BSE Revenue Hit From NSE F&O Expiry Shift Triggers Goldman Target Price Cut
The lowering of the target price follows NSE's announcement to shift its F&O expiry day from Thursday to Monday.
Goldman Sachs maintained its 'neutral' rating on BSE Ltd. while trimming the target price to Rs 4,230 with a 5% potential downside. The lowering of the target price follows NSE's announcement to shift its F&O expiry day from Thursday to Monday.
This change significantly impacts BSE's potential to expand its index options market share, according to the brokerage, as it is a crucial revenue driver for the exchange. For BSE, approximately 50% of its topline is sourced from options trading.
Previously, BSE had seen notable gains in market share when NSE's expiry was Thursday, while BSE's was Tuesday. However, the new alignment is expected to lower this advantage.
How NSE's Move Affects BSE
According to Goldman Sachs, NSE's shift of its F&O expiry day to Monday will negatively affect BSE's index options market share. This change will erode BSE's recent gains broadly driven by the fact that its expiry day was different from NSE's. It said that more liquidity buildup in BSE's contract was expected and not an expiry date change.
On the back of this, the brokerage had anticipated a 30% uptick in BSE's market share. This stands affected as the bulk of trading happens on weekly expiry days.
"Within the various weekdays, BSE had up to 20% market share during Fridays and Mondays, up to 40% share on its expiry day of Tuesday. And up to 7% share during Thursdays and Wednesdays," according to the brokerage.
Impact Of Expiry Day Change
The expiry day change from NSE is set to reduce BSE's potential to gain more market share. Although uncertain to predict, the analysts estimate rough futures market shares for BSE to be up to 7% during Mondays, up to 13% during Wednesdays, Thursdays and Fridays. It anticipates up to 50% share during Tuesdays.
This analysis is based on the relative size of premium per contract between the two exchanges, said the brokerage. This potential share cap would act as a loss of tailwind for BSE's topline, on top of the shrinking industry volumes within options trading, said the brokerage. This change would act as a headwind for the firm as other regulations continue to tighten the F&O trader base.
