Nuvama Institutional Equities has kept its 'Buy' rating on BSE Ltd intact amid what it called the futures and options (F&O) expiry war with peer NSE. The brokerage has, however, cut its target price on BSE by 28 per cent on fears the stock exchange's market share may take a hit going ahead.
Peer NSE has changed the expiry day for its derivative contracts to Monday, which is one day prior to that of BSE. Nuvama argued this would lower volumes for the industry as trading avenues for retail traders, who are typically more active closer to expiry, will reduce.
Earlier, BSE’s index option premium market share shot up to 22.1 per cent in February 2025 from 16.4 per cent in December 2024, mainly due to the exchange revising the F&O expiry day to Tuesday from Friday earlier. On March 4, however, NSE announced a revision to its index option expiry day from Thursday to Monday with effect from April 4.
Nuvama believes the move will potentially help NSE reclaim its previous market share of 83.6 per cent, last seen in December 2024. Nuvama noted that 22.9 per cent of premium turnover for Sensex and 18.5 per cent for Bankex was recorded one day before the expiry in January. This could primarily be attributable to BSE index option expiry on Tuesday against NSE’s expiry on Thursday, implying a 3-day gap.
Now, with the NSE expiry day just one day ahead of BSE’s, the latter's potential to capture premium on non-expiry days is likely to reduce and hence overall market growth may suffer, Nuvama said.
"This shall moderate BSE’s market share to 18 per cent from 22 per cent in February 2025. Additionally, SEBI’s consultation paper on derivative exposure limits may clip growth," the brokerage said.
Nuvama has cut its adjusted profit estimates for FY25 by 0.2 per cent, FY26 by 13.4 per cent and FY27 by 11.6 per cent, translating to a lower FY25–27 EPS CAGR of 17.1 per cent.
"Given heightened competitive intensity, uncertainty on incremental regulatory changes and reduced EPS estimates, we are cutting the target PE to 40 times (from 50 times), yielding a revised target of Rs 5,160 (earlier Rs 7,250); retain ‘BUY’," Nuvama said.
Further, the brokerage noted that Sebi's February 24 consultation paper proposes a shift to a delta-based open interest (OI) calculation, new rules to reduce artificial ban triggers in single stock derivatives (SSDs) and changes in participant limits for index derivatives with an aim to improve market stability and ensure fairer trading conditions in the equity derivatives segment.
"We believe the articulated measures for SSDs will be positive. However, the move to change the method of calculation and OI limits for index derivatives, if implemented in current form, may hurt volumes," it said.