Mumbai: Stocks of financial services firms which focus on capital markets have mostly more than doubled so far in 2017 on the back a booming equity market, and a robust outlook for stock trading and investments going ahead.
Some of such publicly traded financial firms, which saw their stock prices more than double so far in 2017, were Motilal Oswal Financial Services Ltd, Geojit Financial Services Ltd, Arihant Capital Markets Ltd, Emkay Global Financial Services Ltd, LKP Securities Ltd, Dolat Investments Ltd and Monarch Networth Capital Ltd.
So far this year, Emkay Global and Arihant Capital have logged gains of 293.68% and 255.87%, respectively. In comparison, BSE’s 30-share Sensex has risen 24.14% year to date. Sensex had touched a record high of 33,865.95 points on 7 November, and has eroded 2.4% ever since.
The current sample is selected to include companies that primarily focus on capital market activities. These firms have few broker ratings currently. Data from Bloomberg showed, Motilal Oswal and Geojit Financial had two brokerages rating them—both with a “buy/overweight".
In a note on 7 November, Ambit Capital Pvt. Ltd said it upgraded the target price of Motilal Oswal by 4% to Rs1,420, on the back of overall stronger-than-expected growth in capital market business, which drove marginal 2-3% upgrades to its consolidated profit after tax
“Though valuation at 21 times FY19E PE (price to earnings) fully factors in a robust 41% EPS (earnings per share) CAGR (compounded annual growth rate) over FY17-20E, the stock could re-rate further as earnings momentum could sustain due to strong equity inflows and market-share gains," Ambit analysts Aadesh Mehta and Pankaj Agarwal said in the note.
In a report on 6 September, ratings agency Icra Ltd said that revenues of broking industry are expected to increase to Rs18,000-19,000 crore in fiscal year 2018, clocking a growth of 15-20% on the back of a healthy overall volume growth and an increase in the share of the cash segment.
As per the ICRA note, volumes are likely to grow by about 20-25% in FY2018, supported by positive investor sentiment and a benign capital market outlook, while the robust initial public offer (IPO) pipeline for FY2018 is likely to further support retail participation on the exchanges.
Cash turnover on the BSE and National Stock Exchange Ltd (NSE) rose by 57.98% on a year-on-year (y-o-y) basis to Rs8.58 trillion in November 2017, while turnover in the equity derivatives segment rose by 66.78% on a y-o-y basis to Rs154.51 trillion for the month of November, data from stock exchange showed.
“The higher yielding cash volumes are expected to receive a boost with a likely increase in margin trading by brokerage houses pursuant to the recent regulation on lower margin requirements. This would also help support the income profile of full-service brokerage houses given the price competition from discount brokerage houses," Icra said in a release.
With a decline in interest rates, retail investors have turned to Indian equity markets for prospects of better return. A huge chunk of such investment comes through systematic investment plans in equity mutual funds, which in turn is parked into the market.
Domestic institutional investors (DIIs) have pumped in a net of Rs86,512.55 crore so far this year. They had pumped in Rs35,526.37 crore and Rs66,841.95 crore in 2016 and 2015, respectively.
“It is a reflection of the buoyancy in the stock market. Volumes have grown, and we are seeing a large flood of liquidity coming into the market directly from retail investors and through DIIs," said Ajay Bodke, chief executive and chief portfolio manager at brokerage Prabhudas Lilladher Pvt. Ltd.