Breaking Down The Nse Ipo

In today’s episode, we’ll break down two important stories. First, we’ll talk about India’s biggest ever IPO and then we’ll talk about whether Indian farms get fertilizers on time. Welcome back to the Daily Brief by Zerodha, where we cut through the noise to help you understand what’s actually happening in the most important stories from business and markets. I’m your host Axara and today is Friday 19th June. Coming to the first story. So today we’re going to talk about a company that’s critical to our business at Zerodha and to every other broker in India. It’s because of them that we exist as does the ecosystem we’re part of. This is the National Stock Exchange NSE. They filed their IPO papers this week and from the size it’s expected to reach at nearly rupes 30,000 cr. It may well become the biggest IPO India has ever seen. and they’re going for a pure offer for sale. That is NSE itself is not raising any money. Its existing shareholders are cashing out and their offer document is a gold mine. Even to us as people who sit in the middle of Indian financial markets every single day, there were things we hadn’t fully thought about before. Let’s dive in. So when you buy a stock on Zerodha, you also pick an exchange to route your order to NSE or BSE and several entities come together to make your trade successful. The exchange, a clearing corporation, a depository, but the exchange lies at the heart of it and it’s the venue where the actual trade happens. Here your buy order is matched with a sell order and the transaction is executed. Now Zeroda charges you a brokerage to get your trade to NSE and in turn NSE charges Zeroda a fee for routing trades through its platform. A few years ago, Indian capital markets barely registered in global financial conversations. Most Indian households kept their savings in fixed deposits and gold and the stock market was something most people had no real relationship with. Over the last decade or so though that changed rapidly and dramatically. India is now the fourth largest equity market in the world by market capitalization. As of March 2026, nearly 13 crore Indians are registered as investors on NSE. Just 2 years ago, that number was just over 9 cr. That is India added about 4 cr new investors in just 2 years. In FY26, 108 companies listed on NSE’s main board, the highest number in several years. More than rupees 20 lakh cr was mobilized through its platform in a single year across equities, debt, mutual funds and infrastructure instruments and nse at the center of all this earns from every piece of activity flowing through. So in FY26 NSE revenues from its operations came to about rupes 16,600 cr about rupes 13,000 cr of that or roughly 79% came from the transaction charges n collects every time a trade goes through its platform and of that cash equities generated about rups 1,500 cr while equity futures generated about rups 1,500 cr but the mega earner was equity options which singularly generated rs 10,000 cr or 60% of nse’s total revenue. Now, much of that was the result of a single instrument, the Nifty50 weekly options contract. From almost nothing a decade ago, it’s now become the beating heart of the largest financial market institution in India. The remainder 21% of NSE’s revenue comes from four places. One, there are data connectivity charges which trading firms and institutions pay for a direct fast connection to NYSE’s matching engine. Large firms colllocate their servers inside NYSE’s data center so their orders arrive micros secondsonds ahead of everyone else and the fees for that service can be significant bringing about rupees 1,100 cr into its coffers and then there are data feed and terminal services everyone from Bloomberg to trading platforms to analytics providers all pay nse to access realtime prices and this makes up another rupees 470 cr it also made about rupes 350 cr from listing services which is the annual fee from listed companies plus IPO processing fees and finally there’s index licensing when fund managers pay to use the nifty name in their products earning it about rupees 150 cr if anything this market is underdeveloped there’s rups 8 lakh cr sitting in passive funds in India tracking nifty indices and nse earns only rups 150 cr from licensing all of it now let’s compare it to global exchanges while Indian exchanges earn the overwhelming majority of their revenue from transaction charges. Global exchanges operate very differently. NASDAQ, for instance, has built a large data and technology business, and a significant portion of its revenue now comes from data subscriptions, analytics, and index licensing. All of which is agnostic to how active markets are on any given day. Similarly, the London Stock Exchange acquired Refinitiv in 2021, one of the world’s largest financial data businesses. And with this, the majority of its revenue, too, has nothing to do with daily trading volumes. These businesses have made themselves resilient to the ups and downs of market activity by monetizing data and indices that people subscribe to. Now, in contrast, NSE’s revenue is almost entirely a direct function of trading activity. And so, whenever the rules that govern trading change, NSE’s