NSE's 84% dividend payout ratio is structurally locked in — SEBI rules prevent the exchange from deploying surplus capital into other businesses
Dividend income is taxed twice: first as corporate tax (25%), then at the shareholder's marginal rate (up to 36%), leaving HNIs with just ₹48 of every ₹100 earned
Capital gains are taxed only once, at 14.5% — making reinvestment far more tax-efficient than distribution
Why Nithin Kamath Thinks NSE Will Keep Churning Out Cash Post-IPO
The remarks came days after NSE filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on June 17
Why Nithin Kamath Thinks NSE Will Keep Churning Out Cash Post-IPO
Summary
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Zerodha co-founder Nithin Kamath characterised the National Stock Exchange (NSE) as a "cash generation and distribution machine," adding that the exchange is expected to maintain its momentum even after going public, as it has limited avenues to deploy its surplus profits.
"NSE is a cash generation and distribution machine. In FY26 alone, NSE earned a profit of over ₹10,300 crore and paid out roughly ₹8,660 crore in dividends, a payout ratio of 84%," Kamath wrote on X.
Kamath further argued that the structure creates a broader tax arbitrage problem.
The Dividend Tax Trap
He explained that when a company earns ₹100, it pays about 25% as corporate tax, leaving ₹75.
That ₹75 is then paid out as dividends, and the shareholder is taxed again at their marginal rate, which could be around 36% for someone in the highest tax bracket. In the end, the investor receives only about ₹48 from the original ₹100.
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By contrast, a company that reinvests profits into growth is taxed only when shares are sold, at the lower 14.5% capital gains rate. "There is no tax on this ₹100 because nothing is booked as profit," he noted.
Kamath said this structure strongly motivates profitable companies to channel earnings back into aggressive reinvestment instead of paying them out, arguing that this is why many new-age firms avoid becoming profitable to begin with.
NSE IPO and Its Structure
The remarks came days after NSE filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on June 17, for what could be India's largest-ever initial public offering, characterised by Kamath.
The issue is a pure offer for sale (OFS) of up to 14.89 crore equity shares, meaning NSE will raise no fresh capital, and all proceeds will go to exiting shareholders. The exchange has proposed to list on the BSE.
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Key sellers include State Bank of India, Bank of Baroda, Life Insurance Corporation of India, Rakesh Radhakishan Damani, and Premji Invest, among others. At present, NSE carries a valuation of approximately ₹5 lakh crore in the unlisted market.
Financials and Risks
NSE posted a profit of ₹10,302 crore in FY26 on operating revenue of ₹16,601 crore, with an EBITDA margin of 66.85%, down from 73.78% in FY25. Transaction charges, primarily from options trading, account for nearly 78.65% in FY26 of the exchange's operating revenue, according to the filings.
The DRHP flags regulatory dependence on derivatives trading rules as a key risk, alongside revenue concentration in its top 10 trading members, who together contribute roughly 46.78% of revenue.
Kotak Mahindra Capital, JM Financial, Morgan Stanley, Citigroup, HSBC, JPMorgan, SBI Capital Markets, and ICICI Securities are among the book-running lead managers to the issue.
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