Motilal Oswal Financial Services

Sector Update |

Sector Update

21 May 2025

Sector : Financials

Capital Market

Technology

Asia meeting highlights: Opportunities amid challenges

Total ADTO sees sequential growth

Total ADTO (INR t)

YoY Growth (%)

62 60 50

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.

-17

-23

-31 -40

-35

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.

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.

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.

Demat accounts are inching up to

~200m

Demat Accounts (m)

MF AUM’s strong growth trajectory

MF AUM (INRt)

YoY growth (%)

Research Analyst: Prayesh Jain

(Prayesh.Jain@MotilalOswal.com) /

Nitin Aggarwal

(Nitin.Aggarwal@MotilalOswal.com)

Research Analyst: Kartikeya Mohata

(Kartikeya.Mohata@MotilalOswal.com) /

Muskan Chopra

(Muskan.Chopra@MotilalOswal.com)

Nitin)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Sector Update | Financials

Exhibit 1:

Total ADTO witnessing sequential growth…

Total ADTO (INR t)

-17

-31 -35 -40 -23

446 433 499 498 503 539 520 443 297 299 289 353 369

YoY Growth (%)

Exhibit 2:

…with F&O volumes rising after regulatory impact

F&O ADTO (INR t)

YoY Growth (%)

-17

-32 -35 -40 -23

445 432 497 497 501 537 519 442 296 298 288 352 368

Source: MOFSL. NSE, BSE

Exhibit 3:

Demat accounts inching up to ~200m

Demat Accounts (m)

190 192 194

185 188

179 182

171 175

167

158 162

154

Exhibit 4:

NSE active clients trend

NSE Active Clients (In m)

45.7 46.8

47.9 48.9

49.6

50.2 50.2 49.0 49.2 48.9

42.9

40.8

41.8

44.2

Source: MOFSL, CDSL, NSDL

Source: MOFSL, NSE

Exhibit 5:

Decline in F&O active clients post-F&O regulations

NSE F&O active clients (m)

Exhibit 6:

Cash-active clients reflect underpenetration

NSE Cash active clients (m)

Source: MOFSL, NSE

Exhibit 7:

MF unique investors – underpenetrated industry

MF Unique investors (m)

Exhibit 8:

MF AUM’s strong growth trajectory

MF AUM (INRt)

37.3 36.4 36.8

39.8 40.7 42.3

43.3

39.6

YoY growth (%)

35.7

28.7

23.9

21.3 21.9

Source: MOFSL, AMFI

20 May 2025

Sector Update | Financials

BSE: Market share gains and other growth avenues

Can the market share gains be sustained?



BSE has reached a market share of 22% in terms of options premium turnover.

During Mar’25, the premium ADTO was at INR125b, which increased to INR155b

in Apr’25 and is running in the range of INR150-INR170b in May’25.



The surge has been led by the addition of 114 colocation racks towards the end

of Mar’25. As the utilization of the racks improves, we expect market share

gains to be sustained in the near term. Over the course of the rest of the fiscal

year, the exchange is likely to add another 200 racks, which bodes well for the

sustenance of market share gains.



Caveat emptor – a change in expiry day, if any, can have ramifications on

volumes and market share.

Risk of regulations



The entity-level gross limit regulation will hit the volumes for BSE. However, the

quantum would depend on the specifications in the final regulations.



The impact of the demerger of the clearing corporation and asking clearing

corporations to transfer treasury income to customers can be adverse, as the

treasury income accounts for 13% of FY25 PBT for the exchange.



If the consultation paper on expiry days being Tuesday/Thursday doesn’t go

through, or the exchanges are allowed to change their current expiry days, then

things could go south for BSE.

New growth avenues



BSE has gained market share in the index derivatives segments but continues to

languish in terms of market share in the cash segment and stock F&O. The

regulation on a single contract note, which is to be implemented from Jul’25, is

likely to be favorable for the cash segment for BSE. Further, as and when NSE

lists the cash turnover for the stock, this will increase the turnover for BSE.



Introduction of stocks in the F&O segment can bring in incremental volumes.



Currently, BSE charges only for rentals on colocation racks. Introduction of per-

order charges can help increase revenue.



BSE’s transaction charges continue to be at a discount to NSE in the derivatives

segment.

Exhibit 9:

Premium t/o grew despite regulatory impact

BSE Premium ADTO (INRb)

Exhibit 10:

Notional t/o market share trend

NSE (%)

BSE (%)

Source: MOFSL, NSE, BSE

20 May 2025

Sector Update | Financials

Exhibit 11:

Option premium t/o market share trend

NSE (%)

BSE (%)

Exhibit 12:

Cash t/o market share trend

NSE (%)

BSE (%)

Source: MOFSL, NSE, BSE

Angel One: Revival momentum, visibility, and the right to win in new

segments

Revival of volumes



For Angel One, the most important metric is per-day order rate, which, under

the implementation of F&O regulations, fell from a peak of 7.8m orders in

Oct’24 to 5m orders in Feb’25. However, with the impact of regulations on the

base, the order rate recovered to 5.6m orders in Apr’25. Empirically, April has

seen a decline over March. However, this time we saw an improvement.



