Angle One In Focus: Angel One's derivatives business may have hit a rough patch, but brokerage firm Investec believes the latest drop in trading activity could prove more temporary than structural.
The brokerage expects the impact of the new Closing Auction Session (CAS) to weigh on the near term, with trading activity gradually recovering as market participants adapt to the new system.
Analysts Nidhesh Jain, Uday Pai and Prithviraj Patil said August derivatives activity has fallen sharply, but believe the CAS-related disruption is still in its early stages. Investec expects Q2FY27 to be a “washout”, followed by a gradual recovery that could bring trading activity back to Q1FY27 levels by Q4FY27.
ALSO READ: Is CAS Issue Sorted? Nilesh Shah Says Yes, But Suggests Tweaks
The brokerage has retained its 'Buy' rating on Angel One and values the stock at 22x P/E. It has, however, cut revenue and PAT estimates by 4% and 9%, respectively, for FY27E-29E.
Q2 Could Be The Pain Point, Recovery Seen From There
The immediate outlook remains challenging.
Average daily derivatives contracts declined 23% month-on-month (MoM) in August compared with July, which itself saw an 11% decline from June. Investec believes the introduction of CAS has contributed considerably to the latest deterioration, although it noted that derivatives activity had already been moderating before CAS came into effect.
The brokerage expects the second quarter to bear the brunt of the disruption.
“We believe Q2 might be a washout,” Investec said, while expecting a gradual recovery as traders and other market participants adapt to the new system.
By Q4FY27, the brokerage expects trading activity to normalise to levels similar to Q1FY27.
ALSO READ: Cyient Stock: JPMorgan Sees Transformation, Morgan Stanley Waits for Execution
Why Investec Isn't Turning Bearish
The weakness in derivatives is not entirely a CAS story.
Trading activity has been under pressure for several quarters following regulatory and government measures aimed at curbing speculation and retail losses. These include changes to lot sizes, higher securities transaction tax, RBI norms on lending to proprietary trading and the move to one index expiry per week per exchange.
Individual traders in derivatives had grown at a 62% CAGR between FY20 and FY24, but growth slowed to 11% in FY25 before the number of traders declined 18% in FY26. NSE active users have also shown weakness since January 2025.
Investec therefore sees CAS as another disruption layered onto an already moderating market, rather than the sole cause of the slowdown.
What If August Becomes The New Normal?
This remains the key risk to the recovery thesis.
Investec has already incorporated the expected CAS impact into its estimates and sees trading activity normalising by Q4FY27. But if August's lower activity levels turn out to represent the new normal, the earnings impact could be materially greater.
In that scenario, Investec estimates FY28E PAT could face a 14% downgrade.
For now, however, the brokerage believes the market is dealing with “teething problems” rather than a permanent reset in derivatives activity. At 19x FY28E PAT on its revised estimates, Investec continues to see enough value to retain its 'Buy' rating on Angel One.
ALSO READ: Nvidia Stock Price Jumps 5% In Extended Trading After Q2 Earnings — Key Numbers Here
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.