income changes, too. And that happened in October 2024 when SEBI issued a circular restructuring equity derivatives from different expireies almost every day. It cut things down to one weekly expiry per exchange. It also tripled lot sizes and introduced new margin requirements on expiry day options and these measures reduced retail speculation as intended. Derivatives volumes fell sharply and NE’s revenue fell with them. So revenue from operations went from about rupes 17,100 cr in FY25 to rups 16,600 cr in FY26. Profit fell from about rs 12,200 cr to about rups 10,000 cr. And all of this volatility was a simple matter of how linked the nse was to trading volumes. Now sebi regulates every financial intermediary in India, brokers, fund managers, depositories and exchanges. But NSE’s exposure is different. Seby’s rules do not just affect NYSE’s costs or compliance processes. Everything Sebie does ultimately shows up in the activity that’s happening on the exchange. And because so much of NSE’s revenue comes from derivatives, which is a product whose existence is entirely defined by Seby’s rules, any change Sebie makes flows directly into NSE’s topline. NYSE can’t change this dependence even if it wanted to. So for the rups 16,600 cr nse earned in revenue last year it also spent about rups 6,000 cr and that left it a profit of about rs 10,000 cr a margin of roughly 51%. There’s a lot this cost structure tells you about this business. So where does nse spend its money? The amount it spends on employees isn’t too high. It’s just rs 790 cr. Now for a company with rs 16,600 cr in revenue that’s exceptionally lean. Most large financial services businesses spend a third or more of their revenue on people. But NYSE spends under 5%. And this isn’t just a people business. NYSE’s product is a matching engine software that processes millions of orders per second. The assets that matter to it are servers, cables, and code. And its technology spending reflects this. So NSE spent about rupees 1,300 cr on technology operations in FY26. A big jump from the rupees 790 cr it spent just two years earlier. It made another rups 420 cr of capital investments into technology and together about rupes 1,700 cr went into technology in FY26. Almost 3/4 of n’s entire capital expenditure. Now an even larger share of n spending goes to sebi and it pays the regulator a regular fee based on trading turnover which came to about rupees 800 cr in FY26. The larger expense however was its settlement fees which gets a separate line in its statements. These are effectively regulatory fines. So in FY26 it paid ZBI rupees 1,400 cr in settlement fees primarily because of the tap matter which is a regulatory case it recently settled involving how certain participants had privileged access to its systems. It had also paid about rupes 640 cr to sebi in September 2024 and across the last 3 years n has paid roughly rups 2,200 cr in such settlements. Now there’s one part of nse that almost nobody knows about its subsidiary nse clearing limited or ncl. So when a trade executes on nse matching orders is only part of the process but the trade also has to settle and the shares have to move to the buyer’s demat account and money has to reach the seller. NCL handles this process. It inserts itself between every buyer and seller on nse and guarantees that settlement will happen even if one side defaults. So it clears about 88% of all cash market trades in India and about 91% of equity derivatives. It’s the silent guardian ensuring the sanctity of every trade on the nse. So if a broker fails between the time you buy a stock and the settlement date, NCL steps in and ensures your shares arrive. And to back this guarantee, NCL holds a settlement fund of about rupes 13,000 cr. Now we also wanted to look at the cash flow numbers because they tell a very interesting story. NSE’s operating cash flow was about Rs 30,000 cr in FY24 and then it dropped to about Rs 4,000 cr in FY25 before surging to about rupes 24,000 cr in FY26. So why this intense volatility? So one reason is the settlement obligations and margin money held from trading members. So when markets are active and positions are large, more cash from broker sits with NSE at year end as collateral. In FY26, this pool grew by about rupes 14,500 cr compared to FY25 inflating operating cash flow. In FY25, it shrank by about rupees 5,500 cr suppressing it. So to be clear, this is not money NSE has earned. It belongs to the brokers and it will be returned. But in between the exchange sits on a mountain of cash. NSE has as privileged a place as the financial markets can offer. It earns whether markets go up or down and whether individual trades are profitable or not. The only things that can actually interrupt this business are a significant fall in trading volumes or a change in the rules governing what can be traded. Both of those have already happened in the last 2 years. But in the scale of NSE’s business, even that was a mere blip. Unless India’s financial markets collapse altogether, few things can touch this giant. Now, despite all the regulatory to and fro, India continues to add crows of new investors every year. Companies keep queuing up to list and the structural growth of