Strong Q1 for BSE, NSE, but SEBI’s proposed F&O curbs will hurt: Analysts

Analysts warn that the uncertain future of F&O regulations could impact the earnings of both exchanges

India's leading equity bourses, NSE and BSE, reported stellar performances in the June quarter, as upbeat sentiment, increased retail investor participation and soaring derivatives turnover kept the cash registers ringing. But the road ahead could be bumpy, if proposed curbs on futures and options in the recent SEBI consultation paper are implemented, caution experts.

The general view on the street is that NSE stands to lose more than the BSE.

Q1 performance

Just a year after BSE re-launched its derivatives contracts on May 15, 2023, the move has been hailed as a game-changer by analysts at Motilal Oswal. The increased acceptance of the Sensex and Bankex contracts, along with higher transaction charges, enabled BSE to achieve a more than three-fold year-on-year jump in net profit to Rs 265 crore in Q1FY25, while revenues surged over two-fold, or 148 percent YoY to Rs 674 crore.

In contrast, NSE posted a modest 39 percent YoY growth in consolidated profit to Rs 2,567 crore, driven by a 51 percent YoY increase in revenues from operations to Rs 4,510 crore in Q1FY25.

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Regulatory challenges ahead

Despite the strong quarterly performances, analysts warn that the uncertain future of F&O regulations could impact the earnings of both exchanges. IIFL Securities anticipates a more significant impact on NSE, as options account for 60 percent of its revenues, compared to around 40 percent for BSE.

"We estimate a 25-30 percent impact on NSE’s FY26 earnings and 15-18 percent for BSE. BSE, at Rs 2,400, is trading at 26 times FY26 EPS. Assuming a 25 percent earnings cut, the stock would trade at 34 times going ahead," IIFL Securities cautioned.

Similarly, HDFC Securities and Motilal Oswal too have turned cautious on BSE, rating the stock 'reduce' and 'neutral' respectively. HDFC Securities has a price target of Rs 2,350 and Motilal Oswal, Rs 2,700. Neither firms track NSE.

SEBI recently issued a consultation paper on index derivative frameworks aimed at curbing rising speculative volumes and protecting retail investors. Among the seven proposed measures, the most significant impact on exchanges is expected from the withdrawal of weekly options (with only one per exchange allowed), as index options account for 98 percent of the volume, according to IIFL Securities.

Other proposed changes, such as increasing contract sizes by 2-3 times initially (and 3-4 times after six months), could also reduce retail participation and the number of active investors. Additional measures like rationalising strike prices, increasing ELM, and restricting calendar spread margin benefits on expiry day contracts are expected to soften volumes further. Analysts estimate a 30-40 percent hit to option premium turnover due to these regulations.

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