Shares of stock exchange BSE and a host of brokerages including Angel One Ltd are in focus on Monday morning after SEBI introduced a handful of measures that may curb speculative retail participation in the futures and options segment. The measures may also hit revenues of stock exchanges and broking firms.
MOFSL said its sensitivity analysis yields nil earnings impact for Angel One in FY26 even if the order volumes are down 10 per cent against its assumption of 16 per cent growth in case the company is able to increase its realisation from Rs 19.7 to Rs 25. The brokerage maintained 'BUY' rating on Angel One for now.
For BSE earnings, the hit would be miniscule even if the derivative volumes decline by 20 per cent instead of a 22 per cent increase built in the forecast. This is if the premium to notional turnover ratio increases from 0.072 per cent to 0.09 per cent. MOFSL maintained its Neutral rating on BSE.
Angel One MOFSL said Angel One will use levers at appropriate time to offset the profitability hit. Turnover volumes for Angel One is likely to be impacted but it is difficult to ascertain the absolute impact at the current juncture, MOFSL said.
"Most importantly, changes in customer behavior are difficult to predict. In the past, the allocation of customers’ money from their wallets to trading activities has not changed meaningfully even after regulatory changes. Which measure to implement and the quantum of charges will be decided as and when they regulations are implemented and some impact is visible. Actions by competitors will be tracked closely before executing any of these steps. The choice for Angel One and its peers will be between taking a hit on margins, leading to a higher market share, and raising the charges and risking losing some market share in the interim," MOFSL said.
The important criteria before deciding on final actions for Angel One would be the impact on LTV of the customer from these regulations. Ideally, since the measures are aimed at reducing customer losses, the longevity of the customer in the system increases, MOFSL said.
"Additional products will only add to the LTV in the longer term, thus giving the company the ability to spend on higher acquisitions. In FY26, if the number of orders for Angel One falls by 10 per cent instead of 16 per cent growth factored in our estimates and the company does not take a price hike or prune its customer acquisition costs, earnings will be down 33 per cent as compared to our current estimate. Against this, if the company increases its average gross broking realization from Rs 19.70 to Rs 25, the impact on earnings will be largely nullified," MOFSL said.
Angel One has demonstrated its willingness to protect profitability through the pricing action. The cash delivery broking charge increased from nil to Rs 20 per order or 0.1 per cent per executed order. In the past, the company used customer acquisition as a variable lever to offset the impact in terms of slowdown in volumes.
"Angel One could see transitionary hit to earnings as the regulations are implemented and the company gauges the impact before making corrective actions. However, we believe the company is in a transformational phase wherein share of financial products distribution (loans and fixed income), wealth management and AMC, will start contributing meaningfully over the next couple of years. We retain our BUY rating on the stock," MOFSL said.
BSE BSE has scaled up its derivatives market share to 27 per cent in terms of turnover and 13.3 per cent in terms of premium turnover in September. This has been on the back of product innovation wherein they launched the expiries on different days vs the existing products of NSE. Large market share for BSE arises out of Sensex rather than Bankex.
"With now only one benchmark index will be available for launch of weekly expiry, NSE/BSE will continue with Nifty/Sensex. Earlier since NSE had an expiry on all days except Friday, BSE found it difficult to scale up volumes. Nevertheless, BSE will now have three more days to compete against NSE. Product innovation could be an alternative wherein new contracts can be launched on new indices with monthly expiries in different weeks. For BSE, since large volumes were happening on expiry day, its premium to notional turnover ratio was at 0.07 per cent against 0.16 per cent for NSE (Sep’24)," MOFSL said.
With probability of volumes increasing on farther than expiry days, this ratio would increase for BSE. This will not only help in revenues but also in bringing down the clearing and settlement costs, MOFSL said.
"For FY26, if we assume notional ADTO to decline by 20 per cent instead of a 22 per cent increase factored in our current estimates, all other factors being the same, the earnings hit will be 9 per cent for BSE. In our current estimates, the share of derivatives in overall revenues is 45 per cent for BSE in FY26. If the premium to notional turnover for the options segment increases from 0.072 per cent assumed in our forecast to 0.09 per cent, as the volumes will start increasing farther from expiry, the impact will be nullified for BSE," it said.
Additional upsides could come from the volume shift to cash segment and if the premium to notional turnover increases, the clearing and settlement costs could decline, it said.
BSE should be relatively lesser impacted in the new regulatory environment against NSE. Furthermore, the exchange has other revenue drivers such as colocation segment and new products (commodities and power). We currently have a Neutral rating on the stock, the brokerage said.