BSE shares jump over 4% as Motilal Oswal upgrades stock to Buy. 4 reasons behind bullish call

BSE’s scalable business model allows incremental revenue to translate into healthy profit growth. Its EBITDA margin rose sharply to over 65% in FY26 from 9% in FY21, reflecting strong operating leverage, the brokerage said.

With margins projected to expand further to 70%, PAT is expected to grow at a CAGR of around 27% over FY26-28, against a revenue CAGR of 23%. Regulatory costs, which account for 55% of operating expenses and are variable in nature, also offer some protection against a slowdown in trading volumes.

1.) Strong growth path - Since BSE relaunched derivatives in 2023, the impact of most regulatory changes, including F&O 2.0 and the shift in weekly expiry day, has been temporary. BSE achieved around 50% market share in index options notional turnover within three years of the relaunch, while volumes continued to show strong momentum.

However, recent regulatory changes, including stricter lending norms for proprietary traders effective July 2026 and CAS implementation in August 2026, led to a reset in the volume base. BSE’s notional F&O average daily traded turnover (ADTO) fell 35% in August 2026 compared with the April-July 2026 average.

Following the reset, September 2026 saw a modest recovery, with ADTO rising 6% month-on-month. Volumes picked up significantly in October amid volatile markets, with ADTO up 49% month-on-month as of October 20, 2026.

2.) Premium turnover has more strength - Premium turnover, which contributes 60% of BSE’s revenue, has reached a market share of over 30%, indicating further room for growth given BSE’s around 50% share in notional turnover.

The P/N ratio has improved significantly from 6-7 bps in 2023-24 to 8-11 bps in 2025 and around 14 bps currently, reflecting a growing trend towards trading longer-term contracts. However, it remains below NSE’s ratio of over 20 bps.

Factors that could drive BSE’s P/N ratio higher include wider institutional participation supported by colocation expansion, an increase in higher-premium longer-dated expiry contracts to reduce the concentration of volumes on expiry days, and new products offering more monthly expiry contracts. Higher-premium stock options could also gain traction, given their P/N ratio of 120-150 bps on NSE, once NSE enters the F&O segment.

3.) Beyond derivatives - BSE’s cash market share has risen from a plateau of around 7% to 9% over the past two months, with cash average daily traded turnover (ADTO) reaching a new quarterly high of Rs 105 billion in Q2FY27. The growth was supported by the introduction of a single contract note, implementation of smart order routing and the exclusive listing of popular stocks such as NSE and NSDL.

The number of cash market members increased to 829 in September 2026 from 806 a year earlier, while the number of unique client codes (UCCs) traded hit a record 6.16 million during the month, reflecting rising participation on the platform.

Cash market volumes are expected to grow further, driven by wider adoption of smart order routing and a ramp-up in NSE’s ADTO following the expiry of its lock-in period in March 2027.

4.) Robust margin ahead - BSE’s EBITDA margin expanded from 9% in FY21 to over 65% in FY26, driven by a 57% revenue CAGR over FY21-26.

Around 45% of its expenses are fixed, while the remaining 55% are activity-dependent. These include clearing house expenses, which vary with the number of derivative contracts, and regulatory costs, which are linked to derivatives notional turnover.

While a slowdown in volumes could weigh on revenue growth, the impact on profitability should be partly offset by lower clearing house and regulatory expenses.

The brokerage expects EBITDA margins to reach 70%, supported by a 23% revenue CAGR over FY26-28, translating into a 27% CAGR in profit after tax (PAT) over the same period.

“We expect BSE to witness a strong recovery in volume growth, aided by rising member participation an improving P/N ratio. An improved growth trajectory in the cash segment, robust demand for co-location, and the strong positioning of the Star MF platform will also contribute to the company’s performance,” the brokerage said in a note.

The brokerage raised its revenue estimates by 8%/10% and PAT estimates by 10%/12% for FY27/FY28, respectively, factoring in the strong volume run-rate, the potential benefit from the CAS reversal and higher cash market volumes following NSE’s listing. A sustained recovery in volumes and further improvement in the premium-to-notional ratio could provide additional support.