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A challenging but transient quarter

* Market activity during 4QFY25 was impacted by regulatory changes and weak market sentiment across the non-lending financial segments, which will reflect in the performance of AMCs and market intermediaries. While life insurance players have tackled the surrender regulation and mitigated the impact to some extent, general insurance players remain impacted by 1/n accounting and a slowdown in underlying demand.

* Nifty ended up largely flat for the quarter, gyrating from a high of 23,740 to a low of 22,082 and then bouncing back to 23,650. SIP flows remained strong at INR260b in Jan’25/Feb’25, which will help to offset the MTM impact on AUM of AMCs/CAMS/ KFin. We expect yields to largely remain stable sequentially and other income to witness the impact of MTM.

* BSE’s premium turnover saw strong sequential growth in spite of F&O regulations. MCX saw strong growth in notional volumes during the quarter, driven by a rise in gold/silver prices, while its premium turnover remained stable. On the other hand, ANGELONE’s order flow is expected to remain weak during the quarter due to the full impact of F&O regulations.

* Wealth managers will likely see stable performance with respect to inflows and recurring revenue. However, transaction revenues will likely be hit sequentially by weak market sentiment.

* For life insurance players, we expect VNB margins to witness a slight sequential movement across players, influenced by an increasing share of higher-margin products in the product mix and the benefits of non-par repricing. For our coverage universe, we expect a change of +10bp to +260bp sequentially.

* General insurance players are facing the impact of a slowdown in motor sales and the implementation of 1/n reporting of gross written premium (GWP) for long-term business. While the claims environment will likely remain benign, a higher opex ratio due to 1/n accounting will drive up the combined ratio.

* We maintain our view that the current weak trends are transitory in nature and will reset the base for long-term growth. For most capital market names, we have cut our estimates to factor in the MTM hit and a slowdown in volumes. Our top picks in this space are BSE, HDFCAMC, Angel One, Nuvama and HDFCLIFE.

Incremental demat run rate slows, while volumes rebound in Mar’25

* Cash ADTO continued its MoM downward trajectory during the first two months of 4QFY25, with declines of 8%/5% MoM in Jan’25/Feb’25. However, a recovery was witnessed in Mar’25 with 8% MoM growth in cash ADTO.

* After the full implementation of F&O regulations, F&O ADTO continued to decline in Jan’25 and Feb’25. A slight recovery was witnessed in Mar’25 with ADTO rising MoM. During 4QFY25, the industry’s F&O notional turnover declined 26% sequentially and its option premium turnover declined 10% sequentially.

* BSE’s market share in the options segment continues to scale up in terms of notional/ premium turnover, reaching 37%/20% in Mar’25 vs. 29%/15% in Dec’24.

* Incremental demat account additions declined to 2.8m in Jan’25 and 2.3m in Feb’25 from average of 3.3m per month in 3QFY25. Similarly, the number of active NSE clients declined from the peak achieved in Dec’24 (50.2m) to 49m in Feb’25.

* MCX volumes picked up in Jan’25 but declined in Feb’25/Mar’25. Futures ADTO declined to INR275b in 4QFY25 from INR280b in 3QFY25. On the other hand, options ADTO rose to INR2.23t in 4QFY25 from INR2.04t in 3QFY25. A large part of weakness can be explained by a 10%+ correction in crude oil prices.

* We expect ANGELONE to report a revenue decline of 31% QoQ due to a 22% QoQ dip in the number of orders. The order flow is expected to remain weak during the quarter due to muted activity and a decline in retail participation. Lower customer acquisitions, and consequently lower opex, will offset the impact partially.

Mutual Funds: SIP inflows remain steady; equity inflows down from the peak

* Mutual fund AUM grew 29%/24% YoY during Jan’25/Feb’25, driven by 34%/26% growth in equity AUM. While Jan’25 witnessed net equity inflows of INR484b, a slight slowdown was observed in Feb’25 (INR360b). SIP inflows remained steady at over INR260b in both Jan’25 and Feb’25, despite prevailing weak market sentiment.

* Equity AUM’s share dipped ~65bp in Jan’25 and ~110bp in Feb’25 to 56.3%.

* AUM of HDFC AMC/Nippon AMC/ABSL AMC/UTI AMC grew 26%/27%/16%/17% YoY at the end of Feb’25, reflecting market shares of 11.5%/8.2%/5.7%/5%.

* We expect AMCs to register moderate revenue growth, affected by a decline in yields. Their profitability is likely to be hurt by a fall in other income owing to the MTM hit on equity exposure in the investment book.

* On the revenue side, we expect CAMS/KFin to register a sequential decline of 7%/4% in 4QFY25 due to the MTM impact on AUM. However, with a strong focus on expanding non-MF segments, overall revenues are expected to trend upward.

* For wealth managers, the MTM impact is expected to result in muted AUM growth, which is anticipated to be offset by steady inflows. While recurring revenues are expected to increase, transaction revenues are likely to be hit by weak market sentiment sequentially. For 360ONE, a scale-up in its loan book, expansions into UHNI segment and the recent acquisition will also support earnings.

Life Insurance: Scale and favorable mix to drive QoQ VNB margin improvement

* Private life insurance companies posted 19% YoY growth in APE in Jan’25, which declined to 8% in Feb’25. For Mar’25, we expect industry growth momentum to be better than it was in Feb’25.

* VNB margins are expected to improve due to: 1) an increasing share of highermargin products in the product mix, 2) the benefits from non-participating repricing, 3) a reduced impact of surrender charges, and 4) higher volumes driven by seasonal trends. For our coverage universe, we expect a change of +10bp to +265bp sequentially.

General Insurance: Accounting changes to impact combined ratio

* The general insurance segment witnessed GWP growth of 7% in Jan’25, though it declined 3% in Feb’25. The health segment was up 7% in Jan’25, however it dipped 4% YoY in Feb’25 due to a decline in group health segment impacted by slower credit growth, and a strategic exit from the employer-employee segment amid rising competitive pressures. The motor segment was hit by low automobile sales and grew 10%/3% YoY in Jan’25/Feb’25 (+7.5% in 3QFY25).

* For ICICIGI, premium was up 8% YoY in Jan’25 but down 1% YoY in Feb’25. While the retail health segment grew in the high teens, weak motor growth and a decline in the group health segment resulted in a tepid performance.

* For Jan’25/Feb’25, STARHEAL posted soft premium growth of 4%/1% YoY, with retail growth of 8%/10% and group health decline of 45%/38% YoY.

* Driven by an increasing share of protection and non-par products in the portfolio, along with a moderation in claims, the loss ratio is expected to remain stable.

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