Avoid pure play brokerage firms, go for wealth management stocks: Hemang Jani

Hemang Jani, Independent Market Expert, says pure play brokerage firms, heavily reliant on F&O volume for 75-80% of their revenue, may face pressure until volume stability emerges. While Angel One diversifies, wealth management companies like Nuvama, 360 One, and HDFC AMC, demonstrating stronger traction, appear more promising investment options compared to brokerage firms in the current market scenario.

First, let us talk about the biggest news maker SBI with a sizable QIP of Rs 25,000 crore. What does it imply because what we understand is that this is also going to impact the free float on SBI and perhaps its weightage as well in the upcoming rebalances starting off with MSCI in September?
Hemang Jani: Definitely, it is a positive development for SBI because overall, if you see the banking sector, this quarter is not going to be that great because the credit growth would be about 10 odd percent and there will be pressure on the NIMs because of the way the rate cut cycle has panned out. But when the company does a substantial fundraise, about 25,000 odd crore, and if you look at the indicative pricing, you get somewhere around a 2.5% discount which is not much. So, definitely that gives you certain stability in terms of the pricing and in the short run you could see the stock moving a little bit higher. Of course, you will not see a big spike because of the magnitude of the fundraise, but overall, I view this development as positive for SBI.

But the IT numbers are also trickling in. Tech Mahindra also came out with its numbers. What is your take on the IT pack because today we will have our eyes on Wipro?
Hemang Jani: The IT chart has not been great. Tech Mahindra numbers were okay-ish, not that great. On the revenue side, they have missed estimates and there is weakness in certain pockets like manufacturing and other areas. The positive takeaway for us was that the communication segment which was a big overhang for Tech Mahindra is seeing a bit of a positive news flow. So, there is going to be a slightly better revenue momentum there.


Also, the margin expansion has been a big positive. Now it is at 11.1%. We think that once there is a reiteration of a guidance, it would be definitely a positive read through for us. Overall, we like Tech Mahindra for the valuations. We think that though it may not really move up big time, from a positional perspective or 6 to 12 months perspective, this will be one of the preferred IT picks within the IT space.

Angel One numbers have been a bit disappointing with a 61% profit decline on a YoY basis and sequentially, there has been a double-digit drop. This is a trend we are witnessing for the brokerage-related stocks. What is your take on Angel One? Should one go short on some of these or avoid the brokerage related counters? On the flip side, maybe the AMC stocks are looking good. Will that be a good strategy to adopt?
Hemang Jani: Yes, I think so. When we look at the performance of some of the brokerage firms, Angel One definitely looks like a disappointment. One thing which we have to bear in mind is that some of these pure play brokerage companies or discount brokerage firms have a heavy dependence on the F&O volume and the revenue that they have ) right now is about 75% to 80%. So, till we see some stability or clarity emerging in terms of the volumes, these stocks could remain under pressure. Also, Angel One has started investing in some of the other products and there we might see a bit catch up in some play but in the current scheme of things, I would avoid pure play brokerage firms and would be more positively inclined towards some of the wealth companies like Nuvama, 360 One and HDFC AMC, where the numbers and traction is much better compared to brokerage firms.

What is your view on Glenmark?
Hemang Jani: Glenmark has been an outstanding performer because of the kind of announcement that we have had with respect to milestone payment of $700 million and possibility a similar kind of a deal may be replicated for other markets as well and the recent investor concall has also gone down well, but we have to reckon that the stock has run up almost about 25-30% in just last about one, one-and-a half-month. We would not really chase it at current levels. If we see a meaningful correction, then we can consider entering it for the positive news flow around this milestone payment on the oncology drug.

As far as other pharma stocks are concerned, I think there has been a bit of swing or volatility across partially because of the uncertainty around what kind of tariff framework one is really looking at, but notwithstanding that, we have from quarterly numbers’ perspective, names like Aurobindo Pharma and they reported numbers and the numbers were exceptionally good. We think that the pharma health space should have an overweight position with select names like Aurobindo and Lupin.