Investec bullish on BSE but flags potentially severe regulatory risk; check target price

BSE stock has gained over 228 percent in the last one year, more than tripling investors' money. In comparsion, Nifty gained 26 percent during this period.

Investec has issued a 'Buy' call on BSE with a target price of Rs 3,400 per share but has also expressed concerns about regulatory risks which could be more severe than expected and may outweigh the benefits of rising volumes.

The BSE stock has been in focus recently after Moneycontrol reported that a SEBI-appointed working committee on F&O has recommended increasing the minimum lot size of derivative contracts to Rs 20-30 lakh from Rs 5 lakh currently. Read More

It has also proposed restricting the weekly options to only one expiry per stock exchange per week and limiting the number of strike prices for options contracts as a key measure to curb the rise in volumes.

Investec believes that if these proposed regulatory changes are implemented, it will have an impact on their forward estimates on BSE. The note further says that the exchange is looking at protecting its profitability through higher market share and lower clearing charges.

Despite these challenges, the company aims to protect profitability through a higher market share and lower clearing charges, the Investec note said. According to other analysts, BSE may be an unintended beneficiary at the expense of business for the National Stock Exchange (NSE), the larger of India's two biggest platforms.

"I think asking NSE to choose between Nifty and Bank Nifty would not be fair to NSE," said Rajesh Baheti, Managing Director at the Mumbai-based broking firm Crosseas Capital Services, in an interview with CNBC-TV18.

The NSE has two very active contracts, Nifty and the Bank Nifty. The BSE has one fledgling upcoming contract by way of the Sensex.

"Now, NSE has a market share of 80-90 percent in this market. Even today, the BSE is 20 percent. If you tell the exchange that you can only do one per contract, one expiry per week, you are actually giving BSE a chance to become 50 percent of the market and not by a very fair means," Baheti added.

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At 11:36 am, BSE shares were trading 2 percent lower at Rs 2,286.40 on the National Stock Exchange (NSE).

The stock was also impacted post SEBI's new circular on transaction charges, which said that Market Infrastructure Institutions (MIIs) should not give discounts based on turnovers. Stock exchanges, clearing corporations are also part of MIIs.