India derivatives boom helps BSE stock trounce global peers

BSE Ltd. has emerged as the world’s best-performing exchange operator this year, and analysts are predicting more gains on expectations of its expanding derivatives business.

Shares of the Indian bourse have rallied 270% this year, trouncing global platforms such as cryptocurrency major Coinbase Global Inc. and Cboe Global Markets Inc., as well as the country’s Multi Commodity Exchange of India Ltd. The rally was partly driven by BSE relaunching derivative contracts on the benchmark Sensex and the banking sector gauge in May this year, attracting investors with reduced lot sizes and a new expiry cycle.

Rising derivatives business may help Asia’s oldest exchange to increase its profit by 40% annually for the next three years, delivering more stock gains, according to Mumbai-based brokerage Sharekhan Ltd.

The company, which is set to report its quarterly earnings later on Friday, has seen its revenue more than double since the pandemic as India continues to witness massive growth in new trading accounts.

Lured by products offering shorter-duration expiries and lower premiums, retail investors now make up a third of derivative option contracts. BSE trails its unlisted rival National Stock Exchange of India Ltd., which is the world’s biggest derivatives exchange with average daily volume at a little below $4 trillion.

“NSE’s derivatives volume is 28 times that of BSE on a monthly basis, and this gives us the sense of how big is the opportunity,” analysts at Sharekhan wrote in a note this week.