Jefferies initiates coverage on BSE with a 'buy' call, 24% upside

Stock already up 4x in 6 months

Global brokerage firm Jefferies has initiated coverage on the BSE with a ‘buy’ rating and a price target of Rs 2,700, anticipating a 24 per cent upside from the current levels.

Shares of the BSE on Friday closed at Rs 2,180, after having jumped 4 times in the past six months.

At Rs 2,700, BSE, the country’s only listed equity bourse, will be valued at 35 times its September 2025 estimated earnings (12-month trailing). BSE’s success in the derivatives segment is expected to boost its earnings growth. The exchange is also seen as a beneficiary of the theme around ‘digitisation of Indian capital markets’.

“Indian exchanges are benefiting from financialisation of savings, rising equity participation (from digitisation of capital markets), growth in equities, product innovations and stable fees versus other capital market platforms. BSE can leverage macro-tailwinds along with headway into derivatives to deliver a 150 per cent earnings jump in FY24E and double it over FY24-26E,” Jefferies equity analysts Jayant Kharote and Prakhar Sharma said in a note.

Until May 2023, the BSE had almost zero per cent market share in the derivatives segment. However, a relaunch of Sensex and Bankex derivatives contracts has helped the bourse capture nearly 10 per cent market share and challenge bigger rival NSE’s monopoly.

“Derivatives are now the largest revenue stream for exchanges (65 per cent for market leader NSE) driven by growing user base (10x in five years) and sachetisation of products to lower ticket sizes. Continued growth in the equity investor base, higher share of derivatives users (currently about 10 per cent) and new low-ticket products should keep derivatives growth (+30 per cent FY24 YTD) in the fast lane,” said the Jefferies note.

The New York-based brokerage firm also expects the players in the domestic stock market ecosystem to benefit from macro trends.

“Indian exchanges benefit from healthy GDP growth, rising mkt cap/GDP (India at 100 per cent vs 130-200 per cent for peers) along with financialisation of savings and rising equity market participation (investor base up 4x in 5 yrs). Moreover, exchanges are insulated from risks of compression in fees, unlike the debate between active & passive AMCs as well as discount & full-service brokers,” Kharote and Sharma write.

BSE’s other segments are also expected to contribute to its growth.

“BSE's cash equities (20 per cent of revenue mix) and mutual fund processing (10 per cent of mix) are steady growth segments (FY20-23 CAGR 27 per cent) riding on macro tailwinds of financialisation of savings and growing investor base. Corporate services (35 per cent of the mix) are recurring fees and clearing and treasury (25 per cent of the mix) benefit from higher market activity. The addition of the derivatives segment will improve the already healthy long-term growth outlook for BSE,” the Jefferies note added.