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Rebuilding momentum with some regulatory overhang

* For 2QFY26, we estimate the aggregate PAT of our Non-Lending Financials Universe at INR138b, which reflects a modest 4% YoY increase but a sharp 19% sequential decline. Within this, the capital market segment is expected to post PAT of INR35b, largely flat on a YoY basis, while life insurance companies are projected to deliver INR96b, reflecting healthy 7% YoY growth. In contrast, general insurance players are likely to report INR8b, implying a 4% YoY decline.

* Exchanges and brokers are expected to post a modest 1% YoY decline in PAT, primarily driven by a sharp 52% fall in Angel One’s earnings due to lower order volumes following the implementation of F&O regulations from November 2024. In contrast, MCX and BSE are likely to deliver strong PAT growth of 28% and 47% YoY, respectively, supported by sustained strength in premium turnover.

* For AMCs, EBITDA is likely to rise 10% YoY, aided by robust AUM growth, though this will be partially offset by lower yields under the telescopic structure. However, sharply lower other income—due to market corrections and higher bond yields—is projected to keep PAT broadly flat YoY. SIP flows remained resilient at over INR280b.

* Intermediaries are likely to see a soft quarter, with PAT declining 9% YoY, as weak cash volumes weigh on depositories and lower yields pressure RTA businesses. For NSDL, growth in unlisted company registrations should offset this weakness, while KFin will be supported by its issuer solutions and international operations.

* Wealth managers are likely to deliver the strongest performance within capital market plays, with PAT growth of 9% YoY, driven by consistent AUM expansion from flows and improving profitability through scale benefits. That said, Nuvama is expected to report a 9% YoY PAT decline owing to the impact of Jane Street during the quarter.

* Among life insurers, VNB margins are likely to face some sequential pressure, as the profitability of Sep’25 sales will be adversely impacted by the unavailability of ITC following the GST reduction. Going forward, margins should improve on the back of product rebalancing and commission cuts, while a favorable mix shift towards non-par and protection products will support growth.

* General insurers continue to see a gradual recovery in the motor segment, while growth in the health segment remains constrained by the shift to 1/n accounting. Elevated health claims are likely to push up combined ratios, though operational efficiencies should provide some cushion.

* Our top picks in the capital markets space are ABSL AMC, Nuvama, and CAMS. Within insurance, MAX Financial is our preferred play in life, while Niva Bupa stands out in general insurance.

Cash activities dip; notional F&O ADTO rises in all three months

* Cash ADTO witnessed a 16% MoM decline in Jul’25 owing to market volatility. Slight recovery was witnessed in the following months, with cash ADTO growing 1%/3% MoM in Aug’25/ Sep’25, but it remains below the 1QFY26 levels.

* F&O ADTO grew 10%/9%/5% MoM in Jul’25/Aug’25/Sep’25, but the option premium ADTO declined 11% MoM in Jul’25 before witnessing a 15% MoM growth in Aug’25; it remained flat in Sep’25.

* BSE’s market share in the options segment continued to scale up in terms of notional/premium turnover and was slightly offset by a shift in expiry day (effective 1st Sep’25), reaching 38.2%/24.4% in Sep’25 vs. 37.2%/22% in Jun’25.

* Incremental demat account additions increased to 3.0m/2.5m in Jul’25/Aug’25 from an average of 2.2m per month in 1QFY26. The NSE active client count continued to decline.

* High volatility in crude oil and precious metals due to macroeconomic pressures led to a surge in MCX volumes during the quarter. Futures ADTO was at INR417b in 2QFY26 (INR406b in 1QFY26). On the other hand, options ADTO rose to INR3.7t in 2QFY26 (INR2.7t in 1QFY26). Record-high gold prices and the launch of monthly silver option contracts by MCX led to a surge in bullion options.

* We expect ANGELONE to report marginal revenue growth of 5% QoQ, with the order run rate likely to remain stable, supported by a slight recovery in the F&O activity, strong performance in commodities, and stable cash activity. The flat quarterly performance with respect to premium turnover, offset by a decline in cash volumes, will lead to single-digit volume growth for BSE. However, a dip in the premium-to-notional turnover ratio for MCX will lead to flat revenue growth. Strong recovery in the IPO pipeline and continued demat additions will lead to strong double-digit sequential growth for CDSL..

Mutual Funds: Steady growth in AUM driven by robust equity inflows

* Mutual fund AUM grew 19%/16% YoY during Jul’25/Aug’25, driven by 17%/14% growth in equity AUM. On a sequential basis, net equity flows (incl. hybrid) rose to INR636b in Jul’25 while declining to INR487b in Aug’25. SIP inflows scaled new heights to INR285b in Jul’25 but saw a slight dip in Aug’25 to reach INR283b.

* The share of equity AUM dipped ~20bp in Jul’25 but rose ~5bp in Aug’25 to 57.4%. AUMs of HDFC AMC/Nippon AMC/ABSL AMC/UTI AMC grew 16%/18%/11%/ 11% YoY at the end of Aug’25, reflecting market shares of 11.4%/8.5%/5.5%/4.9%.

* We expect AMCs to post moderate sequential revenue growth of 4%/4%/3%/3% for HDFC, Nippon, ABSL, and UTI, impacted by softer yields. Other income is likely to decline due to higher bond yields and MTM losses, though strong equity flows sustaining AUM growth should partly offset the pressure.

* CAMS and KFin are expected to register moderate sequential MF revenue growth of 3% and 2%, respectively, due to yield pressure, which is likely to be offset by healthy AUM growth.

* Wealth managers are expected to generate steady inflows and recurring revenues, with transaction-led income also adding meaningfully on the back of strong investor participation in unlisted equities and IPOs.

Life Insurance: Positive outlook for VNB margin, subdued by GST implications

* Private life insurance companies posted 22%/11% YoY growth in APE in Jul/Aug’25. Individual APE growth was hit by a slowdown in ULIP momentum and a high base. We expect single-digit to mid-teen growth for our coverage universe, except for IPRU & LIC, which are likely to report APE declines of -2% YoY each.

* We expect VNB margins to remain largely stable with a tilt towards non-linked products; across our coverage, YoY VNB margin changes are seen in the range of –90bp to +40bp.

* The recent GST exemption (22nd Sep'25) on life insurance premiums is a mixed outcome for insurers. While it improves affordability and drives demand, loss of ITC on commissions and operating expenses adds cost pressure. Margin impact should remain modest, but insurers may recalibrate pricing and distribution to sustain profitability

General Insurance: Overall claims ratio remains elevated; operational leverage to boost the combined ratio

* The general insurance segment recorded a GWP growth of 2% but was flat YoY in Jul’25 and Aug’25, respectively. The health segment reported 3%/14% YoY growth in Jul’25/Aug’25, impacted by 1/n on retail health growth. The motor segment reported a growth of 6%/5% YoY in GWP in Jul’25/Aug’25.

* For ICICIGI, premium declined 10% YoY in Jul’25 but increased 2% YoY in Aug’25. While the motor segment’s growth remained weak, retail health saw growth, which was offset by a decline in the group health segment.

* For Jul’25/Aug’25, STARHEAL continued to post soft premium growth of 3%/2% YoY, with retail growth of 7%/6% offset by group health decline of 39%/46% YoY.

* Niva Bupa’s GWP grew 10%/3% YoY in Jul’25/Aug’25, with retail health growing 7%/8%, while group health grew 17% YoY/declined 1% YoY.

* While claims are expected to remain elevated due to medical inflation and high claim frequency, operational efficiencies will slightly offset the impact on the combined ratio.

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