Shares of BSE have surged nearly 80% in a year, backed by strong derivatives growth and operating leverage. Experts see Q4 earnings and the potential National Stock Exchange of India IPO as key triggers for further rerating, though they advise investors to buy on dips amid elevated valuations and sustained momentum.

BSE loses ‘cheap’ tag post 80% rally in one year. Can Q4 performance, NSE IPO drive rerating?

BSE remains one of the leading stories in the capital markets theme, delivering nearly 80% returns in the past year. The underlying strength comes from the strong fundamentals that have braced against weak market sentiments and regulatory tightening. With momentum on its side, the stock is poised for the next leg of the rally, experts opine.

As of Friday, April 10, the year-to-date returns for BSE shares were to the tune of 25%, and the stock hit a fresh 52-week high of Rs 3,330 in the last session, rallying for the third day in a row.

According to Trendlyne, the stock is trading above its 50-day and 200-day simple moving averages (SMAs) of Rs 2,851 or Rs 2,609, respectively.

Dr Ravi Singh, Chief Research Officer from Master Capital Services, attributes BSE's stellar performance year-on-year to reasons beyond momentum and market cycles. In his view, it is more about how its business itself has evolved over the years. "Earlier, it was largely seen as a cash equities play, but that’s clearly changing now. The derivatives segment, especially Sensex and Bankex contracts, has picked up meaningfully, and that’s reflecting in both volumes and profitability," Singh said.

BSE shares' returns over the past three years stand at a whopping 2,078% compared to 36% for Nifty and 33% for the BSE Sensex stocks.

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BSE on Thursday received a Sebi nod to launch derivative contracts on the 'BSE Focused IT Index'. It currently runs five index Futures & Options (F&O) contracts. Others include BSE Sensex 50, BSE Sensex Next 30 and BSE Focused Midcap Index.

Also read: F&O watch: BSE gets Sebi nod to launch BSE Focused IT Index derivatives

The Master Capital analyst also points to another big advantage, which, in his view, is its operating leverage. "Exchanges don’t need much incremental cost to handle higher volumes, so when activity rises, margins expand quite sharply. BSE has started benefiting from this in a big way. Even regulatory tightening in derivatives, which many thought could be a headwind, has actually brought more discipline into the system rather than hurting participation," he added.

Abhinav Tiwari, Research Analyst at Bonanza, echoes a similar sentiment, attributing the stock's rerating to a sharp improvement in operating metrics, strong traction in derivatives, and the scalability of its platform-led businesses.

BSE versus other capital market stocks

Capital markets as a theme have rewarded investors with handsome returns in the past 12 months, even as the markets remained weak. The Nifty Capital Markets index has surged 50% in this period, producing multibaggers like Multi Commodity Exchange (MCX), which delivered 155% gains and Anand Rathi Wealth, which surged 102%.

Nippon Life India Asset Management, Aditya Birla Sun Life AMC, Motilal Oswal, HDFC AMC, Angel One, 360 One Wam, Nuvama Wealth Management and Central Depository Services (CDSL) have posted returns between 81% and 13% in the said period.

There are laggards too in the form of Indian Energy Exchange (IEX), KFin Technologies and UTI AMC, which have slipped between 4% and 27%. Meanwhile, Computer Age Management Services' (CAMS) outcome is flat.

Q4 expectations

Tiwari expects Q4 to be a constructive quarter for BSE, led by continued momentum in equity derivatives, where premium turnover and volumes have scaled significantly. Moreover, steady growth in transaction charges linked to market activity and sustained traction in the StAR MF platform will likely be other tailwinds, he added.

The platform has seen consistent expansion in order volumes and revenues.

BSE reported a 174% jump in its December quarter consolidated net profit at Rs 602 crore compared to Rs 220 crore reported in the year ago period. The company's revenue from operations stood at Rs 1,244 crore in Q3FY26, up 62% over Rs 768 crore posted in the corresponding period of the last financial year.

For the 9M period ended December 31, 2025, the revenue stood at Rs 3,270 crore, witnessing a 55% YoY uptick while profits shot up by 104% between April and December.

Dr Singh also expects a stable quarter on the back if strong derivatives activity and robust cash market volumes. "The key thing to watch will be whether the momentum in Sensex derivatives continues and how that translates into margins. Given the nature of the business, even steady volume growth can significantly boost earnings," he said.

Also read: Wipro slides 23% in 3 months, turns Nifty's worst performer. Can buyback, Q4 nos. reverse trend?

Rerating amid NSE IPO buzz

The NSE IPO could be a big moment for the entire exchange space, feels Dr Singh. The potential listing of the National Stock Exchange of India could act as a key benchmark for valuing exchange businesses, which has been missing so far due to its unlisted status, he said, adding that a strong valuation for NSE may benefit BSE by highlighting the profitability and attractiveness of the sector, prompting a possible re-rating.

"While competition—especially in derivatives—will remain intense, markets are likely to reward execution and growth over mere leadership. If BSE continues to gain traction, it can sustain and even enhance its valuation. Overall, the NSE IPO is seen less as a threat and more as a validation that could improve price discovery and draw greater investor interest to the space," Singh said.

Tiwari of Bonanza also sees stock getting rerated due to the NSE IPO, given BSE's valuation and visibility in the market. "Also, as BSE is listed on NSE, similarly NSE has to list on BSE, and it cannot list on its own platform and with the listing on BSE, we believe it will result in increased trading volumes, higher attention and ultimately higher institutional participation," he added.

In his view, BSE's fundamentals are likely to improve from enhanced services, growing mutual fund participation and continuing growth of its derivative segment.

Should you buy?

With a strong rally behind, a lot of optimism seems to be factored in, and any upside may depend more on actual earnings delivery and sustained volume growth, Singh said. Any slowdown or unexpected regulatory changes could lead to some near-term volatility, he warned.

"The long-term story still looks solid, but chasing the stock at higher levels may not be the best approach. If someone already holds it, there’s no reason to rush out — the fundamentals are intact. But for a fresh entry, it makes more sense to wait for dips or some consolidation," he opined.

BSE, which is trading at 60X 1-year forward P/E versus a 3-year median of 69X, suggests valuations are not "inexpensive" while they remain within historical comfort range. "Given the structural shift in earnings profile and improving competitive positioning in derivatives, some premium is justified," Tiwari said.

He calls it a buy on dips candidate, recommending investors not to be aggressive chasers at current levels. "The long-term thesis remains intact, supported by strong domestic flows, operating leverage, and diversification across revenue streams," he opined.

Also read: Q4 impact: Bank stocks slump up to 32% in 3 months, but brokerages bet on SBI, HDFC Bank, 6 more stocks. Check why

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)

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