Brokerage stocks sink as market chill sets in; Angel One falls 9%

Brokerages, depositories, and AMCs feel the squeeze

Brokerage stocks posted sharp losses on Monday amid fears that the ongoing selloff may lead to a contraction in business. Adding to the negative sentiment were concerns over the potential impact of new proposals for the derivatives market put forth by the Securities and Exchange Board of India (Sebi) last week.

 

Shares of Angel One fell 9 per cent, extending its year-to-date loss to 32.6 per cent. 5paisa Capital and Share India Securities also fell 5.7 per cent and 4.2 per cent, respectively.

 

Amid a sharp correction in the market, the average daily turnover (ADTV) for the cash segment fell 10 per cent month-on-month to ₹91,661 crore in February. The ADTV for the derivatives segment also declined 4 per cent month-on-month to ₹287.6 trillion. Derivatives volumes have more than halved from their peak of ₹537 trillion in September.

 

Last week, Sebi proposed a raft of new measures aimed at reducing risks and the potential for manipulation in the equity derivatives market while ensuring a stronger alignment with the cash market. Key proposals include a new methodology for calculating open interest (OI) using a ‘delta’ framework, a review of market-wide position limits (MWPL), and the introduction of position limits for single stocks and index derivatives. The new proposal comes close on the heels of six measures introduced by Sebi to curb frenzy in the derivatives segment. 

 

Nithin Kamath, the founder and chief executive officer of Zerodha, India’s most profitable brokerage, sounded an alarm on Friday amid a drop in trading activity.

 

“I can’t predict where the markets are headed, but I can speak about the broking industry. We are witnessing a massive decline in the number of traders and trading volumes. Across brokers, activity has dropped by more than 30 per cent. Combined with the impact of the true-to-market circular, this marks the first time in 15 years since we started that we are seeing degrowth in the business,” Kamath wrote on his social media platform X.

 

He further emphasised that the shrinking volumes reveal the limited depth of the Indian markets, where trading activity is largely concentrated among 10-20 million Indians.

 

“If this trend continues, the government’s securities transaction tax collections for 2024-25/2025-26 could fall to ₹40,000 crore — significantly below the estimated ₹80,000 crore and at least 50 per cent lower than projections,” Kamath added.

 

Not just brokerages, companies that are part of the stock market ecosystem are under pressure following a ₹90 trillion wipeout in India’s market capitalisation from the highs in September.

 

Shares of BSE fell 5 per cent on Monday, extending its five-day fall to 21 per cent. Shares of Central Depository Services are down nearly 40 per cent on a year-to-date (YTD) basis. KFin Technologies, too, has shed over 40 per cent in market value so far this year.

 

Wealth management firms Nuvama Wealth Management and 360 ONE WAM are down over 23 per cent each on a YTD basis. Similarly, among mutual fund houses, shares of Nippon Life India Asset Management and UTI Asset Management Company have tanked over 30 per cent each so far this year.

 

“The market boom had created a rising tide that lifted the entire stock market ecosystem. However, the selloff in recent months is threatening to upend bullish projections, leading to a derating of stocks whose fortunes are closely tied to market performance,” said an analyst.