Capital Markets Sector Analysis Report 

Latest research: We found 3 opportunities in this zig-zagging market

The capital markets of India have been experiencing substantial growth. The growth is driven by factors like a robust IPO market, increasing number of demat accounts, and a strong growth in derivatives trading.

The key subsegments of India's capital markets include exchanges, asset management, broking, wealth management, investment banking, and depository companies.

All these segments have experienced unprecedented growth which will continue due to various favourable factors.

Factors Contributing to the Growth

Macroeconomic trends: According to NSE market pulse report, India's economy is projected to become the world's third largest by 2027 and reach a GDP of US$ 10 trillion (tn) by 2033. This economic growth is fuelled by a rising working-age population, a widening consumer class, and a favourable position in global supply chains.

Shift to financial asset class: According to the same report as India's economy expands, more financial assets are expected to move to capital markets. The combined share of equities and mutual funds in household financial assets is projected to rise from 16% to 23-25% by 2033.

Government initiatives: In 2023, the government revamped the credit guarantee scheme. This will give MSMEs more access to collateral-free loans, thereby making a conducive environment for the MSMEs to thrive. Eventually these MSMEs will list on exchanges making the capital markets wider and deeper.

Technological advancements: The adoption of technology, particularly driven by the market regulator, has made capital markets more accessible and efficient.

India's IPO market has witnessed significant growth, with listings increasing over sixfold between 2013 and 2024.

This surge reflects growing investor confidence in Indian businesses and the success of reforms aimed at simplifying the listing process. In 2024, India ranked first globally in the number of IPO listings and fifth in terms of capital raised.

The asset management industry, including mutual funds (MFs), Portfolio Management Services (PMS), and Alternative Investment Funds (AIFs), has grown at an annual rate of 19% since 2013.

Notably, there has been a rise in equity schemes and ETFs, fast-growing SIP investments, and increasing MF penetration in tier 2 and 3 cities.

The market regulator is playing a key role in shaping India's capital markets by empowering investors through initiatives like streamlined KYC processes, democratized mutual fund investments, and education platforms such as the SaaRthi app.

It fosters market development by promoting transparency, ease of doing business, and innovation, introducing measures like fast-track IPO clearances, reduced mutual fund redemption timelines, and new products such as Electronic Gold Receipts (EGRs).

Additionally, the regulator ensures market stability and integrity through risk management initiatives, including the implementation of ASBA for market transactions, the T+1 settlement cycle.

Now let's understand each subsegment in a little bit more detail.

Exchanges

Exchanges are regulated marketplaces where financial instruments such as stocks, bonds, commodities, and derivatives are bought and sold.

Examples include stock exchanges such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India and commodity exchanges such Multi Commodity Exchange of India (MCX).

These platforms connect buyers and sellers, ensuring efficient price discovery, transparency, and liquidity.

How do Stock Exchanges Make Money?

The most significant revenue source for both exchanges is transaction charges levied on trades executed on their platforms. These charges vary based on the product type and follow a tiered fee structure depending on turnover or value.

NSE's transaction charges have been a significant part of their revenue in recent years, underscoring the importance of trading activities.

Similarly, BSE's annual report indicates a notable year-on-year increase in average daily equity turnover, demonstrating growth in transaction-based revenue.

Both exchanges earn revenue through fees charged to companies for listing their securities. These fees encompass initial listing fees, annual listing fees, book building fees, and processing fees.

BSE's annual report specifically mentions a 15% increase in annual listing fees, highlighting this as a consistent revenue stream.

NSE's draft red herring prospectus (DRHP) emphasizes their efforts to attract new issuers, especially SMEs, which would further contribute to listing fee revenue.

Both exchanges have dedicated subsidiaries that provide market data feeds and information products to a wide range of clients, including data vendors, financial institutions, and individual investors.

BSE collaborates with Deutsche Borse for international data distribution and offers real-time, delayed, and end-of-day data products.

NSE's subsidiary, DotEx International Limited, focuses on selling real-time market data and data subscription packages.

Co-location services: Both exchanges offer co-location facilities, providing high-speed access to their trading systems for institutional clients and high-frequency traders.

BSE mentions an increase in co-location data centre capacity. NSE also generates revenue from data center charges and connectivity fees related to these services.

