BSE Gets 'Buy' From Nuvama Citing Growth Upsides

The stock of Asia's oldest stock exchange — BSE Ltd. — received a new coverage initiation with a 30% upside from Nuvama Institutional Equities citing it shall "adaptive and shall thrive" despite tighter index derivatives regulation.

Nuvama assigned a target price of Rs 6,730 per share, up from the previous close of Rs 5,157 apiece. The brokerage's target price will take the stock to an all-time high.

Analysts at Nuvama believe that BSE has room to grow its derivative active customer base. They also estimate that the exchange's equity index option average daily premium turnover market share shall improve from 3.1% in fiscal 2024 to 14.9% in the financial year 2027.

Nuvama said BSE is likely to be less impacted by a reduction in weekly contract volumes as discontinued weekly contracts comprise 21.3% of its index option premium volumes. However, the complete extent of the impact will only be known after all changes kick in by January 2025.

The Indian market regulator, SEBI, in a bid to curb excessive speculation in equity derivatives, proposed new measures, including increasing the lot size and mandating the upfront collection of option premiums from buyers by trading members and clearing members.

"Growing volumes along with increased transaction charges are likely to result in strong growth in transaction charges," Nuvama said in a note. It also said that BSE's transaction revenue has gotten a boost from new product offerings in the equity index options segment.

Nuvama sees no significant impact on BSE’s volumes from the mandate to increase contract sizes as the average number of contracts traded per order is five. "We anticipate increased contract sizes to likely result in reduced clearing charges given that clearing charges are dependent on the number of contracts cleared, which is likely to reduce."

BSE is expected to sustain strong revenue growth despite near-term regulatory changes, according to Nuvama. It foresees an operating revenue CAGR of 39.9% over fiscal 2024–27.

BSE's stock rose as much as 4.85% in early trade to Rs 5,712.9 apiece on the NSE. It was trading 4.43% higher at Rs 5,690 apiece, compared to a 0.16% advance in the benchmark Nifty 50 as of 09:57 a.m.

It has risen 154.2% during the last 12 months. The total traded volume so far in the day stood at 2.3 times its 30-day average. The relative strength index was at 61.

Seven out of the 11 analysts tracking the company have a 'buy' rating on the stock, three suggest a 'hold' and one has a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 5.1%.