The Nifty Capital Markets index leads all sectors with a 30% one-year rally. BSE, king of good times with 70% gains

India’s capital market stocks have stood the test of successive earnings cuts, rate shocks and regulatory changes and have emerged as standouts, with returns of up to 70% in the past year, thanks to increasing financialization and digitalization of assets. The Nifty Capital Markets Index’s robust 30% return remains the best among all Nifty’s thematic and sectoral indices.

India’s oldest and only listed stock exchange BSE leads the pack with a remarkable rise of 73% in the last twelve months, followed by Anand Rathi Wealth with 52%, MCX with 39% and Nippon Life India AMC with 39%. Other notable gainers included HDFC Asset Management Company (27%), KFin Technologies (+17%) and Aditya Birla Sun Life AMC (+15%).

Kranthi Bathini, Director-Equity Strategy at WealthMills Securities, describes the post-Covid period as a paradigm shift in investor behavior, marked by a transformation in the way individuals approach investments as the financialization and digitalization of assets take deeper root in the economy. The rise in demat accounts and passive equity exposure through mutual fund SIPs has been a game changer, supporting domestic markets during periods of foreign money. outflow, he added.

NSE data shows that there were over 23.84 crore registered investors on the exchange as of October 24, 2025, up by as much as 16.13 crore in the last five years. Meanwhile, Association of Mutual Funds in India (Amfi) equity portfolios stood at Rs 17.46 crore in September, up from Rs 6.39 crore five years ago, registering a growth of 2.7 times.

This has created significant liquidity in domestic markets, despite the mass exodus of foreign institutional investors. In 2025, FII outflows so far are Rs 1,47,191 crore.

While equity is not the only revenue stream for capital market companies like AMCs and market infrastructure institutions (MIIs), as debt and hybrid schemes take the total number of folios to over 25.19 crore.

Market expert Sudeep Shah attributed last year’s strong outperformance to a mix of structural tailwinds and favorable market dynamics. “This rally was underpinned by a surge in equity market participation, record-breaking trading volumes and a vibrant IPO pipeline. As more retail investors entered the markets and F&O activity reached new highs, exchanges, brokers and investment platforms benefited directly through higher transaction costs, margin financing and distribution revenues,” said deputy vice president and head of the technical and derivatives research desk at SBI Securities. said.

The asset-light and technology-driven business model of capital market firms gives them operating leverage as costs have remained stable while revenues have increased, Shah said.

“The consolidation in the brokerage sector and the rapid shift to digital onboarding and app-based investing have further improved margins. Structurally, the deepening story of India’s capital markets, driven by the growing financialization of savings, increasing SIP inflows and a supportive regulatory ecosystem, has increased long-term earnings visibility for these companies,” he added.

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Notable stragglers

The rally was not broad-based as some counters lagged, including Angel One (-13%), Computer Age Management Services (CAMS, -14%) and Indian Energy Exchange (IEX, -22%), due to concerns over profit-taking and valuations after sharp gains in previous years.

Angel One, a stellar performer with a 940% five-year return, has failed to replicate the show over the past twelve months. Second-quarter profits fell 50% year-over-year, while revenue fell 21%. It has failed to achieve year-over-year September quarter revenue and operating results.

Earnings momentum in the second quarter

While many companies have yet to announce their quarterly results, second-quarter earnings momentum among capital market players is mixed. Among asset and wealth managers, 360 One Wam stood out with 30% revenue growth and 28.5% increase in PAT, driven by client asset expansion and higher advisory income. Anand Rathi Wealth also posted impressive numbers, with revenue up 22.6% and profit up 30.9%, supported by continued inflows into equities and hybrid products.

Among large asset managers, HDFC AMC posted 15.8% revenue growth and 24.6% increase in net profit, benefiting from strong SIP flows and improved cost efficiency. In contrast, Aditya Birla Sun Life AMC reported a modest 8.8% revenue growth but a marginal decline in profits, while UTI AMC saw a sharp 22% decline in revenue and a nearly 50% drop in PAT, due to pressure on margins and the outflow of some of its key programs.

Meanwhile, Angel One delivered robust sequential growth but failed to impress on a year-over-year basis.

Outlook

Bathini also points out a clear advantage that capital market stocks enjoy over other themes and sectors, namely longer market cycles, unlike commodities, autos, IT, FMCGs and even financial institutions such as banks and NBFCs. According to him, the shares will continue to perform well in the medium to long term.

Shah touts capital markets as a theme on the grounds that they tend to outperform during bullish market phases as their income is closely tied to trading activity, money flows and sentiment. “This gives them an edge over more defensive sectors such as FMCG and IT, which are experiencing more stable growth but are not experiencing cyclical acceleration,” said the SBI Securities analyst.

Looking ahead, the outlook for capital market equities remains constructive as long as liquidity remains abundant, the IPO pipeline remains strong and retail participation continues to increase, Shah opined.

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However, the same high operating leverage that drives outperformance in good times can also increase downside risks during phases of low market activity or heightened regulation, he warned. “However, the medium-term trajectory will depend on broader market stability, macro conditions and regulatory developments. Companies with diversified revenue streams – including brokerage, distribution, margin financing and investment banking – in addition to strong digital platforms and clean balance sheets, are likely to continue to lead the way,” Shah said.

(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)