Mohit Mangal, Vice President at Centrum Broking, said the outlook across the capital market space is likely to vary by segment. While AMCs have continued to see healthy asset growth despite the market correction, exchanges could see a sequential decline in revenue and profitability.
AMCs continue to see healthy AUM growth
The broader market declined around 5% quarter-on-quarter during the period, which could weigh on AMCs through mark-to-market movements. However, this was partly offset by continued growth in assets under management (AUM).
Mangal said AUM in the listed AMC space grew around 2-5% quarter-on-quarter, translating into 4-20% growth year-on-year.
Within the segment, ICICI Prudential AMC and HDFC AMC remain among his preferred picks. He noted that both companies have outperformed not only in the current quarter but also over the past few quarters.
Exchanges face near-term earnings pressure
The outlook for exchanges is more challenging. Index option volumes fell around 26% quarter-on-quarter in quarter two, with both NSE and BSE seeing a decline.
Since around 60% of exchange revenue comes from the index options segment, lower volumes are expected to weigh on revenue and profitability for both exchanges.
However, September provided some relief, with volumes rising more than 25% month-on-month. The sharp recovery helped offset some of the decline seen in July and August, supported by higher market volatility.
BSE maintained around 35% market share, while NSE accounted for about 65%.
NSE remains a long-term opportunity
Despite the near-term pressure, Mangal remains positive on NSE‘s long-term prospects. He believes the exchange has several growth levers, although regulatory changes could keep the stock under pressure in the near term.
The exchange’s market leadership and potential for further growth make it a stock worth watching over the longer term.
Wealth managers expected to deliver steady growth
The wealth management segment is expected to remain relatively stable, with Centrum Broking building in around 18-20% AUM growth.
Mangal’s preferred picks in the segment are 360 One Wam and Nuvama Wealth. He expects both companies to deliver AUM growth of around 18-20% in quarter two, while revenue growth could be in the early-to-late teens.
“We are positive in the wealth management space because there’s a lot that can be explored, and we are optimistic about this,” Mangal said.
CAMS, KFin Technologies likely to maintain healthy margins
CAMSand KFin Technologies are also expected to have a decent quarter, according to Mangal.
The two RTAs are likely to report healthy EBITDA margins, while growth in their non-mutual fund businesses could provide an additional boost.
Overall, the quarter two outlook for the capital market space remains uneven. AMCs and wealth managers appear better placed, while exchanges are likely to face near-term earnings pressure from weaker options volumes and regulatory changes.
For the entire discussion, watch the accompanying video
