BSE’s remarkable stock surge of over 360% in 2023, providing substantial returns to investors, is poised for more gains, according to Sharekhan. The stock continued its upward trajectory, marking a 3% rise and hitting a fresh 52-week high of ₹2,595.00 per share on Monday, maintaining its upward momentum for the seventh consecutive day.
Sharekhan, despite the impressive rally, sees more than a 25% upside potential for BSE shares. The brokerage firm bases its optimism on the expectation of robust earnings, primarily driven by escalating volumes in equity derivatives.
The exchange is experiencing notable traction in equity derivatives volumes, particularly on expiry days. Sharekhan notes that BSE has currently increased tariffs only on the Sensex 30 running weekly expiry contract, anticipating a further boost in volumes.
“We believe pick up in the volumes in long dated Sensex-30 contract as well as in Bankex gradually would further accelerate volume growth / revenue and aid operating leverage because major investments have been done additionally, clearing charges which are levied would substantially reduce due to higher volumes,” commented the brokerage firm.
BSE’s expanding market share in the derivatives segment is noteworthy. In November, the market share based on premium turnover monthly reached approximately 4.5%, with expiry day market share even higher and exhibiting rapid growth.
Sharekhan anticipates a significant increase in BSE’s core EBITDA margins once the derivative segment becomes a substantial contributor to the top line from FY25E onward. The brokerage attributes this to the majority of fixed costs already being incurred, with variable costs expected to be minimal, leading to the play-out of operating leverage.
Clearing charges, a major fixed cost for BSE, have seen a reduction from ₹280 per million to ₹180 per million due to recent volume increases, and Sharekhan predicts a further decline as volumes continue to rise.
BSE has implemented tariff increases on equity options from November 1, 2023, and Sharekhan expects gradual tariff increases on Bankex and Sensex contracts beyond the current week as volumes pick up at sustainable levels. The potential for higher charges, not factored into current estimates, poses an upside risk.
Sharekhan’s positive outlook for BSE includes a target price of ₹3,130 per share, indicating an upside of over 25% from the closing price on Friday. The brokerage remains optimistic about BSE’s future performance, citing key catalysts such as an overall increase in volumes in equity derivatives and the gradual elevation of tariffs on Bankex and Sensex contracts.
As of 12:45 pm, BSE’s share price was trading 0.29% higher at ₹2,505.95 per share on the BSE.
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