Down 7% in March so far, Goldman Sachs cuts target of BSE for the second time this week; here’s why

Goldman Sachs has cut its price target on BSE Ltd. for the second time within a week, citing concerns over its market share in options trading. The brokerage firm retained its neutral rating on the stock while reducing its target price to ₹4,230 per share, reflecting a potential downside of nearly 2 percent from its last closing price. Earlier in the week, on March 3, Goldman Sachs had already lowered its target from ₹5,650 to ₹4,880, anticipating challenges in BSE’s options market performance.

Impact of NSE’s Expiry Day Shift on BSE

Goldman Sachs highlighted that National Stock Exchange’s (NSE) decision to shift the expiry day of futures and options (F&O) contracts to Monday from Thursday, effective April 4, could be a significant setback for BSE’s derivatives market share. The brokerage noted that the expiry day shift would most notably affect weekly option contract expiries, an area where BSE had gained traction.

Previously, on January 1, 2025, when NSE changed its expiry day to Thursday while BSE maintained Tuesday expiries, BSE witnessed an increase in its market share in index options premiums—rising from 16 percent in December 2024 to 20 percent in January 2025 and further to 22 percent in February. Goldman Sachs had projected BSE’s market share to reach 30 percent by October 2025, assuming expiry days remained unchanged. However, NSE’s latest move has now cast doubt on this forecast.

Given that options trading contributes nearly 50 percent of BSE’s revenue, the expiry day shift is seen as a direct challenge to the exchange’s ability to sustain its recent growth in the derivatives segment. The brokerage’s revised outlook reflects uncertainty over BSE’s ability to maintain liquidity and trading volumes amid intensifying competition from NSE.

BSE Stock Reacts to Expiry Day Change

Following the announcement, shares of BSE Ltd. declined 3.5 percent in the last trading session, weighed down by concerns over a potential market share loss in the options segment. The stock’s downturn followed NSE’s confirmation that, starting April 4, all Nifty index weekly F&O contracts will now expire on Mondays instead of Thursdays, while monthly contracts will conclude on the last Monday of the expiry month.

An NSE spokesperson defended the move, stating, “This decision is not driven by numbers or potential market gains. Instead, it takes into account the fact that significant geopolitical developments occur over the weekend, making Monday a more efficient expiry day. While we acknowledge the feedback received since the announcement, this decision was made with market efficiency in mind and will be reviewed if necessary.”

Regulatory Overhang and Market Volatility

The expiry change was introduced after SEBI issued a consultation paper on February 24 aimed at reducing volatility in the derivatives market. While the regulator has not yet mandated any specific changes, the shift in expiry days is being seen as a preemptive measure to enhance market stability.

The uncertainty surrounding BSE’s future market share, coupled with regulatory overhang, has impacted the stock’s performance. BSE shares have been in the red for seven of the past nine sessions, reflecting growing investor caution. Despite its 92 percent surge over the past year, the stock has now corrected 34 percent from its all-time high of ₹6,133.40, recorded on January 20, 2025. The weakness has continued into March, with BSE losing nearly 7 percent in three sessions, following a 12.6 percent decline in February and a marginal 0.37 percent dip in January.

Legal Challenges Further Weigh on Sentiment

Adding to the concerns, a Mumbai court recently directed authorities to register a First Information Report (FIR) against former SEBI Chairperson Madhabi Puri Buch, two BSE officials, and others over alleged irregularities in granting listing permissions to a company in 1994. The complaint pertains to Cals Refineries Ltd., with allegations of listing violations.

However, BSE has denied any wrongdoing, arguing that the officials named in the case were not in their respective roles at the time of the listing and had no involvement in the matter. The exchange termed the allegations “frivolous and vexatious”, emphasizing that the court’s directive came without prior notice or an opportunity to present its case. BSE confirmed that it is taking necessary legal steps to challenge the order.

Brokerage Reactions and Financial Projections

Amid the regulatory uncertainty and market developments, HDFC Securities has revised its financial projections for BSE. The brokerage has cut its notional turnover estimates by 40 percent for FY26E, while raising premium realization estimates by 70 percent. Consequently, it has slightly increased its revenue forecast by 2 percent and expects BSE’s EBITDA margin to expand from 53 percent to 63 percent in FY26E, leading to an 18 percent increase in EPS estimates.

Meanwhile, Motilal Oswal Financial Services pointed out that BSE’s regulatory costs paid to SEBI, along with clearing and settlement expenses paid to NSE, remain directly linked to notional turnover and contract volume. This implies that any adjustments to SEBI’s policies could have a direct financial impact on BSE, further complicating its growth outlook.

Uncertain Road Ahead for BSE

With NSE’s expiry day shift set to take effect in April 2025, BSE faces a critical test in retaining its growing presence in the options trading market. The combination of regulatory scrutiny, legal uncertainties, and competitive pressures has led to significant downward revisions in BSE’s stock target price, with Goldman Sachs cutting its outlook twice in a single week.

While the exchange has witnessed strong growth over the past year, the shifting dynamics in India’s derivatives market pose fresh challenges that will determine whether BSE can sustain its momentum or face continued headwinds in the months ahead.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.