As seen in any of the key regulations implemented over the past couple of

decades, there is a transient hit to volumes, and the base is reset before a

recovery in volumes. We anticipate similar trends and expect a gradual

recovery. In our model, we expect the pre-regulation peak to be achieved only

by the end of 4QFY27.

Is a price hike a possibility, and is it essential for the future profitability of Angel One?



The company guided that it will consider a price hike if its long-term objective of

achieving an EBITDA margin of 45-50% is at risk. For the exit of FY26, the

company has guided for a margin of 40-45%. With the gradual recovery in

volumes, the company can achieve the same if customer acquisition costs

(which shot up sharply in 4QFY25) normalize.



For the industry to take a price hike, the volume recovery has to be slower than

what has been seen in past regulations. Also, we have noticed that pricing is not

a key differentiator between competitors in the discount broking industry.

Many players have tried to have disruptive pricing, but the top players continue

to command a lion’s market share in terms of NSE active clients.

The right to win in new segments



Angel One has invested in setting up new businesses in the past couple of years,

including 1) loan distribution, 2) AMC, 3) wealth management, 4) scaling up of

the AP channel, and 5) adding new products to the broking platform.



A key debate in our meetings was the right to win in the wealth management

for Angel One. The key pillars for a successful wealth management business are

1) people, 2) processes, 3) products, and 4) customers.



Angel One has hired top-quality management for its wealth management

business, who have extensive experience. Further, the RM addition has also

picked up momentum.

20 May 2025

Sector Update | Financials



Angel One has demonstrated its execution capabilities on multiple occasions,

including shifting to a digital model from a physical model, executing a super

app in a calibrated manner, and scaling up to the second-largest incremental SIP

generator in the MF business.



Products can be sourced from a third party, and the company also has approvals

to set up its own PMS/AIFs.



The company already has built 680+ client relationships and should scale up

going forward, given that it has a strong brand presence, more so in tier 2 and

tier 3 towns.



Similarly, we see Angel One as having a large TAM and the right to win in loan

distribution, AP channel, and new products on the platform. As the costs of

these businesses have been a part of P&L, incremental revenue will flow

through to the PBT.

Exhibit 13:

Number of orders faced regulatory impact

Orders (m)

Exhibit 14:

Order run-rate seeing a gradual recovery

Per day no of orders (in m)

Source: MOFSL, Company

Exhibit 15:

Client addition has moderated

Gross Client Add (m)

1.1

1.0 1.0

0.9 1.0

0.9 0.9

0.8

0.7

0.6

Exhibit 16:

ADTO trend on Angel One’s platform (INRb)

F&O

106 113

0.5

Cash

74 71

Source: MOFSL, Company

Exhibit 17:

Angel One’ SIP book seeing strong growth

Unique SIPs registered (m)

0.6

0.8 0.7 0.8

Exhibit 18:

Angel One’s NSE active client market share

Angel One market share - NSE Active clients (%)

0.4 0.5 0.5 0.4 0.4 0.5

0.3 0.2 0.3

Source: MOFSL, Company

Source: MOFSL, NSE

20 May 2025

Sector Update | Financials

MCX: Volume momentum hinges on product approvals

What are the triggers for volume growth to continue?



The key trigger for sustained volume growth is new product approvals. MCX has

been wanting to launch new products over the past couple of years. However,

this was hindered by the software transition issue. Now that the same is behind

us, the exchange has successfully launched the gold 10gm contract. Moreover,

the exchange has the readiness to launch electricity contracts.



Index contracts could be the key, as the company can consider weekly contracts

on the same.

What can revive the base metals volumes on the exchange?



Volumes for base metals on the exchanges have been significantly lower than

earlier envisaged. Our checks have indicated that the key concern for scaling up

volumes in this segment has been the uncertainty over the delivery center –

whether the buyer of the contract has registered itself in the state of the

delivery center, and also the quantum of delivery charges that will be levied for

the same. Any resolution towards this can improve the volumes in the segment.

What is the potential for growing the customer base?



Currently, the traded UCCs on MCX stand at ~1.3m (as of 31 Mar’25) as

compared to ~50m in the equity segment. As the awareness increases about the

segment through discount brokers as well as traditional brokers, we envisage

increased participation in the segment.



FPIs were allowed to trade in the commodities segment only in the recent past,

and with direct market access commencing at MCX, the scale-up in participation

can be envisaged.

Exhibit 19:

MCX – total volume trend

Total Volumes (INR t)

Exhibit 20:

MCX – Premium ADTO trend

Premium ADT (INRb)

Source: MOFSL, Company

Exhibit 21:

Base metal option volumes

Base Metal Options

% of Total Options

0.20

Exhibit 22:

Base metal future volumes

Base Metal Futures (INRb)

13.6

13.3

12.3

12.4

12.4 12.5

12.0

% of Total Futures

10.6 9.7

9.9

7.2

11.1

0.11 0.10

0.05

0.06 0.06 0.07

0.13 0.13 0.12

0.10

0.11

0.12

8.4

Source: MOFSL, Company

20 May 2025

Source: MOFSL, Company

Sector Update | Financials

Nuvama Wealth: Why the discount to peers in terms of valuation?

