BSE Limited recently closed at ₹3,308, marking a 0.72 per cent decline as it approaches its inclusion in the Nifty 50 index on September 30. This development comes amid significant regulatory challenges and recent downgrades from various brokerages, raising concerns over the exchange’s short-term earnings outlook.
Analysts Downgrade BSE Amid Regulatory Challenges
Jefferies has revised its rating for BSE Limited from ‘Hold’ to ‘Underperform’, lowering its price target by 16 per cent to ₹2,940. The downgrade stems from several critical factors, termed a “triple whammy.” These include an increase in Securities Transaction Tax (STT), new tighter norms from the Reserve Bank of India (RBI) regarding bank guarantees which have escalated collateral costs, and the impact of the new Closing Auction Session (CAS). The latter has reportedly reduced average daily premium turnover in options trading by approximately 12 per cent in August alone.
Furthermore, Jefferies has adjusted its earnings per share (EPS) estimates for FY27-29 downward by 5-12 per cent and cautioned investors regarding potential additional declines if BSE fails to maintain its market share. This downgrade follows a trend in which BSE has seen diminished trading volumes amidst these changing regulatory environments.
Impact of Closing Auction Session on Trading Volumes
Nuvama Institutional Equities has echoed these sentiments by downgrading BSE’s stock from ‘Buy’ to ‘Hold’, slashing its price target from ₹4,090 to ₹3,240. The company has revised its EPS estimates for FY27 and FY28 down by 6.3 per cent and 15 per cent, respectively, predicting an average daily premium turnover of around ₹186 billion for remaining FY27. This marks a significant adjustment from the previous estimate of ₹241 billion, coinciding with reports showing BSE’s Average Daily Premium Trading Volume (ADPTV) fell to its lowest since January 2025, at ₹181 billion.
The introduction of the Closing Auction Session was intended to bring Indian markets in line with international practices. However, its implementation has dramatically affected BSE’s traditional expiry-day trading. A stark 30.5 per cent decline in contracts was experienced in the first week post-CAS, dropping from 150 million to 104 million. Historically, expiry-day trading has accounted for 70-79 per cent of BSE’s weekly contracts, significantly exposing the exchange to disruptions associated with this new system compared to its competitors.
Nifty 50 Inclusion: A Double-Edged Sword?
The timing of this bearish outlook coincides with confirmation that BSE will replace Wipro in the Nifty 50 index effective September 30. JM Financial estimates that this inclusion could lead to passive inflows ranging around $650 million into BSE’s stock, potentially cushioning the short-term impacts of the negative sentiment surrounding the stock. Despite a 33 per cent return over the past year, the stock’s recent decline of over 8 per cent in the past week is indicative of investors reassessing its earnings outlook.
What This Means
The downgrades and operational changes outlined signify a crucial moment for BSE Limited. Investors and stakeholders should consider the potential for increased volatility and fluctuations in trading activity caused by regulatory changes, while also being aware of the long-term benefits associated with its inclusion in a prominent index like the Nifty 50. This could provide BSE some much-needed liquidity and investor confidence, although these advantages must be measured against the backdrop of current regulatory challenges impacting performance.
Frequently Asked Questions
What is the significance of BSE joining the Nifty 50 index?
BSE’s inclusion in the Nifty 50 index is expected to increase its visibility and accessibility among institutional investors, potentially leading to substantial inflows and increased trading activity.
What are the reasons behind the recent downgrades from brokerages?
Recent downgrades stem from a combination of increased Securities Transaction Tax, higher collateral costs due to tighter RBI norms, and significant disruptions in trading volumes due to the newly introduced Closing Auction Session.
How has BSE’s stock performed over the past year?
Over the past year, BSE’s stock has returned approximately 33 per cent, although it has seen a decline of over 8 per cent just in the last week due to heightened concerns around its earnings trajectory.
What impact does the Closing Auction Session have on trading volumes?
The Closing Auction Session has disrupted BSE’s traditional expiry-day trading, which has historically accounted for a significant portion of trading volumes. Following its introduction, contracts traded on BSE have decreased sharply, impacting overall trading activity.
