Shares of BSE Ltd., Asia's oldest stock exchange, experienced a significant drop, hitting a four-month low on Tuesday. This decline followed two consecutive downgrades from major brokerages: Jefferies and Nuvama Institutional Equities.
Jefferies Downgrades BSE to 'Underperform'
On Monday, global brokerage Jefferies initiated a downgrade on BSE's stock, moving its stance to "underperform." The firm also reduced its target price by 16%, citing several concerns that could impact the exchange's revenue. Analysts highlighted potential issues stemming from the closing auction session (CAS), a higher securities transaction tax, and the Reserve Bank of India's (RBI) revised bank-guarantee norms. These factors are expected to weigh on BSE's earnings, particularly from domestic proprietary traders.
Jefferies analysts, led by Supratim Datta, noted a 12% decline in BSE's options average daily turnover in August compared to the previous month. They also observed a slowdown in BSE's market-share gains beyond the T-0 and T-1 trading days, as reported by Bloomberg.
Nuvama Lowers Stance to 'Hold'
Following Jefferies, Nuvama Institutional Equities also lowered its rating on BSE, moving from "buy" to "hold." Nuvama further cut its target price on the stock by a significant 21% to Rs 3,240. The brokerage's reasons for the downgrade mirrored some of Jefferies' concerns, specifically pointing to the impact of the closing auction session on option volumes and tighter bank guarantee norms. Additionally, Nuvama suggested that BSE's market-share gains might be nearing saturation levels.
Nuvama revised its earnings per share (EPS) view for BSE, paring it by 6.3% for the financial year 2026-27 and a more substantial 15% for FY28, reflecting a more cautious outlook on the exchange's future profitability.
Stock Impact and Outlook
The dual downgrades triggered a notable reaction in the market. BSE's stock fell by 2.9% to Rs 3,235, marking its fifth consecutive day of decline and reaching a four-month low. The market capitalization of the bourse also dropped to Rs 1.34 lakh crore.
Jefferies subsequently pared its FY27-FY29 earnings-per-share estimates by 5-12% and adjusted its price target to Rs 2,940, implying around a 15% potential downside from Friday's closing price. These actions by leading brokerages indicate a challenging period ahead for BSE's stock, as concerns over regulatory changes and market dynamics continue to influence investor sentiment and analyst expectations.