Sensex options can be as large as Nifty's by FY29, says Jefferies but has a warning for BSE investors

Sensex weekly options on the BSE could grow to a scale comparable with peer NSE's Nifty weekly contracts by FY29, according to Jefferies, which believes much of that optimism is already priced into the stock and flags risks from single-product dependence and regulation for investors.

Sensex options story now central to BSE

Jefferies notes that BSE’s operating revenue jumped 85% year-on-year in the March 2026 quarter, driven by a 145% surge in index options average daily turnover (ADTO) to about Rs 28,900 crore, helped by heightened volatility around the West Asia conflict. The brokerage highlights that expiry-day ADTO on Sensex and Nifty is now “similar”, underlining how sharply BSE’s derivatives franchise has scaled up. “We expect FY27e ADTO to grow by 45% YoY,” Jefferies says, adding that this next leg of growth will have to come from non-expiry days rather than just the weekly Thursday rush.

The analysts estimate that Sensex index options ADTO was about 45% of Nifty’s in FY26. On their base case, “we expect Sensex to become similar in size to Nifty weekly by FY29e,” supported by new contracts such as monthly derivatives on the Focused IT Index, Sensex Next 30 and Focused Midcap indices that are in the pipeline. BSE’s index options premium market share has already climbed to about 30% in 4QFY26 and further to 37% in April 2026 in premium terms, aided partly by one additional expiry versus NSE, while premium quality (premium-to-notional) improved to 11.8 bps in the quarter.

BSE valuation already builds in bullish FY29 scenario

Despite the constructive view on derivatives growth, Jefferies argues the current valuation leaves limited upside even if Sensex options catch up with Nifty by FY29. In a scenario where Sensex weekly ADTO becomes larger than Nifty’s by FY29, Jefferies estimates BSE’s FY29 profit after tax could reach Rs 58 billion, roughly 55% of NSE’s FY26 PAT, translating into a potential market capitalisation of about Rs 1.85 trillion when discounted back to June 2028 using a 35x price-earnings multiple.

“Scenario analysis indicates the best is in the price,” the report says, pointing out that this bull-case valuation implies only about 15% upside from current levels. On a base case, Jefferies builds in revenue CAGR of 24% and PAT CAGR of 27% over FY26-29 with EBITDA margins improving by 400 basis points to 68%, but still arrives at a June 2028 price target of Rs 3,620, implying a downside of roughly 9% from the recent close and prompting it to reiterate a ‘Hold’ rating.

BSE currently trades at about 46 times FY27 estimated EPS, a multiple Jefferies regards as “priced to perfection” given the concentration risks.

Warning on single-product reliance and regulation

The core warning in the note is directed at BSE’s growing dependence on one engine: weekly Sensex options. Jefferies explicitly cautions that the market is “ignoring single product reliance”, observing that transaction charges now contribute 84% of BSE’s operating revenue, with equity derivatives alone accounting for 86% of transaction charges in 4QFY26.

“We maintain our HOLD rating considering (i) over-reliance on SENSEX weekly options, (ii) market share gains have been priced in, (iii) regulatory risks, and (iv) increasing competition in co-location racks,” the brokerage writes.

Regulatory risk around the F&O segment is a key overhang, with Jefferies warning that “further regulatory tightening in the F&O market” and higher settlement guarantee fund (SGF) contributions or clearing costs could hit margins. The report also flags the possibility of other regulatory moves affecting exchange operating margins, at a time when BSE’s EBITDA margin (ex-SGF) has already expanded to about 68% in 4QFY26. Any sustained downtrend in the active cash and derivatives investor base would also weigh on volumes, it adds.

Core business metrics remain strong

Operationally, Jefferies characterises BSE’s March 2026 quarter as “in line” with its expectations, with PAT broadly matching estimates and margins benefiting from tight cost control. Operating revenue rose to Rs 15.6 billion in 4QFY26, while EBITDA margin expanded by about 350 basis points quarter-on-quarter to roughly 68%, helped by lower employee and technology expenses. For FY26 as a whole, operating revenue grew 63% to Rs 48.3 billion and EBITDA more than doubled to Rs 30.8 billion, implying a margin of 64%.

Jefferies expects revenue to climb to Rs 91.5 billion by FY29, with EPS rising from Rs 60 in FY26 to about Rs 124 in FY29 and return on equity remaining robust in the mid-30s. Even so, the brokerage sees a “long-term growth challenge” in BSE’s more traditional streams: cash equity market share has been stuck around 7% and recurring listing revenues declined 5% year-on-year in FY26, weighed down by a sharp 34% drop in processing and other listing fees.

What Jefferies wants to see next

For the derivatives engine to sustain, Jefferies believes BSE must deepen participation beyond the weekly expiry spike. The house says the next leg of ADTO growth “will require greater FPI participation (5-6% vs target 9%) and increase in monthly contracts”, along with a pick-up in non-0DTE (non same-day expiry) volumes, which are more margin-accretive.

April 2026 already showed a 25% month-on-month decline in index options ADTO as volatility cooled off, underscoring the sensitivity of flows to swings in the India VIX.

Jefferies also points to upcoming launches in monthly derivatives on thematic indices, ramp-up of co-location revenues and continued gains in premium market share as potential positives. However, it makes clear that a broader business mix would be needed for a re-rating: “Valuation reflects strong growth trajectory, but re-rating will be driven by diversification,” the note says.

Until then, investors enthused by the prospect of Sensex options matching Nifty by FY29 may have to weigh that growth against what Jefferies views as a fairly full valuation and a concentrated risk profile.