BSE's Derivatives Business Shines, But Regulatory Clarity Still Key: Jefferies⁠ — Check Revised Target Price

Jefferies has maintained a Hold rating on BSE Ltd. while raising its target price to Rs 2,930 from Rs 2,790, citing strong growth in options revenue and lower Settlement Guarantee Fund (SGF) provisioning costs. The brokerage noted that while the exchange continues to benefit from the rapid expansion of its derivatives segment, clarity on norms for index options expiry will be crucial for any further re-rating.

For the September quarter, BSE reported a consolidated net profit of Rs 560 crore, a robust 61% year-on-year increase, broadly in line with Jefferies’ expectations. The standout factor was the sharp uptick in the index derivatives business, which offset weakness in the cash segment. Index option premium average daily turnover (ADTO) rose 83% year-on-year to Rs 15,000 crore, though it remained flat on a sequential basis.

While notional turnover increased further, the quality of premiums was somewhat affected by lower volatility and a marginal rise in one-day-to-expiry (ODTE) trades. Even so, BSE managed to maintain its market share at around 29% in premium turnover as of October 2025, despite the shift in its weekly index options expiry from Tuesday to Thursday. This resilience underlines the growing participation on BSE’s platform and its ability to sustain volumes despite competitive pressures.

The robust performance of the derivatives business led to an 81% year-on-year rise in options revenue, with the segment now contributing about 58% of BSE’s total revenue, compared to 46% a year earlier. This shift marks a structural change in BSE’s business model as it transitions from a predominantly cash market exchange to one increasingly driven by derivatives activity.

However, the picture was softer in other areas. Cash segment revenue declined by 32% year-on-year, primarily due to lower trading volumes in the SME segment, which typically yields higher transaction rates. In contrast, the services to corporates segment delivered moderate growth of 16% year-on-year, partly offsetting the weakness elsewhere.

A significant development during the quarter was BSE’s formalisation of its Settlement Guarantee Fund (SGF) policy. Under this new framework, the exchange will allocate 5% of derivatives transaction revenue every month to the SGF until it reaches 150% of the Minimum Required Corpus.

Jefferies noted that this provisioning rate is lower than previously estimated, which effectively reduces expected costs and improves the earnings outlook. As a result, the brokerage has revised its profit forecasts upward.

Jefferies has lifted its earnings estimates to factor in higher options trading volumes and lower SGF costs. Its forecast for premium ADTO in fiscal year 2026 stands at approximately Rs 14,900 crore, broadly consistent with the trends observed in the first half of the fiscal year. The brokerage emphasised that clarity on regulatory changes related to index options expiry norms will remain a key factor to monitor in the coming quarters.