Index licensing: Both exchanges have established index businesses, licensing their indices for use in various financial products, such as ETFs and structured products.

NSE's DRHP highlights their cross-listing and licensing arrangements with several international exchanges, indicating a potential for global revenue generation.

Financial education: NSE operates the NSE academy, offering financial literacy programs and generating revenue through registration and test enrolment fees.

The multi commodity exchange of India (MCX) primarily generates revenue through transaction fees charged to members and clients for trading commodity derivatives on its platform. This revenue stream comprises approximately 95% of the exchange's operating revenue.

MCX also generates income from membership fees, annual subscription fees, terminal charges, and connectivity income.

• As of FY24, there were 11,211 FPIs participating in the Indian capital market.
• Indian investors showed faith in invested funds in the Indian corporate sector primarily via the BSE fund raising platforms. US$ 193.45 bn worth of funds was mobilized through listing of equity, bonds, REITs, InvITs, and commercial papers, etc.
• During FY24, 76 companies tapped the market through the IPO process to get listed on the mainboard of BSE.
• The amount raised through mainboard IPOs in FY24 was Rs 618.60 bn as against Rs 567.40 bn in FY23.
• 4 companies also raised Rs 130.81bn through InvITs in FY24. Additionally, 1 company raised Rs 21.20 bn through REITs in FY24.
• With respect to debt capital, the total amount mobilized through privately placed debt instruments ("PPDI") at BSE in FY24 was Rs 5,825.28 bn against Rs 5311.39 bn in FY23. During FY24, there were 48 debt public issues, which mobilized Rs 207.86 bn against Rs 94.62 bn in FY23.
• Average Daily Turnover for BSE & NSE have steadily gone up.

• The multi commodity exchange of India (MCX) ranks third globally in commodity options contracts traded in 2023, up from fifth last year.
• As of March 31, 2024, MCX has 547 members and 36,312 authorized persons operating through multiple terminals.
• The number of unique traded client codes on MCX rose to 930,000 in FY24, up from 620,000 in FY23.
• In FY24, mutual funds with new schemes registered on the exchange increased, along with new names in alternative investment funds (AIF) & portfolio management services (PMS).
• Overall, the average daily volume increased by 6%, from 5,012,540 contracts in FY23 to 5,327,480 contracts in FY24.
• While the average daily volume for agri and index futures decreased significantly, the volume of base metals, bullion, and energy traded increased.
• The average daily volume for options contracts increased across all categories, with a particularly large increase in the energy sector (208%).
• The Indian stock market has outperformed many global indices, fuelled by strong domestic investor participation. India ranks sixth in total market capitalization of listed equities and has the third largest exchange globally for cash equities trades. It also leads in equity derivatives trading due to market changes and digital adoption.

	Particulars	Name of the company
	(Rs in m, consolidated)	Multi Commodity Exchange of India	BSE
	CMP	5,888	5,841
	Market Cap	170,774	340,527
	P/E	205	43
FY24	Net Sales	6,836	15,925
	Operating Profit	630	6,512
	OPM (%)	9%	39%
	Net Profit	830	7,717
	Net Margin (%)	12%	48%

Porter's Five Forces Analysis for Exchanges

Threat of new entrants: The threat of new entrants in the exchange industry is generally low due to the significant barriers to entry.

The barriers include:

High capital requirements: Establishing an exchange demands significant funds for technology, compliance, and operations.

Regulatory hurdles: Securing licenses and approvals from regulatory bodies is often lengthy and complex in finance.

Liquidity: New exchanges struggle to attract sufficient trading volume, while existing ones benefit from established networks, hindering newcomers.

Bargaining power of buyers: The bargaining power of buyers (traders, investors, and listed companies) is moderate to low, because of the following reasons.

Limited choices: India has only two significant stock exchanges namely NSE and BSE and one commodity exchange MCX.

Switching costs: Switching between exchanges involves extra costs and habitual challenges, potentially reducing buyer power.

Price sensitivity: Traders and investors are typically sensitive to transaction costs and fees, providing them with some bargaining power.

Bargaining power of suppliers: The bargaining power of suppliers (technology providers) varies.

If the exchange has a robust system with a trusted partner and retains control over its code, the supplier has low bargaining power.

63 moons technologies leveraged its control over MCX's trading platform to extract high fees, highlighting the significant bargaining power technology partners hold when exchanges depend on proprietary software.

