BSE shares extend rally, surge 18% in 2 days; nearly double within 3 months

The relaunch of BSE derivatives products has proved to be a trend-changing measure for BSE's revenue and profitability, Motilal Oswal Financial Services said.

Shares of BSE hit a new high of Rs 5,409.65, gaining 4 per cent on the National Stock Exchange (NSE) in Friday’s intra-day trade backed by heavy volumes. In the past two days, the stock price of exchange and data platform company has rallied 18 per cent. It surpassed its previous high of Rs 4,989.80 touched on October 14, 2024. 

 

Within three months, the market price of BSE has nearly doubled or zoomed 97 per cent from a level of Rs 2,741 on September 9, on the back of strong earnings for the second quarter (July to September) of the financial year 2024-25 (Q2FY25).

 

The company reported a three-time surge in net profit to Rs 346.8 crore for Q2FY25. The exchange had posted a net profit of Rs 118.50 crore in the year-ago period. The bourse's total revenues increased over two-fold to Rs 819 crore from Rs 367 crore in the year-ago period. Additionally, BSE recorded its best half-year revenue and profit of Rs 1,493 crore and Rs 610 crore, respectively.

 

BSE stock was included in the futures and options (F&O) segment on the NSE with effect from November 29. This move aims to broaden investment opportunities for market participants and deepen liquidity in the exchange's F&O segment.

 

According to Kotak Institutional Equities, the BSE reiterated its positive outlook on the business. While the impact of new regulations needs to be seen, the BSE is systematically increasing its reach among various market participants to improve access to its products. While the management does not explicitly track volume market share, these efforts have led to strong growth in volumes. Management believes this is a result of market expansion rather than substitution, as volumes have grown for the entire industry.

 

The impact of new regulations is tough to ascertain as the behavioral aspect is tough to predict. Bankex will move to only monthly contracts, whereas the Sensex will remain as a monthly contract. Bankex currently contributes ~20 per cent to volumes. The Sensex will see an impact from higher order lot sizes. The company expects the overall impact to be manageable, given savings in clearing costs, as it is based on the number of contracts and potential gains in volumes in the Sensex, analysts said.

 

In the cash market, BSE has seen an increase in market share in the past year from 5 per cent to 7-7.5 per cent over the past one y ear. There was also a directive recently for mutual funds regarding their transactions in stocks, which impacts volumes in blocks. There is also impact from volumes related to rebalancing trades where the BSE is not participating. However, the BSE will likely see improving trends with wider participation, going forward, the brokerage firm said.

 

The relaunch of BSE derivatives products has proved to be a trend-changing measure for BSE’s revenue and profitability. Increased member participation, new product launches (stock derivatives); rising awareness about products, and a recent launch of stock derivatives should continue to drive market share gains for BSE, analysts at Motilal Oswal Financial Services (MOFSL) in Q2FY25 result update.

 

Factoring in strong growth in transaction income and better-than-expected operational efficiency, the brokerage firm raise earnings estimates by 6 per cent/9 per cent/10 per cent for FY25/FY26/FY27. While MOFSL expect a decline in option volumes in the short-term after the implementation of new regulations, the quantum of the impact and the pace of recovery remain uncertain.