Stocks of listed brokers, asset managers dip up to 70% amid market crash

The market correction in India since the last few months has seen shares of listed stock brokers on the National stock Exchange (NSE) tumble up to 70 per cent at the bourses.

While the Nifty 50 index has lost 9 per cent since September 18, 2024, scrips of most listed stock brokers, too, have felt the heat with counters such as TruCap Finance, Geojit Financial Services, 5Paisa Capital, Prime Securities, SMC Global Securities and Arihant Capital Markets underperform the frontline index by falling 30 per cent to 70 per cent during this period, shows data from ACE Equity.

Fortunes of stock brokers and asset managers, said A K Prabhakar, an independent market analyst, are directly linked with that of the primary and secondary markets.

In a bad market, cash and futures & options (F&O) volumes tend to dip. There can be defaults, too, he said, on account of the margin trading facility (MTF), which can be difficult to bridge.

MTF gives investors an opportunity to buy stocks by paying only part of the total value of the scrips they buy. The broker, meanwhile, funds the remaining amount of the transaction value, but charges interest on this loan lent to the investors to buy the shares.

“IPO activity also suffers in a bad market, and merchant bankers can face lower cash flow in terms of fee collection. Liquidity in the market is drying. This will hit the markets badly. The fall from the top has been around 9 – 10 per cent. The pain can be more in the days ahead. The first stocks among the lot to get sold will be stocks of brokers, followed by asset management companies (AMCs) and then wealth management companies. Valuations were steep and the pain for these counters will be more pronounced,” Prabhakar cautioned.

More pain in store?

That said, pain in the small-and microcap stocks, data shows, has been more with the Nifty Smallcap 250 and Nifty Microcap 250 indexes slipping 22 per cent and 20 per cent, respectively during this period, ACE Equity data shows. The Nifty 500 index, too, has lost around 14 per cent.

On the other hand, only a handful of stocks of listed brokers such as Emkay Global, Choice International, Aditya Birla Money and Dhani Services have managed to stay afloat with gains up to 27 per cent.

The overall market construct, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, does favour bulls. Foreign investors, he believes, are likely to continue their selling spree as the news flow is not positive. The US market, he said, continues to be strong and may attract more capital flows.

“If the Chinese government’s new initiatives attract positive responses from the FIIs, it will mean more bad news for Indian markets. More money will flow into Chinese stocks through the Hang Seng exchange as the price-earnings (PE) of the Hang Seng index is only around 12x compared to the 18.5x one-year forward PE in India. Since the large-caps are fairly valued in India, calibrated buying in this segment can be done. But, the market construct doesn’t favour aggressive buying,” Vijayakumar suggests.