 "IIFL Securities")
The brokerage house estimates that NSE’s notional option turnover will be impacted by 15-50 per cent, while the premium turnover will decrease by 5-40 per cent. Photo: Twitter @iiflsecurities
The proposed curbs by the Securities and Exchange Board of India (Sebi) on index derivatives could dent the earnings of the largest bourse, the National Stock Exchange (NSE), by 20-25 per cent, according to an analysis by IIFL Securities.
The market regulator is mulling over seven key changes in the framework governing futures and options of indices to curb speculative trading and protect retail investors. While industry participants have made their submissions on the proposals, they are expected to be taken up at the next board meeting of Sebi, scheduled for the end of September.
The proposed changes include limiting weekly options contracts to one index per exchange, higher margin requirements near expiry, and a higher entry point by increasing the contract size.
“If implemented, these measures could impact NSE’s trading volumes by nearly one-third, resulting in a projected 20-25 per cent cut in FY26ii EPS,” noted IIFL Securities in its report on Tuesday.
The brokerage house estimates that NSE’s notional option turnover will be impacted by 15-50 per cent, while the premium turnover will decrease by 5-40 per cent.
“Despite these challenges, the stock is currently trading reasonably at 15x FY26ii EPS. Even after accounting for the anticipated earnings cut, it would still be at a 23-25x valuation, representing a 30-40 per cent discount compared to listed peers. Clarity regarding the IPO could potentially narrow this valuation gap. However, until then, the stock is likely to consolidate given the prevailing regulatory uncertainties,” added the brokerage firm.
The report points out that regulatory costs now account for 19 per cent of revenues, up from 3 per cent in FY22. Regulatory expenses also stand at 45 per cent of the total expenses of the exchange, followed by clearing and settlement costs at 20 per cent.
First Published: Aug 27 2024 | 7:05 PM IST
