BSE shares drop over 5% as Goldman Sachs cuts target price amid SEBI’s proposed risk changes

Shares of BSE Ltd. fell over 5 percent in intra-day trading on Monday, March 3, after global brokerage Goldman Sachs reduced its target price on the stock. The brokerage firm cited concerns over proposed regulatory changes by the Securities and Exchange Board of India (SEBI) that could curb proprietary trading activity, which significantly contributes to BSE’s trading volumes.

Goldman Sachs' Downgrade and SEBI's Proposed Changes

Goldman Sachs lowered its target price for BSE shares from ₹5,650 to ₹4,880, implying a limited upside of just over 5 percent from the previous close. Despite the downward revision, the brokerage maintained a neutral rating on the stock. The firm noted that nearly 70 percent of BSE’s average daily turnover is driven by proprietary traders, and their trading activity could be impacted by SEBI’s proposed regulatory adjustments.

SEBI issued a consultation paper on February 24 proposing a shift in the methodology for computing open interest (OI) in equity derivatives. Instead of the current notional terms approach, the regulator suggested a future-equivalent or delta-based approach. The objective of this change is to reduce potential market manipulation and better align derivatives risk with cash market liquidity.

Goldman Sachs highlighted that these regulatory measures could lower the industry's options premium to cash equity turnover ratio from 0.4x to 0.3x. As a result, the share of index options contracts in the average daily premium traded is unlikely to exceed 30 percent, compared to 22 percent in February.

Legal Uncertainty Adds to Pressure

Adding to the negative sentiment, BSE and its officials are under legal scrutiny following a Mumbai court’s directive to register a First Information Report (FIR) against former SEBI chief Madhabi Puri Buch, two BSE officials, and others. The FIR pertains to alleged irregularities in granting listing permissions to a company on BSE in 1994, raising further concerns among investors.

Stock Price Trend

BSE’s stock fell as much as 5.1 percent to its intra-day low of ₹4,395.7. Despite the decline, the stock has still surged 97 percent over the past year.

In February, the stock has lost nearly 13 percent after remaining flat in January, declining 0.37 percent. Prior to that, it was on an upward trajectory for five consecutive months from August to December 2024, gaining 108 percent during this period.

Overall, the decline in BSE’s stock price reflects investor concerns over SEBI’s proposed regulatory changes and ongoing legal uncertainties surrounding the exchange. While the stock has seen a strong uptrend over the past year, recent developments suggest potential headwinds in the near term. Market participants will closely watch how SEBI's final decision on the new risk-monitoring framework impacts trading volumes and sentiment toward BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.