How BSE Is Trying To Regain Its Mojo

Stock Discussion / October 9, 2023

BSE celebrated its 149th Foundation Day on 10th July 2023 with perhaps much more enthusiasm than in the past couple of decades when it kept losing market share to the new more efficient, tech savvy and corporatized rival NSE.

BSE’s profits remained flat for over a decade. In FY12 it had a bottomline of 205 cr and in FY23 also it reported a bottomline of 206 cr. The reason for this poor show was partly the loss of equity mkt share to NSE (BSE share is 10%, NSE 90%). But a far bigger reason was having nil mkt share in F&O which gives NSE 90% of its topline.          

But since a few months, following positive developments have changed the outlook for the stock:-

  1. From nil mkt share, BSE has clawed 3.4% derivative mkt share since the launch of Sensex derivatives in May 2023. This is a monopoly move because Sensex derivatives can only be traded on BSE.
  2. At present BSE charges only 500 per crore to investors for trading in Sensex derivatives against 3500 per crore charged by NSE. This lollapalooza can be encashed by BSE at some stage when it feels confident enough about retaining its market share even at elevated transaction charges.
  3. Finally, there are the impending IPOs of  NSDL and NSE and they can be listed only on BSE. Even while being unlisted, NSE shares do heavy volumes of around 100 cr per day as per reports. Upon listing, this can easily grow multiple times. Assuming 10x, it will mean 1000 cr cash volumes which will add 20% to BSE’s average daily traded volume. FO contracts on NSE stock will also add to derivative volumes on BSE.  

FY23 was weak for BSE. But Q1FY24 was good with rev from operations up 16%, total income up 37%, Ebitda up 102%, PBT before EO up 120%, APAT up 100% at 80 cr, AEPS up 100% at Rs 6.5. It could end FY24 with EPS of Rs 30.

Market has celebrated the return of its fallen hero to the race track and has rerated it from Rs 500 odd levels in Apr 2023 to Rs 1400. It is not cheap now after almost tripling in six months. It needs to keep beating market expectations otherwise there can be bouts of doubts and selling. It will also have to incur capex to cater to the additional derivative volume and this may suppress its profitability until volumes pick up meaningfully to offset the costs. But that is par for course when business is growing. If BSE can keep regaining market share especially in the derivative segment and NSE IPO happens sooner rather than later, its investors could be celebrating its 150th Foundation Day with even more gaiety.