Global brokerage firm Jefferies has downgraded BSE Ltd.'s shares to an 'Underperform' rating from 'Hold,' expressing significant concerns over several regulatory and market-related factors. The firm has also revised its target price downwards to Rs 2,940, indicating a potential 15 percent downside from the stock's recent closing price.
Key Reasons for the Downgrade
Analysts at Jefferies, led by Supratim Datta, highlighted the closing auction session (CAS), an increase in the securities transaction tax, and the Reserve Bank of India's (RBI) revised bank-guarantee norms as primary reasons for the downgrade. These factors are expected to negatively impact BSE's revenue streams, particularly those derived from domestic proprietary traders.
The report also noted a 12 percent decline in BSE's options average daily turnover (ADTV) in August compared to the previous month. This fall aligns with a 14 percent decrease observed for its unlisted competitor, NSE. Furthermore, Jefferies pointed out that BSE's market share gains beyond the T-0 and T-1 trading days have been slower than anticipated.
In light of these developments, Jefferies has cut its earnings-per-share (EPS) estimates for BSE for fiscal years FY27-FY29 by 5-12 percent.
Market Reaction and Other Analyst Views
Following Jefferies' downgrade, BSE's stock experienced a 1.65 percent decline, trading at Rs 3,390. This marked the fourth consecutive day of a downward trend for the stock.
The downgrade from Jefferies comes just a week after other financial institutions offered more cautious perspectives. 360 One Capital Markets and ICICI Securities had both suggested a 'Hold' rating on BSE shares, setting target prices of Rs 3,765 and Rs 3,530, respectively.
ICICI Securities, in an earlier assessment on August 6, had maintained that BSE held strong prospects for volume growth across its various segments, including options, cash, and the mutual fund platform, largely driven by derivatives. This outlook, coupled with expected improvements in cost efficiency, had contributed to a significant rise in quarterly EBITDA (excluding SGF) from Rs 116 crore in Q1FY24 to Rs 1,210 crore in Q1FY27.
ICICI Securities' Revised Outlook
However, ICICI Securities has since adjusted its estimates, now factoring in more gradual systemic volume growth based on lower July 2026 volumes. This has led to a 14 percent and 9 percent cut in its FY27 and FY28 EPS estimates, respectively, with projected profit after tax (PAT) of Rs 3,290 crore for FY27 and Rs 3,810 crore for FY28.
While ICICI Securities still sees potential upside risks from continuous market share gains and improved execution, it emphasizes that regulatory changes remain a significant downside risk for BSE, reiterating its 'Hold' recommendation with a revised target price of Rs 3,530.