Shares of Asia's oldest bourse BSE Ltd tumbled over seven percent in trade on Tuesday, July 8, as investors continued to offload their shares amid regulatory overhangs and valuation concerns.
Further, capital market stocks also saw significant selling pressure, as reports suggested that the SEBI board is likely to consider linking link options and cash exposure, according to sources to CNBC-TV18. If SEBI progresses with this move, it would increase cash market liquidity, while curtailing options liquidity. Further, SEBI may also discuss other steps to curb retail trading in options.
BSE shares have also taken a 13 percent tumble since markets regulator Securities and Exchange Board of India (SEBI) cracked down on propriety trading firm Jane Street, alleging that the foreign portfolio investor used manipulative strategies to profit from the indices.
SEBI also restrained Jane Street Group from accessing the local securities market, dealing a severe hit to the US trading firm that generated more than $2.3 billion in net revenue from equity derivatives in the South Asian nation last year.
At 11.15 a.m., BSE's stock price was quoting Rs 2,456.9, lower by 6.8 percent compared to the previous session's closing price. The capital markets pack was also lagging, with Angel One, CDSL, and 360 ONE WAM shares sinking up to six percent.
However, international brokerage Jefferies attempted to allay investor concerns. The brokerage said that BSE will see a limited impact. For BSE, derivatives will likely drive ~58 percent of FY26E revenues. In this segment, FPIs drive ~3-4 percent of turnover, and Jefferies estimated that contribution from Jane Street would be a smaller subset of that, likely around one percent.
"Hence, we see a limited impact of Jane Street on BSE's earnings. A 100 bps impact on our FY26 premium estimates would impact EPS by ~60-70 bps," added the brokerage.
ICICI Securities flagged risks to BSE shares on the combination of possible overhang on volumes from regulatory restrictions, change in expiry day as well as relative high valuation multiples. Further, the brokerage noted that BSE’s premium ADTV declined 12.4 percent MoM to Rs 13,900 crore in June, after rising sharply in April and May.
"While we still remain positive on the overall fundamentals of the company, we believe current valuations capture medium term growth potential well with current prices implying more than 45x FY27E core EPS, especially considering possible regulatory risks," said the brokerage.
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