Threat of substitute products and services: The threat of substitutes for exchanges is low with regulatory intervention protecting and maintaining the existing setup.

Competitive rivalry among existing competitors: The level of rivalry among existing exchanges is high.

Asset Management

Asset management companies (AMCs) manage investments for individuals and institutions. They offer a range of investment products and services, to generate returns for their clients. In return, they charge an expense ratio as a percentage of AUM. This is the revenue for AMCs.

Products and services: AMCs provide various products and services. These include:

Mutual funds: These are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of assets, like stocks, bonds, and other securities. Mutual funds offer investors a way to access professional management and diversification, even with relatively small amounts of capital.

Portfolio management services (PMS): PMS involves managing customized investment portfolios for individual clients, typically high-net-worth individuals (HNIs) and institutions. PMS offers more tailored investment strategies and greater control over investment decisions compared to mutual funds.

Alternative investment funds (AIFs): AIFs are privately pooled investment vehicles for sophisticated investors. They invest in a wide range of assets, including private equity, real estate, and hedge funds. AIFs often pursue strategies that are not available through traditional investment products.

Other offerings: The sources also mention offerings like offshore funds, real estate investments, and advisory services.

Industry AUM has Grown Rapidly Over the Last Decade

Mutual fund penetration in India is significantly lower compared to the global average thus offering a long runway for growth.

Mutual Fund AUM (% of GDP)

A little over 3% of India's population invests in mutual funds (MFs). With a rising middle class, this number is set to grow in the future.

With this context, the Indian AMC industry is positioned for substantial growth.

This growth is anticipated to be primarily driven by the equity and passive segments, indicating a shift towards higher-yielding investments.

Increasing retail participation: A key driver of this growth is the increasing participation of retail investors, fuelled by factors like growing financial literacy, convenience of digital platforms, and a shift away from traditional investments like fixed deposits.

Sustained momentum in sip flows: Systematic investment plans (SIPs) have emerged as a popular investment method, contributing to the industry's growth.

SIP flows have demonstrated resilience even during volatile market conditions, reflecting a growing preference for disciplined, long-term investing among retail investors.

Shift in household savings: The report highlights the increasing allocation of household financial savings to mutual funds. While deposits still represent a significant portion, allocation to mutual funds has risen, suggesting a growing recognition of mutual funds as a viable investment option.

Growth in passive investments: AMCs anticipate continued growth in passive AUM, particularly driven by institutional flows. This trend suggests a growing preference for low-cost, index-tracking investments.

Despite the growth outlook, there can be a gradual moderation in the core operating profitability of AMCs. This will be due to factors such as the increasing pressure on expense ratios due to regulatory changes and competition.

Regulatory Changes

Securities and exchange board of India (SEBI) has introduced caps on expense ratio, with higher caps for smaller schemes and progressively lower caps for larger schemes, effectively linking expense ratios to the size of the fund.

This measure aims to protect investor interests and promote transparency in fee structures.

Industry Outlook

Consolidation expected: The India mutual fund industry, with 44 AMCs, is highly consolidated, with the top 10 AMCs accounting for over 78% of industry AUM. This consolidation is expected to continue in the medium to long term.

Average AUM of the Top 10 players

Sr.	Mutual Fund Name	Average AUM (Rs in billion) for the quarter of July - September 2024
1	SBI Mutual Fund	66,223.77
2	ICICI Prudential Mutual Fund	10,986.43
3	HDFC Mutual Fund	8,412.27
4	Nippon India Mutual Fund	7,587.98
5	Kotak Mahindra Mutual Fund	5,491.74
6	Aditya Birla Sun Life Mutual Fund	4,701.78
7	UTI Mutual Fund	3,833.09
8	Axis Mutual Fund	3,425.49
9	Mirae Asset Mutual Fund	3,123.38
10	DSP Mutual Fund	1,915.05

Data Source: AMFI

Outperformance of Indian AMCs: Indian AMCs have delivered impressive growth in AUM (CAGR of 16-19% over FY14-24), exceeding the growth rates of top global AMCs. This highlights the strong growth trajectory of the Indian asset management sector.

Competition from direct plans: The increasing popularity of direct plans, which bypass distributors and offer lower expense ratios, is putting pressure on traditional distribution channels and impacting AMC profitability.

