In This Article:
BSE Limited (NSE:BSE), a ₹41.43b small-cap, is a capital market firm operating in an industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 20.31% in the upcoming year , and an enormous growth of 35.64% over the next couple of years. However this rate still came in below the growth rate of the Indian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether BSE is a laggard or leader relative to its financial sector peers.
See our latest analysis for BSE
What’s the catalyst for BSE’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth in the forties, beating the Indian market growth of 19.46%. BSE lags the pack with its lower growth rate of 3.27% over the past year, which indicates the company has been growing at a slower pace than its capital markets peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with BSE poised to deliver a 2.00% growth compared to the industry average growth rate of 20.31%. As an industry laggard, BSE may be a cheaper stock relative to its peers.
Is BSE and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 19.98x, in-line with the Indian stock market PE of 20.92x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 5.73% compared to the market’s 9.90%, potentially indicative of past headwinds. On the stock-level, BSE is trading at a PE ratio of 17.52x, which is relatively in-line with the average capital markets stock. In terms of returns, BSE generated 6.98% in the past year, which is 1.25% over the capital markets sector.
Next Steps:
If BSE has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a capital markets industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at BSE’s fundamentals in order to build a holistic investment thesis.