Focus on Profits, Not Just Share Prices: NSE Chief’s Advice to Founders

In a significant address to the entrepreneurial community, NSE MD and CEO Ashish Chauhan emphasized that long-term market success is a byproduct of business fundamentals rather than a result of chasing short-term stock valuations. He urged business leaders to prioritize sustainable growth and profitability to ensure their market capitalization truly reflects their operational strength.

Fundamentals Must Drive Valuation

Speaking at the 9th JITO Incubation & Innovation Foundation (JIIF) Day event, Ashish Chauhan made it clear that a company's share price cannot be artificially inflated without underlying business growth. He argued that while entrepreneurs often feel pressured by market trends or peer performance, the most successful companies are those that remain anchored to their core objectives.

"If the company's profit increases, the share value should increase. You cannot keep increasing value without creating actual business growth," Chauhan stated. He highlighted that the public markets are designed to reward profitable businesses, offering valuations that are often far superior to what can be achieved on private balance sheets.

The Power of Listing as a Business Currency

Chauhan illustrated the massive value proposition of going public by using concrete financial examples. He noted that a company generating an annual profit of ₹2 crore could potentially command a market capitalization of ₹40 crore to ₹50 crore once listed. This valuation leap provides promoters with a powerful tool for expansion.

Beyond just raising capital, a listing provides a company with its own "currency." Chauhan pointed out that listed promoters can use their stock to:

  • Acquire other businesses: Using equity instead of cash for strategic mergers.
  • Attract partners: Bringing in high-value collaborators through stock-based deals.
  • Reward talent: He cited the early success of Infosys, where founders N.R. Narayana Murthy and Nandan Nilekani used Employee Stock Option Plans (ESOPs) to attract top-tier talent that the company otherwise could not afford.

Redefining Innovation and Governance

Addressing the mindset required for entrepreneurship, Chauhan redefined innovation for the modern age. He suggested that innovation is not solely about massive technological breakthroughs; it can be found in small, incremental improvements to everyday processes. "Whatever you do, if you do it differently and in a better way, that is also innovation," he remarked.

While he acknowledged that the path to listing is often perceived as daunting, he reassured founders that the process is manageable. However, he issued a stern reminder regarding the post-listing phase: once a company enters the public markets, the focus must shift heavily toward strict compliance, corporate governance, and transparency to maintain investor trust.

Key Takeaways

  • Value follows Profit: Market capitalization should be a reflection of business performance and profitability, not a result of chasing market hype.
  • Equity as a Strategic Tool: Listing provides companies with a "currency" to acquire other firms, attract strategic partners, and retain talent via ESOPs.
  • Post-Listing Discipline: While listing is a milestone, the real challenge lies in maintaining high standards of governance and transparency in the public domain.