	Particulars	Name of the company
	(Rs in m, consolidated)	HDFC Asset Management Company	Nippon Life India Asset Management	Aditya Birla Sun Life AMC	UTI Asset Management Company
	CMP	4,002	658	720	1,235
	Market Cap	855,440	416,680	207,820	157,980
	P/E	36	32	23	19
FY24	Net Sales	31,600	20,360	16,360	17,370
	Operating Profit	25,330	13,860	10,440	10,340
	OPM (%)	80%	68%	64%	60%
	Net Profit	19,430	11,070	7,800	8,020
	Net Margin (%)	61%	54%	48%	46%

Porter's Five Forces Analysis of the AMC Industry in India

Threat of new Entrants: Moderate

The under-penetration of mutual funds in India presents a significant growth opportunity for new entrants, though stringent SEBI regulations, brand-building challenges, and the need for robust distribution networks pose barriers.

However, SEBI's MF Lite framework, easing norms for passive products, could lower entry barriers and intensify competition in the passive investment segment.

Bargaining Power of Buyers: Moderate to High

Increasing financial literacy in India is empowering investors to make informed decisions, enhancing their bargaining power.

The competitive AMC landscape, having 40+ players, offers buyers more choices and drives fee reductions. The growing popularity of direct plans further pressures AMCs to lower fees, benefiting cost-conscious investors.

However, switching costs like exit loads and tax implications may slightly constrain buyer power.

Bargaining Power of Suppliers: Low

In the context of the AMC industry, "suppliers" primarily refer to entities that provide services essential for AMCs to operate, such as:

Fund managers and research analysts: Since there is a good availability of skilled talent in India i.e. number of fund managers and research analysts are much more than the number of AMCs the bargaining power of individual professionals is limited.Custodians and registrars: AMCs utilize custodian services to safeguard assets and registrar and transfer agent (RTA) services to manage investor records. However, the presence of number of well-established custodians and RTAs in the market limits bargaining power of such service providers.

Threat of Substitute Products: Moderate

Competition from other financial products: Investors have a wide range of alternative investment options, including fixed deposits, insurance products, and direct equity investments.

These substitutes can pose a moderate threat to the AMC industry, especially during periods of market volatility or when other investment products offer more attractive returns.

Shift toward direct investing: The potential rise in the culture of direct investing, which could impact mutual fund flows. If investors increasingly choose to manage their investments directly, it could limit the growth potential of the AMC industry.

Rivalry Among Existing Competitors: High

The Indian AMC industry is highly consolidated, with the top 10 players dominating the market, yet competition remains intense as firms compete for market share through fund performance, expense ratios, distribution, and branding.

SEBI's TER caps have added fee pressure, challenged their profitability, and driven AMCs to innovate to enhance investor value.

Industry Attractiveness Overall

Based on the analysis of Porter's Five Forces, the AMC industry in India presents a mixed picture in terms of attractiveness.

While the under-penetration of mutual funds and strong growth potential make the market attractive for both existing players and potential entrants, the industry also faces challenges such as intense rivalry, regulatory pressure on fees, and competition from substitute products.

Wealth Management

The wealth management industry presents a significant opportunity in India, given the

rising number of high-income tax filers. Increasing investment in high-value financial assets, such as AIFs (Alternative Investment Funds), PMS (Portfolio Management Services), and unlisted equity.

In recent period there has been a significant promoter selling in stock markets. Promoters are selling some parts of their stakes encashing rich valuations and are looking to diversifying their wealth, creating opportunities for wealth managers.

Despite the opportunity, the industry faces challenges:

Cyclical nature: The business is heavily influenced by market sentiment, affecting net flows and mark-to-market (MTM) gains, leading to volatility.

Reliance on transaction income: A significant portion of revenue comes from transaction-based assets, making the business model susceptible to market cycles.

Yield compression in recurring assets: Yield compression in the wealth management space is driven by increasing competition, which is putting pressure on fees and services, along with regulatory changes impacting expense ratios in mutual funds, PMS, and AIFs.

Labour-intensive operations: The industry, particularly the Ultra High Net Worth Individual (UHNI) segment, requires a large workforce, limiting operating leverage.

Scarcity of relationship managers: Attracting and retaining skilled relationship managers, crucial for growth, is challenging.

