Wed Oct 16 08:17:15 UTC 2024: ## Jefferies Downgrades BSE Ltd. Rating to “Underperform” Despite Recent Rally

**Mumbai, India:** Jefferies Financial Group has downgraded its rating on BSE Ltd. to “underperform” and forecasted a potential 27% decline in the stock price. This move comes despite a recent surge in BSE’s share price following the announcement of new regulations by the Securities and Exchange Board of India (SEBI) regarding futures and options trading.

While the new framework, which limits weekly derivatives contracts to one per exchange, is expected to boost BSE’s market share, Jefferies believes these expectations are “stretched” and fail to account for potential risks.

**Analyst Concerns:**

Jefferies highlighted that the new regulations could impact the overall market volume by around 25% in the second half of fiscal 2025. The brokerage also pointed out that the current valuation of BSE (P/E of ~40x FY26E) implies a significant increase in market share from ~13% in the second quarter of fiscal 2025 to 30-35%. This, according to Jefferies, is overly optimistic and does not take into account the potential impact on the broader market.

**Impact on BSE:**

The new regulations, effective from November 20, will allow only one weekly derivatives contract per exchange. This is expected to benefit BSE, as its rival, the National Stock Exchange of India (NSE), currently dominates the market with contracts available on all days except Friday.

BSE’s share price surged by 8% on Friday following the announcement of the SEBI framework. This increase was driven by the expectation of spillover trades from NSE’s discontinued weekly contracts. However, despite the initial surge, BSE’s shares closed 1.19% lower on Tuesday at Rs 4,725.25, while the Nifty 50 index fell by 0.28%.

**Jefferies’ Outlook:**

Jefferies has set a price target of Rs 3,500 for BSE, implying a downside of 27% from its current market price. While this target is higher than the Rs 2,850 target shared by the brokerage in August, it still indicates a pessimistic outlook for the company’s future performance.

**Conclusion:**

Jefferies’ downgrade reflects concerns over the potential impact of the new SEBI regulations on the overall market and BSE’s ability to capitalize on the expected shift in trading volumes. While the initial market reaction was positive, the brokerage believes that BSE’s stock price is currently overvalued and is likely to decline in the near future.

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