Following remarks by SEBI chair Tuhin Kanta Pandey, a discussion paper on extending the tenure of index options is expected. According to Nuvama Institutional Equities, the market is abuzz with possible contours of the paper and potential changes to derivative expiry days/periods.
Other measures such as raising contract sizes and tightening intraday/EOD exposure limits may also be considered. In Nuvama’s view, limiting F&O expiries would be most damaging to stock exchange earnings.
Nuvama has modelled five possible scenarios, which indicate cuts in BSE’s estimated FY27 earnings in the range of 19.8 per cent to 38.5 per cent. For now, the brokerage maintains a ‘Buy’ rating on BSE with a target price of Rs 2,820 (45 times September -27E EPS plus CDSL value), but said it will revisit its numbers once clarity emerges.
Scenario 1: Different day (Tuesday/Thursday) fortnightly expiry
If the current BSE/NSE (Tuesday/Thursday) format continues but is restricted to mid-month and month-end expiries, Nuvama expects market average daily premium turnover (ADPTV) to decline 48.4 per cent versus its FY27E estimate, to Rs 32,700 crore, with BSE’s market share at 20.1 per cent. In this case, BSE’s FY27E ADPTV would plunge 55.8 per cent to Rs 6,600 crore, implying a 26.8 per cent cut in FY27E EPS to Rs 39.9.
Scenario 2: Different day (Tuesday/Thursday) monthly expiry
If the current format continues but is limited to only mid-month and month-end expiries, Nuvama estimates market ADPTV may fall 66.8 per cent to Rs 21,000 crore, with BSE’s share at 15.9 per cent. BSE’s FY27E ADPTV would fall 77.5 per cent to Rs 3,300 crore, implying a 36.7 per cent cut in EPS to Rs 34.5.
Scenario 3: Mid-month/end-month alternating expiry
Here, BSE would have a mid-month expiry while NSE retains the month-end expiry, with the day unchanged. Contracts would be month-long but expiries staggered by about two weeks. Nuvama projects market ADPTV will dip 54 per cent to Rs 29,100 crore, with BSE’s share rising to 27.5 per cent. BSE’s FY27E ADPTV would shrink 46.3 per cent to Rs 8,000 crore, implying a 19.8 per cent cut in EPS to Rs 43.7.
Scenario 4: Same-day fortnightly expiry
If both exchanges move to fortnightly expiries on the same day, market ADPTV could fall 47.6 per cent to Rs 33,100 crore, with BSE’s share at 15.2 per cent. Nuvama reckons BSE’s ADPTV would drop 66.3 per cent to Rs 5,000 crore, implying a 32 per cent cut in EPS to Rs 37.
Scenario 5: Same-day monthly expiry
If only monthly expiries are allowed on the same day, market ADPTV may slide 54.1 per cent to Rs 29,100 crore, with BSE’s share at 9.8 per cent. Nuvama forecasts BSE’s ADPTV would contract 80.8 per cent to Rs 2,900 crore, implying a 38.5 per cent cut in EPS to Rs 33.5.
The brokerage said it has not factored in any upside from higher trading volumes on non-expiry days, which could partly offset the hit. Exchanges may also increase charges to mitigate the earnings impact; hence, the overall effect could be somewhat lower than modelled.