NSE Business Model: Knows its Excellence

National Stock Exchange of India Ltd (NSEIL) is a stock exchange company and has a market share of around 94% in the Capital Market segment with a near 100% market share in the Equity Derivatives segment. the following are the reasons why we think that the Stock Exchanges (NSE Business Model) are excellent businesses:

1. NSE business model will not need huge capital investments

NSE business model, unlike any other business, do not need huge capital investments year on year, except technology upgradation. Once an exchange is built, it just needs to keep on increasing its revenues without any material rise in capital expenses. This is also the reason why investors love to invest in stock exchanges. They have strong annuity income, high operating leverage, and strong cash flows. The biggest expense is employee costs. Click here – To invest in NSE ( National Stock Exchange) unlisted shares

2. NSE Business Model has a Sticky Business

The NSE business model is sticky. When retail traders and investors start coming to the exchange and create a market, other investors move towards liquidity. The higher the liquidity, the lower the trading cost. Once the network effect kicks into the business model, the /][big exchange keeps becoming bigger.

3. Network Effects 

NSE business model fall in line with the theory of Brian Arthur wherein he states that some companies will make higher returns as they grow bigger. As exchanges are dependent on volumes of both buyers and sellers to make the matchmaking happen. Once the volumes start building up, the pricing also become very efficient. This ensures that the users of the exchange get the best pricing, growing the exchange organically.

Impact of NSE IPO

All the noise that has happened is immaterial. We as investors need to look ahead, not behind/ NSE, under the leadership of Vikram (Limaye) and the board, has significantly advanced in all areas — be it business, responsibility, accountability, and governance

Altius Investech estimates NSE’s EPS for FY23 and FY24 at INR 125 and INR 150, respectively.

NSE investors tell ET Prime that whether it is the co-location mess, hiring of friends, or even favoring undeserving friends for top jobs, the balance sheet of the company is solid and there are no concerns of any issues related to fudging of numbers or manipulation. This probably has to do with the fact that NSE was built as an institution with government backing and then it was run like a private enterprise.

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