Need for new products: Creating proprietary products, such as loans and AMCs (Asset Management Companies) is essential for profitability.

Various business models are emerging in the wealth management industry. These models differ in several aspects:

Customer segments: Some focus on UHNIs, others on the mid-market, while some cater to both.

Building vs distributing: Some operate purely as distributors of third-party products, while others combine building new financial products and distribution.

Fee structure: Firms might utilize an advisory model with fees directly from clients, a distribution commission model with fees from manufacturers, or a hybrid approach.

Lending: Some heavily emphasize lending, with interest income forming a significant part of their revenue.

Product focus: Some prioritize transaction-based assets, while others emphasize recurring revenue assets.

A successful wealth management business requires a balanced approach across these aspects.

360 ONE and Nuvama are two key listed players in the industry. Other notable players include:

Sr.	Private Wealth Manager	Type
1	IIFL Wealth & Asset Management	Non-Bank
2	Edelweiss Wealth Management	Non-Bank
3	Julius Baer	Non-Bank
4	ASK Asset & Wealth Management	Non-Bank
5	JM Financial Wealth Management	Non-Bank
6	Client Associates	Non-Bank
7	Karvy Private Wealth	Non-Bank
8	Ambit Global Private	Non-Bank
9	Waterfield Advisors	Non-Bank
10	Centrum Wealth Management	Non-Bank
11	Anand Rathi Wealth Limited	Non-Bank
12	Avendus Wealth Management	Non-Bank
13	Kotak Wealth Management	Bank
14	ICICI Bank Private Banking	Bank
15	Axis Bank Burgundy	Bank
16	Standard Chartered Private Bank	Foreign Bank
17	HDFC Private Bank	Bank
18	Barclays Private Clients, India	Foreign Bank
19	Credit Suisse Private Banking	Foreign Bank

Data Source: Anand Rathi Wealth DRHP, Company websites & Presentations

360 ONE primarily focuses primarily focuses on the UHNI segment, generating significant revenue from annual recurring revenue (ARR) assets. It is also expanding its AMC business, particularly in the alternatives space (AIFs and PMS).

Nuvama adopts a more diversified approach, catering to both UHNI and HNI (High Net Worth Individuals) segments while maintaining a significant capital market presence.

Coming to some industry data points...

India houses the second highest number of HNIs, among BRICS nations.

AUM of the alternative investment industry is expected to witness a CAGR of 9.3%, between 2021 and 2027.

AIFs raised almost Rs 7 tn in capital in 2022, as against Rs 4.5 tn in 2020, with market players opining that the industry has the potential to grow 4 to 5 times more, in the coming years.

Incremental Growth is Faster in Newer Geographies Beyond Top 8 Cities

Projected Rise in Number of Ultra Rich (in %)

In last 10 years MF grew by 5.6x to Rs 53 tn; PMS grew by 8.1x Rs 6 tn; AIF commitments grew by 98x Rs 11 tn.

	Particulars	Name of the company
	(Rs in m, consolidated)	360 ONE WAM	Nuvama Wealth Management	Anand Rathi Wealth
	CMP	1,143	5,687	3,804
	Market Cap	443,720	204,040	59,330
	P/E	45	24	56
FY24	Net Sales	29,210	31,560	7,520
	Operating Profit	17,050	15,650	3,310
	OPM (%)	58%	50%	44%
	Net Profit	8,040	6,250	2,260
	Net Margin (%)	28%	20%	30%

Porter's Five Forces Analysis of the Wealth Management Industry

Threat of New Entrants: Moderate to High

India's wealth management industry is experiencing new entrants, from established institutions to fintech startups.

High growth potential and returns is attracting newcomers, while technology lowers entry barriers for fintechs against traditional firms.

The changing regulatory landscape presents challenges but also innovation opportunities. Building brand reputation and trust is time-consuming, especially in the UHNI segment.

Acquiring and retaining skilled relationship managers, essential for client engagement, is difficult.

Bargaining Power of Buyers: Moderate to High

Customers in the wealth management industry have increasing options, and their awareness of financial products and services is growing.

Bargaining Power of Suppliers: Moderate

Suppliers in this context refer to product manufacturers, such as mutual fund companies, insurance providers, and alternative investment fund managers.

Threat of Substitute Products or Services: Moderate

While substitutes exist, the core value proposition of personalized wealth management services remains relevant.

