Financials I Non Lending Q2 Preview - Growth Saga Of Capital Markets-Linked Companies Continues: Motilal Oswal

Motilal Oswal Report

Equity indices continued to scale new heights in Q2 FY25, with Nifty surpassing 26,000 and Sensex exceeding 85,000. The positive market sentiment and higher trading days contributed to a sustained upward trajectory in key parameters (volumes, orders, client additions, etc.) for capital markets-related companies.

Angel One and BSE continue to benefit from the current trends. However, SEBI’s new F&O segment regulations are expected to impact these trends from the end of Q3 FY25.

In the AMC sector, July 2024 recorded the highest-ever net equity inflows. Equity AUM rose 59% YoY in Aug-24, driven by an all-time high trajectory of SIP flows (~Rs 235 billion in Aug-24).

Growth across all segments, especially equity and money market AUM, led to 20% growth in the total MF AUM (over March-24-Aug-24). The strong growth momentum in equity AUM is expected to boost the performance of Computer Age Management Services and 360ONE.

Private life insurance companies posted 18%/9% growth in APE in July-24/Aug-24. For Sep-24, we expect industry growth to remain stable. In VNB margins, we expect steady or improving trends QoQ on account of the rising share of protection and annuity in the mix along with scale benefits.

Excluding crop, the general insurance sector witnessed single-digit GWP growth of 6% in July-24 and Aug-24. Growth in the health segment was tepid at 2%/10% YoY in July-24/Aug-24. Further, the motor segment experienced a modest growth of 10%/6% YoY in July-24/Aug-24.

NATCAT claims during the quarter are expected to keep the loss ratios elevated. We expect Star Health and ICICIGI to report improvement in profitability on account of operational efficiency.

We remain positive on the long-term growth potential of non-lending financials, given their broader themes of financialization and digitization of savings. Our top picks in this space are Angel One, SBI Life, and Star Health.

While we maintain a positive view on the capital market sector, the impact of F&O regulations will keep stock performances in check in the short term.

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