BSE shares downgraded by this global brokerage firm citing upcoming regulatory hurdles — here’s why

Global brokerage UBS has downgraded BSE Limited to “Neutral” from “Buy” following the stock’s sharp rally over the past year, while raising its 12-month target price to ₹4,500 from ₹3,650.

The brokerage said BSE’s strong market share gains in options turnover have been largely driven by volatility-led trading activity, but cautioned that upcoming regulatory changes and normalization in trading volumes could moderate future growth momentum.

According to UBS, BSE’s share in India’s options average daily turnover (ADTO) rose sharply to 34% in April 2026 from 37.1% in index options ADTO, compared with 27.6% and 30.2%, respectively, in Q4FY26. The brokerage attributed the increase to an additional expiry introduction and heightened market volatility.

UBS noted that India’s VIX surged 60% in March and 45% in April versus the one-year average and remains elevated in May 2026, which has temporarily boosted derivatives trading volumes.

However, the brokerage believes the current run-rate may not sustain over the longer term as volatility normalises. It also flagged the RBI’s recent circular tightening lending norms for capital market exposures, effective July 1, 2026, which could reduce cash market volumes by 5–10% in its view.

Despite the downgrade, UBS raised its FY27 and FY28 revenue and profit estimates for BSE by 12% and 14%, respectively, citing stronger-than-expected derivatives volumes and market share assumptions.

The brokerage now estimates BSE’s operating margins could improve further, with EBITDA margin projected to rise to nearly 68.1% by FY28 from 65.7% in FY26.

UBS expects options revenue, which accounts for nearly 65% of BSE’s revenue mix, to grow at a 28% CAGR between FY26 and FY28. The STAR MF platform is projected to grow at 15%, while listing and book-building fees, along with cash markets, are expected to register healthy growth.

The brokerage also highlighted management’s optimism regarding long-term structural opportunities in derivatives penetration, institutional participation and longer-duration contracts.

According to UBS, next-week contract participation increased to 15% in April 2026 from 5% in April 2025, while long-term contract market share rose from 0.2% to 1.2% during the same period.

However, UBS believes BSE’s substantial re-rating over the last year has limited further upside potential. The brokerage noted that the stock has already gained nearly 41% over six months and 61% over the last year.

At the current market price of around ₹4,000, UBS said valuation appears closer to fair levels, leading to the downgrade to “Neutral.”

Disclaimer: This article is for informational purposes only and does not constitute investment advice.