Rivalry Among Existing Competitors: High

The wealth management industry in India is highly competitive, with numerous players vying for market share.

Depository

Central Securities Depositories (CSDs) are the organizations that hold securities, like stocks and bonds, electronically and facilitate their transfer between accounts.

The two CSDs for India are Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL).

The depository business reduces the risks associated with physical certificates, such as loss, theft, and forgery, by converting these securities into electronic form.

This electronic format makes transactions more secure and efficient, thereby increasing investor trust.

CSDs play a key role in the securities trade and settlement process by transferring securities from one party to another through multiple intermediaries like depository participants (DPs), Registrar & Transfer Agents (RTAs), clearing members, and clearing corporation of stock exchanges.

Key services and revenue streams for depository companies are:

Dematerialization: Converting physical securities into electronic form.

Transaction processing: Facilitating the movement of securities across accounts.

Account maintenance: Maintaining demat accounts for investors.

Custody services: Safekeeping of securities in electronic form.

Value-added services: e-Voting, e-statements, etc.

CSDs generate revenue through a mix of recurring and transactional fees.

Recurring revenue: Annual issuer fees/custody charges paid by companies whose securities are held in the depository system like the account maintenance charges paid by DPs.

Transactional revenue: Transaction charges for the movement of securities across accounts, settlement charges, IPO/corporate action charges.

Key Emerging Trends

Increased retail participation: A rise in demat account openings among retail investors is driving growth in the depository industry.

Equitization: More companies are listing on stock exchanges, increasing demat accounts and issuer fees for CSDs.

Digitalization: Mobile investing platforms and online brokers are enhancing accessibility, further boosting transactional revenue.

• Demat accounts in India increased by 32% YoY, from 114.5 m in FY23 to 151.4 m in FY24. CDSL achieved a market share of 88% in new demat accounts opened, adding 326 m accounts in FY24.
• CDSL's market share in demat accounts has increased steadily over the years, reaching 76% in FY24, up from 48% in FY19.
• Custody Value: CDSL holds assets worth Rs 64 tn as of March 31, 2024, representing an increase of 61.68% from FY23.
• There are over 23,060 issuers associated with CDSL as of March 31, 2024.

Porter's Five Forces Analysis of Depository Companies

Threat of New Entrants: Low to Moderate

The depository business in India has high barriers to entry due to strict regulatory requirements, and the need for expertise in handling securities and complying with complex regulations.

SEBI has released a discussion paper on the possibility of facilitating new entrants in the stock exchange and depository businesses. If SEBI decides to allow for new entrants, the threat of new entrants would increase.

Bargaining Power of Buyers: Low to Moderate

Depositories have a fragmented customer base consisting of individual investors, depository participants (DPs), and issuers. No single buyer group holds significant bargaining power to influence pricing or service terms.

However, SEBI regulates fees for various services, which limits the ability of depositories to set prices and respond to buyer demands.

Bargaining Power of Suppliers: Low

Depositories rely on technology providers for hardware and software solutions. The market for these solutions is generally competitive.

Threat of Substitute Products or Services: Low

Limited threat of substitutes: The core services provided by depositories, particularly dematerializing and safeguarding securities, have no direct substitutes. Investors must utilize depository services to trade or hold securities in the capital markets.

Rivalry Among Existing Competitors: Low to Moderate

Competition between CDSL and NSDL is mostly based on non-price factors, such as service quality, technological innovation, customer service, and brand reputation.

Broking

Brokerage firms act as intermediaries, connecting buyers and sellers in the financial markets. They make money primarily through fees and commissions charged for facilitating these transactions.

They have various revenue sources such as:

Brokerage fees: This is the primary source of income for brokerage firms. Brokers charge a fee for every transaction executed on behalf of their clients.

These fees can vary based on the type of security traded (equity, commodity, currency, etc.), the trading platform used, and the volume of trades. Some discount brokers offer flat fees per transaction, while others may use a percentage-based model.

Commissions: Brokers earn commissions for distributing financial products like mutual funds, insurance policies, and other investment products. This commission is typically a percentage of the investment amount, or the premium paid for the product.

Margin funding: Brokers lend money to clients to allow them to buy securities on margin, charging interest on these loans.

Research and advisory fees: Full-service brokers often provide research reports, market analysis, and investment advice to their clients. They may charge fees for these services, either on a subscription basis or for individual reports or consultations.

