F&O volumes may fall after prop trading curbs, but retail participation to hold: JM Financial

Raghvesh, Insurance and Capital Markets Analyst at JM Financial Institutional Securities, said new regulatory steps linked to proprietary trading could impact derivatives volumes in the near term, but the broader shift of savings into financial assets remains intact.

Raghvesh said it is difficult to quantify the exact impact of the new norms on overall trading volumes at this stage.

He expects some impact on proprietary derivatives volumes, in line with market estimates of around 15% impact, but said retail participation may remain stable. According to him, derivatives continue to offer higher return potential compared with cash market transactions for retail investors.

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He noted that for brokerages such as Angel One and Groww, where more than half of revenue comes from F&O, volume moderation could affect earnings in the near term. However, firms with lower exposure to proprietary or high-frequency trading segments may see limited earnings impact.

Despite regulatory tightening, Raghvesh said, “The current disturbance, the current weakness in stock prices, are good buying opportunities.”

He added that stocks such as Nuvama Wealth Management could be less exposed to proprietary derivatives flows, with such revenue contributing only a small portion of overall business.

He also said valuations in some brokerage stocks already factor in regulatory risks, adding that select stocks remain attractive at current levels.

Raghvesh said the shift of household savings towards market-linked financial products is likely to continue over the long term.

He said, “Financialisation is there to stay.”

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He noted that retail investors may shift between products, but participation in capital markets is likely to continue through mutual funds, systematic investment plans (SIPs) and wealth management platforms.

He said flows are shifting towards diversified mutual fund categories such as flexi-cap and hybrid funds. According to him, investors are increasingly relying on fund managers for allocation decisions instead of direct stock picking.

Raghvesh said wealth management firms and asset managers could benefit from this shift, highlighting firms such as 360 One WAM and asset managers like HDFC Asset Management Company and Nippon Life India Asset Management.

He expects AUM-linked businesses to deliver earnings growth supported by steady inflows and market participation trends over time.

For the full interview, watch the accompanying video

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