Shares of broking firms surge as reforms revive mood

MUMBAI: Shares of broking firms rallied on Wednesday on hopes the pick-up in stock market activity in September could boost earnings in the July-September quarter.

Analysts also said that the beaten-down stocks, which have severely underperformed in the past two years, offer cheap valuations.

Aditya Birla Money was the top gainer with the stock surging 20% to 20.12. Emkay Global was locked in the 10% upper circuit at 33.10 while India Infoline ended at 66.55, up 9%.

Geojit BNP Paribas Financial Services hit a 52-week high of 23.60 on NSE before ending 6.3% up at 23.50. Edelweiss Financial gained 7% to end at 36.95. JM Financial and Indiabulls Securities gained 4% each. Most of the broking stocks have underperformed the broader market over the past two years due to low market volumes.

Analysts believe the Indian broking industry is trading at one of the lowest multiples globally, despite very little balance-sheet risk.

"We see signs of the market stabilising and if confidence returns, then a continuation of this rally and a re-opening of primary equity markets could lead to a substantial rerating of these stocks," said Espirito Santo Securities in a recent note to clients.

The analysts said that besides improved investor sentiment, introduction of quantitative easing measures in the US and Europe would help volumes recover.

Meanwhile, benchmark indices ended marginally higher for the third straight day on Wednesday. BSE Sensex gained 46 points, or 0.24%, to 18,870 while the Nifty gained 12 points to 5,731. BSE Oil & Gas was the top sectoral gainer as RIL and ONGC, the top two scrips of the index in terms of weightages, gained over 1%.