India equity surge brightens outlook for exchanges, brokerages

Market watchers, including Sky Links Capital Group and BofA Global Research, anticipate growth potential in capital-market stocks, driven by recent momentum from the rebound and fundamental strengths.

“The rally in capital market stocks could have further room to run as recovering trading activity adds to the sector’s structural growth drivers,” said Daniel Takieddine, co-founder and CEO of Sky Links Capital Group.

Driven by lower crude oil prices and funds shifting from a faltering global AI trade, Indian equities have rebounded since late October. The upward trend has propelled a group of capital-market stocks up 14% this month, led by brokerages Angel One Ltd. and Motilal Oswal Financial Services Ltd. Meanwhile, the NSE Nifty 50 benchmark has gained 9.7%, with analysts expecting the outperformance to continue.

Sentiment has also improved following a partial rollback of the closing-auction framework. While the changes take effect only from Dec. 7, activity began recovering as it became increasingly clear regulators would revert to the previous methodology for settling expiring derivatives contracts. Volumes had fallen following the auction’s introduction.

The combination leaves exchanges and brokers with a substantially improved operating backdrop: recovering equities encourage participation, while higher volatility tends to generate more trading and derivatives volumes.

But any potential tweaking of futures-and-options rules by the regulator to protect retail investors is a near-term challenge, said Amish Shah, BofA Global Research’s India head.

“If and when that risk is out of the way, we think this is a sector with structural growth potential,” he said. “Structurally, we like the space.”

The growth potential was underscored recently by the blockbuster listing of National Stock Exchange of India. Shares of the country’s top bourse, seen as a proxy for the capital-markets theme, have gained more than 11% since their debut in September.