BSE shares, which are listed on the National Stock Exchange, closed at ₹2352.45 on Saturday. The stock hit an all-time high of ₹2,598.95 on February 5. BSE shares’ 430% gains in the past year far exceeds the 35% upmove in US-based Intercontinental Exchange (ICE), the second-best performer in the pack
London Stock Exchange gained 21%, US-based CME Group rose 19%, Deutsche Boerse advanced 16.7% and Singapore Stock Exchange moved up 8.8% in this period. Shares of Australian Securities Exchange and Hong Kong Exchanges and Clearing declined in the last 12 months.
Analysts said higher cash market volumes have boosted BSE’s profitability.
“The cash volumes on the BSE have increased by up to 50% a day in the past one year, which has also led to higher transaction charges,” said Deepak Jasani, head of retail research at HDFC Securities. “The value of the transactions on BSE have also increased as the share prices have gone up.”
BSE’s net profit in October-December jumped 123.3% and revenue from operations rose 82.2% from last year.Jasani said the exchange’s revival of its derivatives segment in the last year by launching Sensex Futures and Options has added to its growth.BSE, under the new management led by CEO Sundararaman Ramamurthy, relaunched Sensex derivatives in May last year after repeated attempts to boost the segment in recent years. So far, NSE has dominated the country’s stock F&O trading business. BSE’s weekly Sensex contracts attracted trading interest amid the heightened frenzy in equity derivative trading.
The exchange’s market share in terms of notional turnover stood at 13% and 5% in terms of premium turnover in the country’s equity derivatives segment, according to Motilal Oswal Financial Services.
The robust initial public offering (IPO) market in the past year has also boosted the country’s stock exchanges.
India has emerged as the global leader in the number of IPOs in 2023, according to EY India.
Brokers see domestic exchanges’ prospects remaining stronger as India’s weight in global equity indices rise,
“There’s immense scope for higher volume and participation domestically and globally through higher allocation in emerging index like MSCI in the coming 10 years compared to other international exchanges,” said Dharan Shah, founder of Tradonomy, a Mumbai-based investment research advisor.
Valuations
The run-up in share price has also resulted in BSE becoming the most expensively valued listed exchange in terms of price to earnings (PE) ratio. While other global stock exchanges are trading at a PE in the range of 19-27 times their CY24 earnings, BSE trades at 67 times, said Jasani.
“This is because of its compact equity structure where a small growth in earnings can lead to higher EPS, which may not apply to other exchanges,” he said. “For other exchanges, the earnings growth expected is at 5-10% whereas BSE has a growth potential of about 80% in FY25, which is the reason for the higher PE of the stock.”
Share Outlook
Analysts think there is still some more steam left in the stock price. It will be critical for the stock to cross its current high to extend upsides.
“Its making a clear flag pattern and a breakout and closing above Rs2600 could lead to a further upside of 16% with a target Rs2925 – 3000 levels,” said Shah.
Risks
While a drop in the trading volumes on account of the stock market trend reversal remains the key risk, analysts said its bigger rival NSE’s listing could also hurt investor appetite.
“We may see some setback in this buying interest once NSE may float its IPO, as BSE is enjoying a ‘scarcity premium’, being the sole listed exchange,” said Jasani. “Since the shares of NSE are not freely available in the market, people are rushing in to buy BSE shares and be a party to the gains.”