Why BSE Share Price is Rising

Indian share market got a reality check yesterday as benchmark indices fell after US treasury yields crossed above the 5% mark.

The bloodbath wiped off around Rs 7.6 trillion of investor wealth.

Given the current market conditions and the geopolitical outlook that remains an overhang, it does look like there is going to be a lot more volatility in the coming days.

However, one fundamentally strong smallcap stock has defied all odds and stood tall even when the BSE smallcap index was down a massive 4% yesterday.

The stock in question is Bombay Stock Exchange (BSE).

The share price of BSE closed at an all-time high of Rs 1,695 on Monday 24 October 2023. In intraday trade, the stock recorded a high of Rs 1,798 surging around 13%.

Let's find out why the stock is on a roll...

#1 Revision in Transaction Charges

The steep rally in BSE shares on Monday came after the exchange announced revision in its transaction charges for Sensex Options, effective 1 November 2023.

BSE said the charges for all other equity derivative contracts would remain unchanged.

According to exchange filings, in October 2023 so far, the average daily turnover (ADTV) for BSE Sensex Options has been at Rs 236.2 bn compared to Rs 56.2 bn in July 2023.

In an exchange filing, BSE said,

• Premium-based turnover on these nearest-expiry contracts shall be calculated on a daily basis and cumulated at the end of the month. Transaction charges shall be levied based on the slab on an incremental turnover basis on cumulative turnover at the end of the month.

This revision in transaction charges can optimise revenue for BSE by aligning fees with market demand.

It would also allow the exchange to remain competitive by offering cost-effective trading to its users. Compared to the National Stock Exchange (NSE), BSE still controls only a fraction of the volumes.

#2 Relaunch of Derivatives

While the revision in transaction charges could be the primary reason behind the current rally in BSE, the stock price has been on a roll for the past one year.

And one good reason supporting the rally is the relaunch of its Sensex and Bankex derivatives contract in May 2023.

BSE in May 2023, decided to relaunch the Sensex and Bankex derivatives contracts with smaller lot sizes and weekly expiries.

Compared to NSE, the BSE keeps its pricing at only a fraction to attract more traders towards its platform.

The impact is clearly visible in its numbers as this effort has led to more active clients on the BSE's derivatives platform - nearly 400,000 at present from zero in June 2023.

Also, the company couldn't have brought back these segments at a better time as participation in the cash segment is on the rise.

The company is also gaining market share in derivatives segment. It introduced options on futures for precious metals and energy (WTI and Brent crude) and futures contracts for base metals (copper, zinc, aluminium) earlier this month on 9 October 2023.

What Next?

In the first quarter of FY24, the company posted strong revenue growth of 37% YoY as revenue came in at Rs 2.7 bn. Net profit spiked 71% to Rs 751 million (m).

The company's power entity Hindustan Power Exchange (HPX) also reported profit in Q1.

HPX expects to garner a 40-45% market share in the day-ahead segment of power trading once there is an order for coupling of the electricity exchanges, according to the company's management.

In earlier years, the equity derivatives segment of BSE seemed like a lost cause. Investors were gung-ho about BSE evolving into a fintech company, aggressively diversifying into multiple streams (commodities, international exchange, SME segment, StAR mutual fund, insurance business, currency futures and so on).

But now, the derivatives segment is also performing well. This good performance is expected to continue at least for the coming quarters of FY24.

Meanwhile, the company also holds stake in listed company CDSL. The company had posted steep rise in its bottomline for the first quarter on account of stake sale in CDSL.

One concern for the stock could be how it can continue the same growth going forward. Recently, HDFC Securities said in a report that BSE increasing its prices would underpin its revenue growth going ahead.

It remains to be seen how these developments pan out. For now, the stock continues its good momentum.

How Shares of BSE Have Performed Recently

In the past five days, BSE share price has gained 14%. In the month gone by, the stock is up over 40%.

While in 2023 so far, the share price of BSE is up 213%.

BSE has a 52-week high of Rs 1,798 touched on 23 October 2023 and a 52-week low of Rs 406 touched on 28 March 2023.

About BSE

The Bombay Stock Exchange (BSE) is an Indian stock exchange which is located on Dalal Street in Mumbai. Established in 1875 by cotton merchant Premchand Roychand, a Jain businessman it is the oldest stock exchange in Asia and the tenth oldest in the world.

BSE provides an efficient and transparent market for trading in equity, currencies, debt instruments, derivatives, and mutual funds. BSE SME is India's largest SME platform which has listed over 250 companies.

BSE Star MF is India's largest online mutual fund platform which processes over 2.7 m transactions per month and adds almost 200,000 new SIPs every month.

BSE Bond is the transparent and efficient electronic book mechanism process for a private placement of debt securities.

To know more, check out the BSE company fact sheet and quarterly results.

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