NSE shares: Jefferies sees 17% upside, sets Rs 2,085 target as regulatory pressure eases

The stock closed at Rs 1,788.95 on October 29, putting the potential upside at about 16.5% from that level. Jefferies expects NSE's operating revenue to grow at a compound annual growth rate (CAGR) of 15% between FY27 and FY29, supported by stabilising derivatives activity, higher cash market turnover and growth in technology services. The brokerage believes the impact of regulatory restrictions and higher taxes imposed on equity derivatives in recent years is now largely reflected in the exchange's earnings.

Why Jefferies expects regulatory pressure to ease A key development underpinning the outlook is SEBI's October 15 decision to restore the 30-minute volume-weighted average price (VWAP) methodology for settling expiring futures and options contracts. The revised rules, which take effect on December 7, will separate derivatives settlement prices from those determined through the Closing Auction Session (CAS).

The move follows concerns over price volatility during the closing auction mechanism introduced in August. While the change is expected to remove one source of uncertainty for traders, Jefferies' broader optimism rests on the assumption that the impact of earlier regulatory measures has largely been absorbed. Equity options accounted for roughly 60% of NSE's operating revenue in FY26, making derivatives activity central to its earnings.

However, Jefferies expects the contribution of equity options to transaction revenue to decline towards 50% over the next five years as other businesses expand. The brokerage also believes NSE has relatively limited direct exposure to further restrictions targeting small retail traders, noting that low-turnover clients account for only 2-3% of equity options premiums. Three businesses could add Rs 2,242 crore by FY30

Beyond derivatives, Jefferies has identified electronic gold receipts (EGRs), commodity futures and options, and a mutual fund ordering platform as potential new growth engines. Together, these businesses could generate an additional Rs 2,242 crore in annual revenue by FY30, according to the brokerage. Electronic gold receipts account for the largest projected opportunity at Rs 1,260 crore, followed by commodity derivatives at Rs 859 crore and mutual fund order processing at Rs 123 crore.

Importantly, Jefferies has not included these potential revenues in its base-case earnings forecasts. Their contribution will depend on adoption and trading activity. Cash equities and technology services are expected to provide more immediate growth support. Jefferies projects cash equity turnover to grow by 16%, aided by IPO activity and an increase in promoter and private-equity stake sales. It also expects technology infrastructure revenue to grow at a 23% CAGR through FY29, supported partly by an expansion in colocation services.

The segment accounted for about 8% of operating revenue in FY26. What could derail the bullish outlook? Jefferies expects NSE's earnings before interest, taxes, depreciation and amortisation (EBITDA) margin to expand to 78% by FY29, from 76% in FY26, as revenue growth improves and earlier technology investments deliver operating leverage. However, the exchange's dependence on derivatives remains a key risk.

Further regulatory restrictions on equity options could affect trading volumes and transaction revenue. Cybersecurity incidents, disruptions to benchmark indices and slower-than-expected adoption of newer products could also weigh on earnings. For investors, the central question is whether NSE can sustain growth beyond equity options while protecting the profitability of its core derivatives business.