Jefferies upgrades BSE shares to 'hold' but sees limited upside potential, stock up 5%

BSE stands to benefit from strong growth tailwinds for India's capital markets.

International brokerage Jefferies upgraded its rating on Asia's oldest bourse BSE Ltd to 'hold,' with a target price of Rs 5,250 per share. From the previous session's closing price, this indicates a minor upside of two percent.

According to the brokerage, markets regulator Securities and Exchange Board of India's (SEBI) recent measures on futures and options (F&O) trading have significantly impacted option volumes, which have dropped by 70 percent.

Despite the decline in volumes, BSE's premiums are down by less than 10 percent month-to-date in January, as traders shift towards larger average ticket sizes. Exchanges have benefited from these changes, seeing stable topline growth and substantial margin expansion due to improved premium quality.

However, discount broking volumes could face a potential hit of over 40 percent, which may necessitate significant price hikes for brokers to offset the impact.

As a result, shares of BSE surged over four percent in the morning session, jumping to quote Rs 5,395.4 at 9.17 am.

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On January 13, global brokerage Goldman Sachs initiated coverage on the stock exchange with a 'neutral' stance, issuing a target price of Rs 5,060 on BSE shares, which indicates a minor downside of one percent.

According to the brokerage, BSE stands to benefit from strong growth tailwinds for India's capital markets. Further, the strong nominal growth in the earnings for Indian listed companies' corporate earnings acts as a powerful compounder.

Goldman Sachs has highlighted that options reforms leading to lower clearing charges could contribute to a 10 percent expansion in BSE's EBITDA margin and a 5 percent increase in return on equity (RoE). While valuations remain near all-time highs, the brokerage views BSE as fairly valued compared to global peers, with a balanced risk-reward profile.

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