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We met with 20 funds over the past week in Asia to discuss emerging themes in the capital markets and the top ideas within this space. In this report, we highlight the key points debated during these meetings regarding industry trends and specific stocks such as BSE, Angel One, MCX, and Nuvama.

Industry: Discussion on regulations and penetration

Are the F&O regulations now done and dusted?

* Since Jun’24, the number of customers active in the F&O segment has declined from 5.3m to 3.1m in Mar’25. A major part of the decline can be attributed to the implementation of F&O regulations wherein 1) the number of weekly expiries was reduced to one per exchange and 2) the lot sizes of Sensex and Nifty were increased.

* The pending outcomes of the consultation papers on 1) entity-level gross limits on index options, 2) demerger of clearing corporations, 3) transfer of treasury income of clearing corporations to customers, and 4) expiry days to be on Tuesday/Thursday, which is an area of concern.

Total ADTO sees sequential growth

Whether the penetration in MFs and stocks reached optimum levels?

* We have 200m demat accounts in India, of which ~110m are unique, ~50m are active (defined by NSE as one trade in the past one year), ~10m traded in the cash segment in Mar’25, and ~3.1m traded in the F&O segment.

* The penetration remains starkly lower when compared with the economy’s potential. Even in MF, with just ~54m unique investors, the penetration is significantly lower

Demat accounts are inching up to ~200m

Which segments have high sensitivity to equity market movements?

* The most sensitive segments are where the business dynamics are linked to the flow element of the business vs. the stock element. Resultantly, CDSL’s ~60% revenue (transaction charges, IPO-related revenue, and KYC charges linked to demat account openings) is the most sensitive to equity markets.

* Further, for exchanges and brokers, a sustained market correction is envisaged to be leading to a decline in volumes. Empirically, cash volumes have declined with market corrections, but F&O volumes are the worst hit in a sideways market.

* AMCs, wealth managers, and RTAs are the least sensitive to equity market movements, as they earn on AUM, which has an element of regular inflows and back book as well.

We anticipate a gradual recovery in volume growth, along with increased retail participation, to support the ongoing growth trajectory of brokers and exchanges. Additionally, improvements in equity mutual fund flows, driven by industry initiatives to raise awareness and enhance financial literacy, will foster a long-term investment perspective that is favorable for AMCs. Our top picks in the sector are: ANGELONE, BSE, HDFCAMC, and Nuvama.

MF AUM’s strong growth trajectory

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