BSE's F&O market share has jumped from 6-12 percent in the last month, after the bourse moved its flagship Sensex weekly expiry to Friday, so as not to clash with NSE’s Nifty expiry. NSE Nifty F&O weekly contracts continue with a Thursday expiry.
A recent report by HDFC Institutional Research says BSE commands a 12 percent market share in terms of weekly volume, while 16 percent for major expiry day volumes.
Notably, NSE has adopted a daily expiry model, ensuring that major Index options contracts expire on different days of the week. This strategic move prevents direct clashes between the two exchanges.
Bankex boost for BSE weekly derivatives volume share
The HDFC report anticipates further market gains with BANKEX contracts weekly expiry being moved to Monday. The analysis forecasts BSE's derivative notional or premium average daily trading volume (ADTV) to reach Rs 81 lakh crore or Rs 5,500 crore by FY26 estimate, with a projected market share of 21.7 percent for volume and 8.7 percent for premium.
BSE's growth in the derivative market is particularly remarkable. The success of the SENSEX weekly contract, coupled with the forthcoming BANKEX launch, has propelled BSE's market share past 50 percent on October 13.
With the addition of the BANKEX contract with expiry on Monday, market share expansion is expected on other days as well.
Other highlights from the report
· On a weekly basis, BSE's market share hovers around 12 percent, primarily due to the bulk of its volume occurring on Fridays, while the other days remain comparatively subdued.
· Comparing BSE's SENSEX market share to NIFTY's weekly performance, BSE has achieved a 30 percent market share.
· HDFC's report also emphasises that BSE has witnessed success with the SENSEX contract in the much larger equity derivatives segment, dominated by NSE.
· The SENSEX contract is currently catering to around 40 percent of the NSE’s derivatives volume (NIFTY) but with the launch of the BANKEX contract, BSE will address 95 percent of NSE’s derivative volume as per the report.
"With a single contract, the exchange has reached approximately 9 percent and 3 percent notional/premium market share respectively, which is impressive" stated HDFC.
The report anticipates further growth in BSE's market share, driven by the go-live of discount brokers on the platform and new product launches. The growth is attributed to proprietary and retail traders, with the number of active UCCs on the platform increasing from virtually zero to approximately 4 lakh since June 23.
BSE may soon cut options trading discount vis-a-vis NSE
BSE's option pricing currently stands at one-seventh of NSE, but HDFC expects a pricing reset soon, with options pricing potentially increasing by threefold. Even with this increase, BSE's pricing would still be at a 57 percent discount compared to NSE.
HDFC notes that a pricing reset is inevitable due to BSE's new management's decision to move away from pricing discounts in most segments except derivatives. Currently, BSE charges around 1 basis point (bps) on options premium, while NSE charges approximately 7 bps. The cost of clearing options is similar for both exchanges, at around 1 bps.
Since BSE is not currently profitable in the derivatives segment, a pricing reset is expected, though the extent of the adjustment may vary. Based on past pricing actions, BSE's options pricing is assumed to reach approximately 3 bps for FY25/26E.
BSE stock call: HDFC Securities says ‘buy’; check target price
The report outlines three valuation scenarios. The base case assumes a 9 percent premium market share, a threefold increase in options pricing, and a revenue and core PAT CAGR of 26 percent and 53 percent, respectively.
The bear case assumes a 5 percent options premium market share, a decline in cash volume, a two-fold increase in options pricing, and a multiple of 25 times, resulting in a potential downside of approximately 30 percent compared to the current market price (CMP).
The bull case envisions a 10 percent derivatives market share, a 4.5 percent increase in option pricing, 32 percent and 69 percent revenue and core PAT CAGR respectively, and a 35 times multiple, offering a potential upside of around 43 percent from CMP.
Consequently, HDFC maintains a 'BUY' rating and assigns a Sum of the Parts (SoTP) based target price of Rs 1,600 based on 33 times core FY26E PAT, CDSL stake and net cash excluding settlement guarantee fund.
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