Why is the profitability of Nuvama Wealth lower compared to 360 ONE?



360 One operates the wealth management business at a cost to income of 47%,

while Nuvama operates in the range of 65-67%. The key reasons for the gap are

1) scale, wherein 360 One has a total AUM of INR3.5t, Nuvama has a total AUM

of INR3t, and 2) investment into RM count, wherein Nuvama has hired 300 RMs

in the wealth segment and 20+ in the UHNI segment over the past couple of

years.



As the efficiency of the RMs improves, we expect a gradual improvement in the

profitability.



The AMC business with an AUM of INR113b is making losses, and we expect it to

turn around as the AUM scales up in the segment.

What is the custodian business, and how should we look at it?



In the custodian business, the company offers an integrated suite of Custody

and Asset Servicing Solutions across asset classes, covering Fund Setup Advisory,

Securities Custody, Derivatives Clearing, Fund Accounting, Reporting, and

Fiduciary services. Clientele includes FPIs, AIFs, MFs, PMS, Family offices,

corporate treasuries, and HNIs.



The revenue is linked to assets held under custody and clearing. It’s a float

income business and has linkages to growth in the equity markets and asset

management.



We believe this business will have relatively less cyclicality vs. the IE/IB business

but higher vs. the wealth management business. A key monitorable will be the

outcome of the consultation paper on single entity limits in the index options

segment.

Exhibit 23:

How different is the business model compared to 360 ONE WAM?

Segment

UHNI Wealth Management

Mid-Segment Wealth Management

360 ONE WAM

Nuvama



Leading position and scaling up in Tier 2

Scaling up and has invested in building an RM

cities

base as well as product offerings



Has invested in the segment to build the



Established player with a strong RM force as

business over the past couple of years, likely

well as diversified product offering

to scale up in the near future

continues to invest for future growth.



Established player, particularly in the AIFs



Nascent player in the alternative business.

and PMS segment. The MF segment is still

Has built a team and has product launches

relatively small.

lined up for the future



Acquired B&K recently, integration over the



Established player with sustained market

next one year will be the key

share at 6% + in the segment



Aims to grow the segment with B&K and will



Established player with a good mix between

invest in building the team

debt and equity mandates



Strong business with a healthy association



Not present

with FPIs, AIFs, and HFTs, seeing strong

growth in assets under custody

Source: MOFSL

AMC

Institutional Equities

Investment Banking

Custody and Clearing

20 May 2025

Sector Update | Financials

Exhibit 24:

Nuvama’s total AUM trend

AUM (INRb)

Exhibit 25:

Wealth C/I ratio

Cost to income ratio

82.9

70.1 67.7

65.8 68.3 66.4 65.2 67.1

59.8 63.6 63.7

Source: MOFSL, Company

Exhibit 26:

Private C/I ratio

Cost to income ratio

73.9

60.0 62.7 59.4

67.9 67.6

60.6 62.5

69.0 66.7

63.9

Exhibit 27:

Nuvama’s revenue mix

Wealth Management

Asset Management

Capital Markets

Source: MOFSL, Company

Exhibit 28:

Custodian services – AUM trend

Custody Services AUM (INRb)

Source: MOFSL, Company

20 May 2025

Sector Update | Financials

Exhibit 29:

Nuvama’s capital market revenue mix

Asset Services

Institutional Equities and Investment Banking

Source: MOFSL, Company

Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

20 May 2025

Sector Update | Financials

NOTES

20 May 2025

Sector Update | Financials

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

< - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall be within following

30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations,

is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. MOFSL is a listed public company, the details in respect

of which are available on

www.motilaloswal.com.

MOFSL (erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered

Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity &

Derivatives Exchange Limited (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited

(NSDL),NERL, COMRIS and CCRL and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory & Development Authority of

India (IRDA) as Corporate Agent for insurance products.

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the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there might exist an inherent conflict of interest in some of the

stocks mentioned in the research report.

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1. Research Analyst and/or his/her relatives do not have a financial interest in the subject company(ies), as they do not have equity holdings in the subject company(ies).

MOFSL has financial interest in the subject company(ies) at the end of the week immediately preceding the date of publication of the Research Report: Yes.

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7. MOFSL has not received compensation for investment banking /merchant banking/brokerage services from the subject company(ies) in the past 12 months.

20 May 2025

Sector Update | Financials

MOFSL may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies)

in the past 12 months.

9. MOFSL may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report.

10. MOFSL has not engaged in market making activity for the subject company.

********************************************************************************************************************************

The associates of MOFSL may have:

financial interest in the subject company

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exist an inherent conflict of interest in some of the stocks mentioned in the research report.

acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

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20 May 2025