revenues come from equity options, weekly index options, which have faced regulatory action, account for 40% opposit revenues (BSE: 65%). Low-turnover clients account for only 2-3%, limiting the risk from SEBI action to protect small traders. We see the equity options share in transaction revenues to fall to 50% from the current 60% over the next 5 years,” the Jefferies India report said.
Expecting fast growth in the NSE's revenue, Jefferies India said that the NSE's operating revenue CAGR was 6% between FY24-26, as its equity F&O business was adversely impacted by regulatory changes and higher taxes. We think these are now largely in the base. Hence, expect growth to improve to 15% over FY27-29e, driven by (1) equity options market share stabilising at 65%, (2) cash equity turnover growing at 16% led by IPOs, promoter/PE sell-downs, and (3) tech infra revenues growing at 23% CAGR.
Pointing towards the new avenues for revenue for the NSE, Jefferies India said, "NSE's tech infra revenues, 8% of FY26 opposite revenues and at lower AI risk, could rise to 11% by FY29e as the company adds more colocation racks (JEFe: 600 racks in 2 years). Commodity F&O, the new mutual fund ordering platform and EGRs (Electronic Gold Receipts) could add another c.15% to revenue/PAT by FY30e, which are not part of our base case. NSE is also exploring opportunities in corporate bond futures, GIFT City and Market Lens."
“We expect EBITDA margin to expand by 200bps to 78% by FY29e due to: (1) benefits from investments made in employees and technology over the last 3 years, (2) revenue growth improving over FY27-29e, and (3) scale-up of new businesses,” the global investment bank added.
Listing out foour major reasons for the long-term investors to buy NSE shares, the Jefferies India report said, “NSE trades at 34x FY28e EPS, a 18% discount to BSE. We have a different view. Our PT of Rs2,085 is based on 35x Dec'28e EPS, 15% premium to our fair value for BSE, considering: (1) greater diversification, (2) higher optionality, (3) higher dividend yield, and (4) structurally higher margins.”
However, the global investment bank maintained that, in the upside scenario, NSE shares may touch ₹2,300, whereas in the downside scenario, they may touch ₹1,600.
Asit Manohar has nearly two decades of experience in the mainstream media. In this period, he has served esteemed media organisations like NDTV Profit, The Economic Times, and Zee Business. He has been working at LiveMint Digital since April 2021. During these two decades of journey in mainstream media, Asit has mainly covered external affairs, markets and personal finance. However, his earliest beats include railways, SME, MSME, and politics (Congress beat). Some of his features on political, economic, and foreign policy are documented in the parliamentary records. <br><br> While pursuing his MA (Mass Communication, Session 2004-06), Asit began his media career as a stringer at All India Radio in Varanasi. At AIR Varanasi, Asit worked with the Gyanvani, Yuvvani and Vividh Bharti teams. After working for nearly one year at AIR Varanasi, he shifted to print journalism and started working as a stringer for the HT Media Ltd, Varanasi. At HT Media Ltd in Varanasi, he covered the BHU beat. <br><br> Asit has also worked with some brokerage houses. He has worked with Religare Broking and India Infoline, where he assisted the research team in developing and executing trade strategies for intraday cash, F&O, and commodities. <br><br> Asit is a Gold Medalist in MA (Mass Communication) from BHU, Varanasi. He did his BSc. (Hons) in Mathematics from Magadh University, Bodh Gaya. Asit was a National Talent Scholarship holder during his senior secondary studies (1988-91).
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