Brokerages feel sequential squeeze as closing auction session, curbs hit Q2

Commodity trading, margin funding cushion blow from weaker derivatives activity

India’s listed broking firms reported a mixed performance in the second quarter (July-September/Q2) of 2026-27, with sequential revenue growth remaining largely subdued as weak markets, regulatory curbs on derivatives trading and the implementation of the closing auction session (CAS) weighed on trading volumes. Over the past year, broking stocks have delivered returns of close to 40 per cent, even as the Nifty 50 has posted negative returns.

 

 Valuations, however, are not cheap. At Monday’s prices, Groww trades at about 50x trailing earnings, while Angel One and Motilal Oswal  Financial Services trade at around 24-26x. The Nifty Capital Markets index trades at 45x earnings, based on Friday’s close. Yet analysts see room for further growth as these companies continue to evolve their business models.

 

 Among listed players, standalone revenues of Billionbrains Garage Ventures (Groww), Motilal Oswal Financial Services and Angel One declined 3.8 per cent, 1.6 per cent and 0.8 per cent, respectively, in Q2 from the preceding quarter. In contrast, IIFL Capital Services and Anand Rathi Share and Stock Brokers reported sequential revenue growth of 12 per cent and 11 per cent, respectively.

 

 Profitability followed a different trajectory. Anand Rathi Share and Stock Brokers, Angel One and Groww reported sequential profit growth of 79.6 per cent, 35.5 per cent and 6.6 per cent, respectively. In contrast, IIFL Capital Services and Motilal Oswal saw their profits decline 35.4 per cent and 14.9 per cent, respectively.  Raj Gaikar, research analyst at Samco Securities, said the moderation in broking revenues was largely volume-driven. “Q2 was shaped largely by regulation. The closing auction mechanism disrupted expiry-day trading. Index options activity weakened sharply in August before recovering in September, and the Securities and Exchange Board of India’s (Sebi’s) broader curbs on derivatives speculation remained in place. That hurt transaction-linked broking income across the industry,” he said. The implementation of CAS on August 3 triggered a sharp pullback in market participation, particularly in derivatives. The move later prompted the market regulator to announce changes to the mechanism and its timings. 

 

Sunny Agrawal, head of research at SBI Securities, said derivatives continue to account for a large share of discount brokers’ revenues, making them particularly vulnerable to regulatory changes. “However, some of this impact has been cushioned by a growing contribution from commodities trading and margin trading facility, as brokers increasingly diversify their revenue streams,” he said.

 

 Angel One’s average client funding book reached ₹7,450 crore, up 40.5 per cent, while interest income now accounts for about 36 per cent of its revenue.

 

A broking firm's interest income can include interest earned on MTF book, as well as income earned on its funds and investments, among others.

 

Groww’s margin trading book reached ₹4,351 crore, up 161 per cent.

 

Gaikar said Angel One and Groww were primarily affected by the decline in derivatives volumes. “The profit dips at Motilal Oswal and IIFL Capital are a different issue: they stem largely from mark-to-market swings on investments rather than core operations. Motilal’s first-quarter (April-June/Q1) profit had been lifted by large treasury gains, which were lower in Q2. IIFL’s reported profit was hit by a loss on its legacy BSE stake, along with higher finance costs.”

 

Brokers look to new revenue engines

 

Amit Majumdar, group chief strategy officer and whole-time director at Angel One, said the industry’s growth was increasingly being driven not just by transaction volumes but also by deeper customer engagement, expanding product relevance and the ability to serve investors across their financial journeys. “While regulatory developments and market activity will continue to influence near-term performance, India’s structural opportunity remains compelling. Against an uncertain global backdrop, the combination of domestic savings, growing financial awareness, expanding retail participation and world-class digital infrastructure provides a powerful foundation for sustained growth,” he said.

 

Agrawal said the substantial addition of dematerialised accounts in recent periods, along with a recovery in markets, should benefit broking firms. “The removal of CAS in early December should also help bring back some of the volumes we typically saw in the last half-hour of trading,” he said, adding that he remained positive on the capital markets sector over the long term.

 

Gaikar said the sector was better suited to selective, long-term accumulation than aggressive buying. “Sebi’s restoration of volume-weighted average price-based derivatives settlement should support a gradual recovery in volumes. However, the broader curbs remain, so a return to earlier futures and options (F&O)-led growth is unlikely,” he said. “Investors should prefer brokers with rising recurring income, strong balance sheets and lower F&O dependence, and add on dips rather than chase rallies.