Here are four factors why Jefferies is cautious on BSE despite strong Q4 results

Shares of BSE Ltd. opened as much as 3% lower on Friday, May 8, following its March quarter earnings, which were driven largely by robust derivatives activity and sharp growth in transaction revenues.

Brokerage firm Jefferies has maintained its 'Hold' rating on BSE with a price target of ₹3,620, implying a valuation of 34x June 2028 estimated earnings.

The brokerage expects BSE to deliver a revenue and PAT CAGR of 24% and 27%, respectively, over FY26-29, driven by market share gains in weekly options, improving cash equity volumes, ramp-up in co-location revenues, and operating leverage.

However, Jefferies remains cautious on the stock due to its heavy reliance on SENSEX weekly options, long-term growth challenges, regulatory risks, and rising competition in the co-location business.

On Q4FY26 performance, Jefferies said profit was broadly in-line with estimates. Operating revenue grew 85% year-on-year, aided by strong expansion in options average daily turnover (ADTO), which surged 145% YoY.

The brokerage expects FY27 ADTO growth of 45% YoY, but said that sustaining growth will require stronger traction on non-expiry days, as expiry-day ADTO for SENSEX and NIFTY has now become comparable.

Jefferies added that its scenario analysis suggests the market is pricing in SENSEX ADTO eventually overtaking NIFTY weekly options, leaving the risk-reward equation evenly balanced at current valuations.

The brokerage also said that the stock is trading at 46x FY27 estimated earnings, which, according to it, does not fully factor in the risks associated with dependence on a single product category.

Among positives, Jefferies said that BSE's index options market share continued to improve, reaching 30% during Q4FY26. The premium-to-notional turnover ratio also improved to 11.8 basis points from 9.3 basis points in Q3FY26 due to heightened market volatility.

Lower-than-expected employee and technology-related expenses also led to a sharp 350 basis point sequential expansion in EBITDA margins to 68%, the brokerage said.

Jefferies also cited newer product launches as a positive trigger going ahead.

On the downside, the brokerage pointed out that BSE's cash market share remained stagnant at 7% during Q4FY26, similar to FY25 levels, while growth in recurring revenues such as listing services remained weak.

BSE Q4 results update

The exchange reported a solid operational quarter, with average daily premium turnover (ADPTO) rising 49% sequentially to ₹28,920 crore.

Transaction revenue more than doubled year-on-year, with nearly the entire incremental growth coming from higher transaction charges amid strong traction in derivatives trading.

Transaction charges rose 38% sequentially to ₹1,311 crore, supported by rising derivatives volumes.

Adjusted EBITDA increased 32% quarter-on-quarter, while EBITDA margins expanded sharply to 68%, aided by operating leverage. Net profit after tax also rose 32.5% sequentially.

During the earnings call, management said that ICCL continues to add both large and small members, while technology infrastructure has been significantly strengthened.

The exchange said it currently supports around 29,000 trades per second under normal conditions and up to 59,000 trades per second during peak loads.

Management also said that the Settlement Guarantee Fund (SGF) remains at comfortable levels. Following the fund crossing the 150% threshold, BSE voluntarily reduced its contribution from 5% to 2.5% of profits.

The exchange said monthly derivatives contract market share continues to improve, although it remains relatively low at 5-6%.

BSE added that pricing is periodically reviewed based on volumes, operating costs and affordability, and any pricing revisions would be driven by internal considerations rather than competition.

In the cash market segment, BSE's market share has improved to 7-8% from 5-6%, with management targeting double-digit market share over time.

The exchange also said that Smart Order Routing (SOR) and common contract notes are yet to become fully effective as approvals from the competing exchange are still pending, limiting faster gains in market share.

The derivatives ecosystem continues to expand, with 587 brokers currently trading derivatives on BSE. The exchange is targeting more than 700 brokers over time. Foreign portfolio investor participation currently stands at 520 FPIs, with a target of around 800.

Management said most major high-frequency trading firms are already active on the platform, while further growth is expected through higher participation, better utilisation of colocation infrastructure and rising monthly contract volumes.

BSE share price movement

BSE shares extended gains for the eighth consecutive session on Thursday. The stock has rallied 35% over the last one month and is up 52% so far in 2026.

Over the last three years, the stock has surged nearly 10-fold.

Trading volumes were the highest seen in the last 14 sessions, with nearly 47 lakh shares changing hands compared to the 20-day average of 42 lakh shares.

Delivery volumes also remained elevated, with around 14.5 lakh shares marked for delivery against the 20-day average of 12 lakh shares.

The stock ended Thursday's session 3.35% higher at ₹3,981.