Jefferies Takes a Sharp 10% Axe to BSE EPS Estimates: What This Means for Investors?

If the market regulator proceeds with its proposed changes to index derivatives, BSE may have to cease its Bankex product, as noted by Jefferies. Consequently, Jefferies has reduced its earnings per share (EPS) estimates for FY26/27 by 10 percent.

In their latest analysis on the exchange, Jefferies' analysts have maintained a hold rating on BSE’s stock, lowering the price target to ₹2,850 (with an implied P/E of 24x June 26E) from the previous ₹3,000. At 2:30 pm IST, BSE Ltd was trading at ₹2,605.

Jefferies stated they will "remain watchful on the final impact on volumes of continuing products post the new norms."

On July 30, the Securities and Exchange Board of India (Sebi) released a consultation paper proposing new norms on index derivatives to protect investors and ensure market stability. One suggestion includes reducing weekly expiries and allowing only one weekly contract per index per exchange.

Currently, index-based contracts expire daily. The new proposal would permit weekly contracts for one index per exchange, resulting in two expiries per week.

In a recent report, Jefferies pointed out that Sebi's proposed F&O measures could affect 35 percent of premiums collected by the overall market. They highlighted that the most significant impact would come from reducing the number of weekly contracts to one benchmark index per exchange, changing from 18 weekly contracts currently to just six per month.

Jefferies wrote, "Currently, weekly premiums constitute about 65% of overall industry premiums. Depending on which index exchanges choose to continue, the supply of contracts accounting for roughly 35% of industry premiums could be eliminated. If trading activity spills over into the two continuing products, the impact could be limited to 20-25% for the system."

Regarding BSE, the analysts noted, "BSE will have to discontinue one of its two weekly options products. The impact on volumes for the continuing product will depend on overall market participation. We await the final draft of the circular and the implementation schedule of the new norms."

The brokerage report also discussed the potential impact of Sebi's downstreaming rule on BSE's float income.

The report observed, "Treasury income from Clearing & Settlement float (+8% QoQ) has grown significantly over the last year (~2.8x YoY in 1Q) and now represents about 18% of consolidated PBT. However, the recent SEBI discussion paper proposed downstreaming certain parts of float income back to clients. If implemented, this measure could reduce clearing float income by approximately 20-30%, affecting EPS by about 6%."