NSE's Market Cap Soars Beyond Rs 3.2 Lakh Crore

NSE's market capitalization has surged to over Rs 3.2 lakh crore in July, making it the sixth-largest exchange globally and the largest in Asia when compared to other listed exchanges. The NSE stock, a highly traded asset in the unlisted market, reached a record high of Rs 6,500, continuing its upward trajectory since the Covid-19 pandemic.

Over the past year, the weighted average price of NSE shares has climbed 54% to Rs 4,453.93 in July, significantly outperforming major benchmarks like the Nifty 50 and Sensex, which each rose around 23% during the same period. This rise in NSE's stock price has been driven by a growing number of investors entering the equity markets, attracted by the prolonged bull run, which has positioned equities as lucrative financial assets.

This growth is evident in the rapid increase in unique investors: Since March 2021, NSE has consistently added around 10 million new investors every 6-7 months, bringing the total to over 100 million unique investors as of August 8. NSE attributes this growth to factors such as digitization, increased investor awareness, financial inclusion, and sustained market performance, leading to a threefold increase in its investor base over the last five years.

Despite facing heightened competition from the BSE, which has gained a larger share in the sector's incremental growth, NSE's dominant market position remains largely unchallenged. However, the exchange faces a more pressing issue—potential regulatory changes. The Securities and Exchange Board of India (SEBI) recently issued a consultation paper that proposes to significantly reduce activity in weekly options contracts and increase margins and contract sizes for derivatives trading.

Given that NSE holds about 90% of the equity options market (based on premium), these regulatory changes could pose a significant challenge, potentially limiting the stock's gains in the near term. Any reduction in derivatives market turnover could adversely affect NSE's revenue.

Sharekhan, a leading brokerage, noted that while the financial sector has a long runway for growth, driven by increasing volumes of investments and trading, the proposed regulatory changes could impact profitability and the overall growth outlook.

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