Account maintenance fees: Some brokers may charge fees for maintaining client accounts, particularly if the account has low activity or falls below a certain balance threshold.

Business Model Variations

There are different business models within the Indian broking industry:

Full-Service Brokers: Offer a wide range of services, including research, advisory, wealth management, and trading execution, typically charging higher brokerage fees and commissions.

Discount Brokers: Focus primarily on providing low-cost trading execution services, often with limited research or advisory support, attracting clients with their competitive pricing.

Hybrid Brokers: Combine elements of both full-service and discount models, offering some research and advisory services while maintaining competitive pricing.

• In terms of the volumes for FY24, NSE's average daily turnover (ADT) in cash equity segments stood at Rs 82.2 bn, which grew at a robust 53% over the same period last year. NSE saw participation from over 30 m individual investors in the entire year compared to 25 m active investors in the preceding year.
• The gross industry ADTO was up by 111% YoY. Within this, the equity ADTO grew by 53% and derivatives ADTO grew by 112%.
• The size of the India securities brokerage market is estimated at US$ 3.94 bn in 2024 and is expected to reach US$ 5.75 bn by 2029, growing at a CAGR of 7.89% during the forecast period (2024-2029).
• The number of demat accounts has surged significantly, with an average of 3.1 m new accounts being added monthly. By March 2024, there were 151 m new accounts added. Both major depositories, CDSL and NSDL, experienced an 11.9% YoY surge, bringing the total tally to 151.4 m from 114.5 m.

Industry Demat Accounts (Month on Month)

	Particulars	Name of the company
	(Rs in m, consolidated)	ICICI Securities	Angel One	IIFL Capital Services
	CMP	802	2,436	260
	Market Cap	260,870	219,860	80,430
	P/E	12	16	11
FY24	Net Sales	50,490	42,720	22,180
	Operating Profit	33,720	16,930	9,330
	OPM (%)	67%	40%	42%
	Net Profit	16,970	11,260	5,130
	Net Margin (%)	34%	26%	23%

Porter's Five Forces Analysis of the Indian Broking Industry

Threat of New Entrants: High

Low barriers to entry: The digital nature of the industry and the availability of technology solutions have lowered the barriers to entry for new players.

Favourable regulatory environment: India's regulatory environment encourages innovation and competition in the financial services sector.

Attractive growth potential: The Indian broking industry is experiencing rapid growth, attracting new players seeking to capitalize on the opportunities.

Emergence of discount brokerage model: The success of discount brokers has demonstrated the viability of a low-cost, technology-driven business model, further encouraging new entrants.

Bargaining Power of Buyers: High

The bargaining power of buyers (individual investors and institutional clients) in the Indian broking industry is high. This is due to factors such as:

Increased price sensitivity: The emergence of discount brokers and the availability of low-cost trading options have made investors more pricesensitive.

Availability of alternatives: Investors have a wide range of brokerage firms and trading platforms to choose from, increasing their bargaining power.

Low switching costs: Switching between brokers has become relatively easy, further empowering buyers.

Bargaining Power of Suppliers: Low

The bargaining power of suppliers in the Indian broking industry is low. Suppliers include technology providers, financial institutions, exchanges, human capital.

The broking industry has a large pool of potential suppliers, and most inputs are standardized and readily available.

This limits the bargaining power of individual suppliers. However, certain highly specialized technology providers or financial institutions with unique expertise may have some bargaining power.

Threat of Substitute Products or Services: Low

The threat of substitute products or services in the Indian broking industry is low because of how the Indian capital markets have evolved.

There is no threat of substitutes in the medium term but in the long term, SEBI may allow direct investing where investors can directly invest in securities without using a broker.

Intensity of Competitive Rivalry: High

Large number of players: The industry is fragmented, with numerous brokerage firms competing for market share.

Low differentiation: Many brokers offer similar products and services, leading to intense price competition.

High growth potential: The industry's rapid growth and attractive market potential further intensify competition.

Digital disruption: The shift toward online trading and the emergence of discount brokers have disrupted the traditional brokerage model.

Despite the high competitive intensity, the Indian broking industry remains moderately attractive due to its strong growth potential, increasing retail investor participation, and favourable regulatory environment.