Indian capital markets shows no signs of slowing. So, if you’re an investor that had been paying NYSE a fee on every trade you ever made, you can now switch to the other side and own a piece of the exchange itself. We listen to a lot of con calls while researching our stories. So we started a newsletter called the chatter. It’s a curated collection of the sharpest management quotes for that week in a neat and readable format published every Friday. Link is in the description. Coming to the second story. So there’s a serious problem ahead of this year’s Karf sewing season. We might not get enough fertilizer to our farms on time. Primarily because the straight of Hormuz was closed, a problem we had explored before. Now the sewing window is open. The soil is ready and a farmer may need the fertilizer bags that haven’t arrived yet. So he calls the dealer who says the shipment hasn’t come and the dealer calls the distributor who’s waiting on the warehouse which itself is waiting on a consignment that left a port days ago. At the end of that chain 16 ships have been sitting loaded in or around the straight of Hormuz carrying 3.3 lakh metric tons of ura, 2.6 6 lakh tons of DAP, one ammonia cargo and 1.1 lakh tons of sulfur. All of it headed for India but unable to move. On 18th June, the US and Iran agreed on the strait to reopen. Finally, ships might be able to move. But for the farmer waiting at the end of that chain, that headline changes little, at least for now. The strait may reopen in a day, but normal fertilizer availability takes months. On paper, even if we have enough national fertilizer stock, there’s uncertainty on whether they’ll reach farmers on time this sewing season. And that’s the story we’re covering today. So, to begin with, what happens the day the strait opens? A joint industry advisory that includes BIMO, the world’s largest shipping association, warned that hundreds of vessels clustered around the strait could themselves become a navigational hazard once movement resumes. Now, the reopening doesn’t clear the road so much as switch the traffic light from red to amber. Insurers who treated the route as a war zone are not going to reverse that assessment on the mere day of an announcement. And ship owners would want concrete proof over promises. But the disruption also runs deeper than just a traffic jam. India’s Gulf imports include a large share of its ura and DAP needs and close to half its LG. But the Gulf also supplies the ingredients that India’s own fertilizer plants depend on. As for the Ministry of Chemicals and Fertilizers, India imports 75% of the ammonia used to make complex fertilizers, 86% of its rock phosphate, 52% of its sulfur, and 78% of the natural gas used to produce ura. The strait’s closure affects both finished goods and raw materials. So, shipping industry executives say that a return to normal cargo flows would most likely take 3 to 4 months. Jacob Larsson, BIMCO’s head of safety, said that despite the agreement, the security situation remained volatile and transits were still very risky. Even if insurance were available, there is quite understandably uncertainty on whether the ship’s crew and company chartering the vessel are all prepared to commit to a voyage. The first vessels may clearly, but supply chains do not operate on single shipments. dealers, fertilizer companies, and farmers all need confidence that flows have normalized before they can make decisions. The first couple of weeks will likely be spent on rebuilding this confidence in the supply chain. And then once that’s done, movement might be more visible as stranded cargo begins to arrive and port C activity. But arrival at an Indian port is still not arrival at the farm. Once the cargo arrives at an Indian port, it has to encounter various kinds of hurdles across the value chain and each part of that chain recovers at different times. So the first type of hurdle is the fact that the roots for finished fertilizer goods and raw material used for fertilizer operate at different speeds. In the first route, imported finished fertilizer reaches a port, enters storage, is allocated to states and districts, moves inland, reaches dealers and gets to farmers. In the second longer route, a raw material reaches a port, moves to a fertilizer plant, becomes finished fertilizer, and then follows the same sequence of activities as the first route. While the first may begin delivering visible relief within 2 to 3 weeks of stranded cargo clearing. The second route naturally takes much longer. A plant cannot produce fertilizer it doesn’t yet have the raw materials to make. Now, a plant needs a regular stream of inputs to run smoothly, and one delayed shipment of ammonia doesn’t restore a production schedule that has been disrupted for weeks. So, the plant has to figure out its raw material position, restart carefully to avoid equipment problems, and wait for the next delivery before it can feel confident about its output. Now the World Bank noted that in wake of the straits closure Qatar had suspended ura ammonia and sulfur production after damage to key facilities and that Iran had halted ammonia production entirely. Getting those plants back online is not a single event. It happens