BSE Ltd’s stock witnessed a significant decline of over 6 per cent on Monday following Goldman Sachs revising its target price downward, citing concerns about potential impacts of the market regulator’s proposed risk-monitoring rules on proprietary trading and market volumes.
Goldman Sachs slashed its target price for BSE’s shares to ₹4,880 from ₹5,650 while maintaining a “neutral” rating. The stock plunged by 6.3 per cent to ₹4,343.65 during the trading session before closing at ₹4,366.
Last week, the Securities and Exchange Board of India (SEBI) proposed a shift from the current notional terms approach to compute open interest (OI) in equity derivatives to a future-equivalent or delta-based approach to reduce volatility in the derivatives segment.
Goldman Sachs highlighted that this move could potentially reduce the industry’s options premium to cash equity turnover ratio from 0.4x to 0.3x. The brokerage firm also noted that the market share of the average daily premium traded for index options contracts could be capped at 30 per cent, which stood at 22 per cent in February.
These proposed changes, combined with stricter monitoring of trading limits under SEBI’s F&O tightening, may lead to a decrease in activity from proprietary traders, who currently contribute to 70 per cent of BSE’s daily turnover.
Both cash and options volumes have been below expectations in February, with trading activity across the industry remaining subdued. BSE’s Average Daily Turnover (ADT) in the cash segment also failed to meet projections.
As a result, Goldman Sachs lowered BSE’s earnings per share (EPS) estimates for FY25 to FY28 by up to 14 per cent, attributing the revision to volume declines outweighing potential gains in options market share.
Furthermore, investor concerns have been heightened as BSE and its officials face legal scrutiny following a Mumbai court’s acknowledgment of an FIR filed against former SEBI chief Madhabi Puri Buch, two BSE officials, and others.
