BSE’s Impressive Growth Amid Regulatory Changes

The Bombay Stock Exchange Limited (BSE) has seen remarkable growth over the past year, primarily driven by recent regulatory changes in the futures and options (F&O) market. As the Securities and Exchange Board of India (SEBI) implemented new rules, BSE successfully regained a portion of its market share from the National Stock Exchange (NSE), which is evident in its rising stock prices and robust quarterly results.

Strong Q4 Performance

In the April 2025 quarter, BSE reported a staggering 361% year-over-year surge in consolidated net profit, reaching Rs 494.42 crore. The operational revenue also saw a significant increase of 74%, totaling Rs 846.64 crore. Notably, transaction charges, which are the fees collected on trades, soared by 112% from the previous year, amounting to Rs 611.70 crore—making up a substantial 72% of the exchange’s revenue.

• Key Financial Highlights:
  • Net Profit: Rs 494.42 crore (+361% YoY)
  • Operational Revenue: Rs 846.64 crore (+74% YoY)
  • Transaction Charges: Rs 611.70 crore (+112% YoY)

Impact of Regulatory Changes in Derivatives

In October 2024, SEBI introduced new measures aimed at curbing excessive trading in the derivatives market. These regulations mandated that stock exchanges limit themselves to one weekly expiring options contract. As a result, BSE and other market players expected a decline in trading volumes, which would subsequently reduce transaction-related income.

Nithin Kamath, CEO of Zerodha, highlighted that these changes would affect approximately 60% of overall F&O trades and around 30% of Zerodha’s orders, leading to a significant drop in trading volumes. By March 2025, F&O volumes plummeted to Rs 15,205 lakh crore, down from Rs 32,734 lakh crore in the previous quarter.

BSE’s Market Share Gains

While NSE dominated the Equity Options segment with a 100% market share in Q1 FY24, BSE took strategic steps by reintroducing Sensex and Bankex derivative contracts in May 2023. This move has proven effective, as NSE’s share in the options market decreased to 81.2% by March FY25, allowing BSE to capture the remaining market share.

BSE’s ability to navigate these regulatory changes better than its competitors contributed to a 9% rise in its average daily turnover (ADTO) in December 2024, even as industry volumes declined. This resilience was partly due to BSE’s more favorable contract structure compared to NSE.

Future Growth Strategies

During their latest earnings call, BSE’s management emphasized their commitment to attracting new clients in the options sector, aiming to enhance liquidity. Additionally, plans are underway to expand co-location services from 300 to 500 racks by March 2026. These co-location facilities enable clients to host their servers within BSE’s infrastructure, facilitating faster trade execution.

Brokerage Perspectives on BSE

Jefferies recently updated its outlook on BSE, maintaining a "hold" rating while raising the target price to Rs 7,000, suggesting a potential upside of 6% from current levels. The brokerage firm revised its earnings estimates upward by 10-11%, anticipating stronger revenues from options and increased co-location services. They project a 21% compound annual growth rate in revenue and a 27% growth in profit from FY25 to FY28.

Motilal Oswal also reaffirmed its "buy" rating with a target price of Rs 7,600, representing a 15.1% increase from current valuations. They see growth potential in heightened member participation and efficient monetization of co-location services.

BSE Stock Performance Overview

As of May 9, 2025, BSE shares closed at Rs 6,600, reflecting a 38.65% increase since November 21, 2024. The stock currently boasts a Return on Equity (ROE) of 34.1% and a Return on Capital Employed (ROCE) of 43.5%. Although the price-to-earnings (P/E) ratio stands at 67.6, it is important to note that this is above its median 10-year P/E of 28.6.

Conclusion: A Bright Future Ahead

In summary, BSE has demonstrated impressive growth and a strategic recovery in the derivatives market. While brokerages express optimism about its ongoing momentum, potential investors should carefully consider the stock’s current valuation before making investment decisions.

Disclaimer

This article is intended for informational purposes only and does not constitute investment advice. Investors are encouraged to consult with a financial advisor before making any investment decisions.