There seems to be value-buying or churning happening in brokering and related stocks thanks to the stupendous financial and stock performances of leading companies in this segment.

It all started with JM Financial. Its stock touched a new 52-week high of ₹131.8 on May 26. Its peers IIFL Holdings, Motilal Oswal Financial Services and Edelweiss Financial Services (in that order) followed the trend with Emkay Shares & Stock Brokers being the most recent. Emkay’s stock closed at a new 52-week high of ₹226.8 on the NSE.

Stock valuations at 24-38 times FY18 estimated earnings for Motilal and Edelweiss looks stiff, while 13-15 times for Emkay, IIFL and JM Financial looks reasonable. Hence, the churning.

Gains from all biz

Except Emkay, all the others have reported spectacular financial performance (consolidated) in FY17, which continued in the June 2017 quarter as well, both in terms of year-on-year growth in topline and bottomline. Emkay’s performance however, showed improvement y-o-y in Q1. All business segments in these companies recorded robust performance.

Indian equity market touching new high (gaining 16 per cent year-to-date ending June 30), strong pipeline of initial public offers, robust flows into mutual funds thanks to the SIP culture, benign interest rate scenario (followed by rate cut) and robust demand in affordable housing (applicable to some) have helped both the capital market-related and financing businesses of the companies. If the same trend continues, the party will continue for these companies. Recovery in India Inc’s performance and capex activity will be the icing on the cake, which would further fuel the rally.

Strong returns

The companies have given stock returns in the range of 85-239 per cent in the last one year. Besides financial performance, the rally of 23 per cent and 27 per cent in mid- and small-cap indices till date respectively, have also led to frantic buying into these stocks. In comparison, Nifty 50 has gained 19 per cent till date in 2017.

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