Goldman Sachs Begins Coverage On BSE With Neutral Rating; Industry Tailwinds To Support

Goldman Sachs began coverage on BSE Ltd. with Neutral rating and target price Rs 5,060.00, which implied a 1% downside from Friday's closing price. BSE will likely benefit from strong growth tailwinds for the country's equity capital markets because of its position as the second-largest stock exchange.

BSE operates on a fixed-take-rate business model based on value traded. High nominal growth in Indian listed corporate earnings acts as a powerful compounder for BSE's equities trading revenues, directly driving 60–70% of its topline, Goldman Sachs said in a note.

The rest of the top line tracks the medium-term trajectory of listed market cap, with retail participation and related derivatives trading, which offers structural support for long-term growth.

As far as the question of whether BSE's management reforms will continue after a two-year trough and the recovery of substantial market share loss to National Stock Exchanges Ltd, Goldman Sachs believes BSE will likely maintain its cash market share.

Goldman Sachs expects regulatory reforms to strengthen the base for Indian capital markets to deliver on the structural growth promise as active derivative/stock accounts at 0.7%/2.4% of India's population and retail ownership at 10% of listed market cap, the exchange filing said.

According to Goldman Sachs, futures and options trading penetration in India is low. Retail preference for options trading is linked to capital efficiency and the need for precise hedging/speculating based on timing.