For an entity that is a near-monopoly, the National Stock Exchange of India’s (NSE) financials don’t attract much attention.

That’s because, unlike rival BSE (formerly the Bombay Stock Exchange), the NSE is privately held. Naturally, its numbers for the quarter and year ended March 2023 were lost in the din of listed companies’ results when they were released last week.

Even so, the NSE’s financials attest to its ever-growing  dominance dominance The Ken How India’s National Stock Exchange turned from solution to problem Read more and its ability to withstand the vicissitudes of capital markets. Consider this: the NSE’s cash-equity trades—the conventional buying and selling of stocks—fell 20% in the year ended March 2023. This is not surprising, given the period was quite muted for the bourses after the post-Covid bull run of the previous year.

What is surprising, though, is this didn’t stop the NSE from posting a 40% rise in both its revenue and profits—to almost Rs 11,860 crore (US$1.4 billion) and Rs 7,570 crore (US$914 million), respectively.

What gives?

The answer lies in a distinct business—separate from cash equities—that has lately become the NSE’s top revenue source: equity options. An option is a contract based on the value of an underlying security, such as a stock or an index, that allows the holder the right, but not the obligation, to buy or sell it at a pre-decided price.

Even as cash-market volumes suffered, the NSE’s option-premium option-premium Option premium The price of an options contract value surged over 70% last financial year. As a result, this segment now accounts for four-fifths of the NSE’s transaction revenue, in contrast to less than one-third before the pandemic, according to a March report by research house CLSA.

The lion's share

Trading services account for roughly 90% of NSE’s operating revenue and profit, with clearing services, strategic investments, and other services making up the rest, according to brokerage IIFL Securities

And it certainly helps the NSE that its market share in equity derivatives, including futures and options (F&O), is even higher than the 93% it enjoys in regular stock trading.

The NSE’s impressive numbers have helped its unlisted shares hold steady over the past year while the BSE lost over a quarter of its value. This is despite the process of becoming an NSE shareholder being long and complex. Anyone wanting to own NSE shares must wait two to four months, as the stock exchange goes through the process of approving each shareholder.

The BSE, long used to playing second fiddle to the NSE, is once again trying to chip away at the latter’s dominance.