Global brokerage firm Morgan Stanley has initiated coverage of the National Stock Exchange (NSE) with an overweight rating and a price target of Rs 2,315, betting that India’s capital markets still have substantial room to expand, with participation levels remaining low despite NSE’s dominant position across cash equities, equity futures and options.
“Indian exchanges are an attractive industry—large but underpenetrated, and therefore growing,” Morgan Stanley said in its report.
Only 3.2% of India’s working-age population trades on the NSE cash market, while just 0.7% participates in equity derivatives, according to the brokerage. India’s equity options premium turnover is also only about 20% of that of the US.
Morgan Stanley said this points to a long-term growth runway for the exchange. Cash-market average daily traded value has grown at 1.9 times the nominal GDP growth rate over the past decade, it said.
The brokerage expects deeper capital markets, rising participation and the financialisation of household savings to support NSE’s growth. However, it cautioned that the pace of expansion will depend on product adoption, taxation and regulation.
NSE’s core advantage is its liquidity, which Morgan Stanley said creates self-reinforcing network effects.
The exchange has sustained more than 90% market share in cash equities and nearly 100% in equity futures and stock options. Its market share in index options has moderated but is likely to stabilise at around 65%, the brokerage said.
“Liquidity attracts liquidity,” Morgan Stanley said, describing the exchange’s dominant market position as a key competitive moat.
Regulatory approvals, technology infrastructure and clearing capabilities also create high barriers to entry, according to the report. NSE’s asset-light business model further supports profitability, with its normalised operating EBITDA margin at 76.2% in fiscal 2026.
Morgan Stanley expects NSE’s revenue and normalised profit after tax to grow at a compound annual rate of 15% between FY27 and FY29. That would mark an improvement from the 6% normalised PAT CAGR recorded between FY24 and FY27, according to the brokerage’s estimates.
NSE has delivered a normalised profit CAGR of 19% over the past 14 years and 25% over the past decade, the report said.
Morgan Stanley expects the cash market’s average daily traded value to grow at a compound annual rate of 16% between FY27 and FY29. It forecasts 15% growth in options premium turnover and 15% growth in equity-futures average daily traded value over the same period.
The brokerage also expects the exchange to benefit from revenue diversification, new products, revised cash-and-securities norms and a more manageable regulatory environment.
Morgan Stanley’s Rs 2,315 price target is based on a probability-weighted model, with an 80% weight assigned to its base case, 10% to the bull case and 10% to the bear case.
The target implies a 41-times forward price-to-earnings multiple. Morgan Stanley said the premium valuation is supported by NSE’s profitability, growth outlook, dominant market position and long-term capital market opportunity.
The brokerage expects NSE’s earnings per share to rise from Rs 45.51 in FY27 to Rs 60.14 in FY29. Its estimated normalised profit is projected to increase from Rs 1,12,658 million to Rs 1,48,852 million over the same period.
The key risks include a decline in trading revenue, adverse regulation and loss of market share, Morgan Stanley said. The brokerage also noted that the timing and scale of revenue diversification opportunities remain difficult to predict. Growth in derivatives will depend on product adoption, taxation and regulatory policy.
Still, Morgan Stanley’s central thesis is that NSE’s existing dominance gives it operating leverage as India’s capital markets deepen.
“NSE is a strong play on India’s growing capital markets,” the brokerage said, citing its exposure to the financialisation of household savings, the shift towards equities, dominant liquidity, scalable technology and attractive economics.
(Disclaimer: This article has been written by Nikhil Agarwal, who is not a SEBI-registered Research Analyst or an Investment Adviser. Nikhil Agarwal and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here)