in stages as feed stock becomes reliable again and maintenance checks are completed. Now even the first route involves more friction than it seems. C India’s Department of Fertilizers manages allocation through a monthly supply plan prepared with manufacturers and importers. Imported cargo has to clear customs get assigned to states and then move by rail to district warehouses before it reaches dealers. But that’s not the only type of uneven recovery in this value chain either. There are discrepancies within various raw materials themselves as well as within fertilizers. Take finished goods for instance. The World Bank projects ura prices to rise nearly 60% in 2026 before easing in 2027 as Middle East exports recover. DAP meanwhile faces a different pressure point. The Gulf handles a large share of global sulfur and ammonia shipments, both of which are critical inputs for DAP production. And since sulfur is a refinery byproduct, its supply depends on how quickly Gulf refineries restart and that recovery is expected to lag the oil market. India may have just enough URA for this season but DAP is the far more uncertain piece of this puzzle and to make matters worse within the raw materials required to make those finished goods there are issues too. So in May Indian Potach Limited or IPL floated a consolidated tender for 5.21 lakh tons of ammonia a key raw material used to make ura on behalf of six major domestic producers. Now global suppliers could realistically only offer 2.39 lakh tons in response less than half of what India needed. Then after ammonia comes sulfur a key ingredient in DAP. Now unlike ura where the government could buy spot natural gas which is used to make ammonia at nearly double the contract price sulfur has no such immediate lever let alone an expensive one. It’s a byproduct of oil refining. So you get more sulfur when gulf refineries process more sour crude and restarting of oil refineries generally lag the broader oil market by some months. So IPL floated a separate tender in May for nearly 6 lakh tons of sulfur on behalf of eight domestic companies and it had to cancel the tender entirely. Offer prices came in at 1,170 to $1,295, well above the global market benchmark of $1,00 to $1,100. sellers knew they had leverage and for Yorya India found partial or expensive workarounds but couldn’t even buy the raw material for DAB. So India entered the Karif season with around 195.79 lakh metric tons of fertilizer stock against a seasonal requirement of 383.9 lakh tons covering just over 51% of its needs before the first new cargo from the reopened straight even arrived. A senior fertilizers ministry official said in June that owing to this stockpile, there was no major challenge to availability for the current sewing season. But no major challenge is not the same as not having any. The same official said that this stock of 51% is much higher than the historical average of 33%. But you wouldn’t need to resort to a stockpile if the market is stable. So far, the government states that farmers have purchased 27% of their seasonal requirement and there’s still a chance that farmers don’t get ample fertilizer input right on time for the karif season. A supply that arrives after the right application window won’t help the yield regardless of what the national stock number shows. The reopening of this trade is the end of a geopolitical crisis, but the economic recovery will still take time. Farmers feel the full recovery last and those who need phosphatic fertilizer for the rabbi season may feel it latest of all. But this isn’t even the only large problem looming over this year’s kariff season. As we’ve covered earlier, a little boy roams the world’s waters preparing to disrupt India’s monsoons. We are already seeing the impacts of the super El Nino. Perhaps that’s something we’ll explore deeper in a story soon. Now coming to the tidbits. The RBI has approved a 3-month extension for Kiki Mistri as interim part-time chairman of HDFC Bank, keeping him in the role until September 18th or until a permanent chairman is appointed. He was brought in as a stop cap after Atanu Chakraati sudden exit in March and the bank is still searching for a regular chairman. Coming to the next tidbit, with China’s propertyled steel expansion fading, BHP and Riotindo are increasingly looking to India as the next major growth engine for global steel making. India has a set production target of 500 million tons by 2047. Triple last year’s 165 million tons with rapid urbanization and government infrastructure spending expected to drive years of demand. Coming to the final tidbit, Mumbai seven supply lakes are now at just 10.35% of capacity, leaving the city of 13 million with roughly 40 days worth of water after Maharashtra received 75% less rainfall than average in the first 16 days of June. Authorities have cut water supply to all construction sites and reduced industrial and commercial usage by 20% with the monsoon’s arrival now pushed to late June. That’s all the news I have for you. Thank you so much for watching and see you in the next one. Disclaimer, this content is forformational purposes only. None of the stocks, brands, or products mentioned are recommendations or endorsements.