BSE on multi-year transformation journey, Jefferies starts coverage with 24% upside

BSE in May announced the relaunch of Sensex and Bankex F&O contracts that have seen exponential growth month-on-month. BSE’s derivatives market share jumped to 14 percent from less than a percent in last six month led by these new product launches

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After a meteoric 290 percent rally this year, the BSE stock has finally come under Jefferies coverage with a 24 percent rally projected for the next year. The foreign broking firm expects a 150 percent earnings surge for the stock in FY24 and double it over FY26.

According to its assessment, Indian exchanges stand out as a superior investment opportunity, thanks to the country’s strong fundamentals such as GDP growth, rising market capitalisation relative to the GDP, and a rising participation in equity markets.

“Moreover, exchanges are insulated from risks of compression in fees, unlike the debate between active and passive AMCs (asset management companies) as well as discount and full-service brokers,” Jefferies said in a November 27 report.

Also read: BSE comes out with new guidelines for shifting of SMEs to main board

Derivatives boom

Jefferies also emphasised on an exponential growth in derivatives trading, which has become the primary revenue stream for the exchanges.

BSE Ltd had in May announced the relaunch of Sensex and Bankex F&O contracts that have seen exponential growth month-on-month. The BSE derivatives market share jumped to 14 percent from less than 1 percent in the last six month, led by these product launches.

“Continued growth and improved monetisation will lift the share of derivatives income to 35 percent of revenues in FY25 as against 2 percent in 2Q FY24. Derivatives ramp-up is the key driver for recent earnings upgrades and stock performance,” Jefferies noted.

The broking firm also dismissed concerns about high derivatives turnover equating to elevated risks, citing a relatively lower underlying premium growth rate. It said the regulatory stance, which favours an incremental approach rather than imposing severe restrictions, contributing to a favourable trajectory for the market.

Also read: Tata Technologies IPO: Check share allotment and listing dates, grey market premium

Beyond derivatives

Highlighting diversified revenue streams as a significant advantage, Jefferies outlined BSE’s steady growth segments such as cash equities (20 percent of revenue mix) and mutual fund processing (10 percent of revenue mix), benefiting from the macro tailwinds of savings financialisation and expanding investor bases.

Corporate services (35 percent of mix) are recurring fees and clearing and treasury (25 percent) benefit from higher market activity.

In the bottomlime, Jefferies has initiated a ‘buy’ recommendation for BSE with a price target of Rs 2,700. The stock’s comparatively lower forward P/E ratio against other market players, signalling a potentially lucrative investment opportunity.

On November 24, the stock closed 2.7 percent higher at Rs 2,180 on the NSE.

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