Brokers with strong technological capabilities, innovative business models, and a focus on value-added services are well-positioned to succeed in this dynamic industry.

Investment Banking

The investment banking industry plays a crucial role in the financial markets by connecting companies needing capital with investors seeking investment opportunities. Investment banks act as intermediaries, facilitating various financial transactions and providing advisory services to corporations, governments, and other institutions.

How Investment Banking Works

Underwriting Securities: When companies want to raise capital through public offerings like Initial Public Offerings (IPOs) or Follow-on Public Offerings (FPOs), investment banks help them issue and sell securities to investors.

This process is called underwriting, and it involves assessing the company's financial health, determining the offering price, and marketing the securities to potential investors.

Mergers and Acquisitions (M&A) Advisory: Investment banks advise companies on mergers, acquisitions, divestitures, and other strategic transactions. They help clients identify potential targets, evaluate deal terms, negotiate agreements, and execute transactions.

Private Placement of Securities: Investment banks facilitate private placements of securities, where companies raise capital from a select group of investors instead of going public. They help companies find suitable investors, negotiate deal terms, and structure transactions.

Debt Financing: Investment banks assist companies in raising capital through debt financing by issuing bonds or securing loans. They help companies determine the optimal debt structure, negotiate terms with lenders, and underwrite debt offerings.

Financial Restructuring and Advisory: Investment banks provide advisory services to companies facing financial distress. They help develop restructuring plans, negotiate with creditors, and raise additional capital to improve financial stability.

Valuation and Fairness Opinions: Investment banks provide independent valuations of companies and assets for various purposes, including M&A transactions, financial reporting, and litigation. They also offer fairness opinions, which assess whether the terms of a proposed transaction are fair to all parties involved.

How Investment Banks Make Money

Investment banks generate revenue through various means.

Underwriting fees: Investment banks charge fees for underwriting securities based on the offering's size and complexity, compensating them for the risk of guaranteeing sales.

Advisory Fees: For M&A and financial restructuring, fees are based on transaction value, deal complexity, and time spent on the services.

Trading Profits: Investment banks engage in proprietary trading to generate profits by buying and selling securities for their own accounts, which carries inherent risks.

• The Indian investment banking market is set to reach an estimated market size of US$ 2.5-3 bn by 2026 at a CAGR of 12-15% over the next 5 years.
• FY24 was a successful year for Initial Public Offerings (IPOs) and Qualified Institutional Placements (QIPs), showcasing significant trends. A total of 75 mainboard public issues were launched during this period, raising Rs 619 bn. In comparison, 37 IPOs were launched in FY23, which raised Rs 512 bn.
• Similarly fundraising through the QIP route reached Rs 781 bn in FY24 which was way higher than Rs 102 bn mopped up in the preceding financial year. This included fund mobilisation by REITs and infrastructure investment trusts through the QIP mode.
• ICICI securities managed 31 IPOs (including REITs and InvITs) in FY24, achieving a market share of 42.3% in terms of issue size. The company ranked first in India for raising capital in terms of both funds raised and number of deals.

Porter's Five Forces Analysis of the Investment Banking Industry

Threat of new entrants (moderate to high): The low barriers to entry and the fragmented nature of the industry keep the field open for various players.

Bargaining power of buyers (moderate to high): A large number of players ensure sufficient bargaining power with buyers.

Bargaining power of suppliers (moderate): Suppliers, including personnel, technology providers, and data sources, hold some bargaining power due to competition for experienced professionals. However, the size and financial strength of major investment banks may diminish this power.

Threat of substitute products or services (moderate): While certain aspects of investment banking, like basic trading services, might face competition from discount brokers or online platforms, complex financial advisory services often lack readily available substitutes. However, a subset of services can be disrupted such as private placements making threat of substitute moderate.

Competitive rivalry (high): Intense competition within the investment banking industry, both from established players and new entrants. This rivalry is evident in the pricing pressure, the focus on customer satisfaction, and the need to develop unique value propositions.

Conclusion

The Indian capital market is undergoing a period of significant transformation driven by robust growth, technological innovation, and disruption across various service areas.

The exponential growth in demat accounts highlights increasing investor participation and financialization of savings in India. This makes the capital market play a decadal theme.

The sector needs to prioritize enhancing market access, fostering innovation, and strengthening collaboration between regulators and industry participants to maintain its global competitiveness.

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