Easy money via F&O is over; discount brokerages to be hit: Systematix MD

Domestic consumption continues to drive robust growth, with strong performance expected across automotive, staples, and discretionary segments, Khandelwal said

It has been a volatile 2025 for the Indian equity markets. Despite this, equity benchmarks are set to deliver double-digit returns this year, Systematix Group Managing Director Nikhil Khandelwal  told Sai Aravindh in an email interview. Edited excerpts:

 

With the second-quarter earnings season approaching, what are your expectations for India Inc. across sectors?

 

Economic activity in the second quarter will be shaped by three key factors: a) The government's decision to reduce GST on a wide range of consumer goods, benefiting the lower-middle and middle classes and boosting consumption nationwide. b) Significant increases in US duties on Indian exports. c) Widespread rainfall across the country, stimulating economic activity in rural markets. As a result, export-oriented businesses are likely to experience moderated growth, as exporters explore alternate supply chains and new markets to mitigate the impact of US tariffs.

 

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Meanwhile, domestic consumption continues to drive robust growth, with strong performance expected across automotive, staples, and discretionary segments. Rural markets, in particular, are witnessing heightened consumer demand, contributing to growth in tractor sales, agrochemicals, and even discretionary categories such as value retailing.

 

Indian stocks have lagged their emerging market peers by a record margin. Do you expect this underperformance to persist?

 

Indian equity markets have lagged their global counterparts in CY2025, delivering returns of 7 per cent compared to double-digit gains across most major global indices. While the export-driven sectors may continue to face headwinds due to heavy US tariffs, the rollout of GST cuts this quarter is expected to boost domestic consumption, driving robust economic growth. On this basis, we expect the index to deliver double-digit returns for the full year.

 

Despite the GST revamp and strong GDP growth, foreign institutional investors (FIIs) remain cautious. When do you expect flows to pick up?

 

FIIs have been net sellers of Indian equities over the past five years. India also happens to be the most tariffed country, which has driven a negative flow of capital into the market. However, with most global markets growing only in low single digits and several key economies enjoying political instability, India stands out as a politically stable, reform-oriented and growth-driven economy. Strong domestic market-driven GDP growth and any clampdown by the Trump administration on tariffs are expected to drive FIIs to turn net buyers of Indian equity markets.

 

What's your view on Sebi bringing a consultation paper to curb retail frenzy in weekly F&O contracts? Do you see brokerages taking a revenue hit if implemented? What's your strategy at Systematix to counter this dent?

 

Sebi has raised concerns about retail investors incurring significant losses in F&O markets and has begun implementing measures to curb speculation. The recent consultation paper proposes phasing out weekly contracts in favour of fortnightly or monthly contracts, which is expected to substantially reduce overall derivatives volumes in the country. Discount brokerages, which generate over 70 per cent of their business from F&O, are likely to be the most affected. Systematix, however, primarily serves HNI and institutional clients, so we do not anticipate an impact on our business from this change.

 

How do you see the broking and the wealth management industry play out over the next 12 - 18 months? Consolidation ahead?

 

The broking industry is expected to maintain growth momentum, driven by record retail participation in the capital markets and continued IPO activity. However, the era of easy money through extensive F&O trading is over. As a result, only players with strong balance sheets, financing capabilities, and differentiated product offerings are likely to thrive in the medium to long term, leading to significant consolidation in the broking industry over the next two to three years.

 

The wealth management industry, on the other hand, is one of the fastest-growing segments within financial services. Given the low penetration of wealth management in India, growth is expected to be largely organic rather than consolidation-driven. That said, several wealth technology companies with strong product-market fit and distribution have become attractive targets for offline wealth firms, suggesting that consolidation could occur in this subsegment in the near future.