Angel One: Metamorphosis into a Fintech? (Previously Angel Broking)

Stock Opportunities Not-so-Hidden Gems
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They have given broad guidance. No specific timelines.

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Can someone please provide a point of view on how badly SEBI’s new rules will impact Angel One?

I understand that almost 50% revenue comes from F&O segment, driven by retail audience. I do not have proper understanding of F&O segment, hence want to understand impact of trading volume.

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Key points in SEBI mandate

—> No Daily expiries (One expiry per week/exchange)
—> Contract size to triple
—> Calendar spread margin

First two points would negatively impact the F&O participation from where the major revenue comes from.

This will prove to be a double whammy from brokers stocks. First due to lower EPS, second due to P/E contraction.

Assuming no P/E contraction, since Angel One’s PE is already low, I am a expecting 20-30% correction from here.

References:

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https://www.financialexpress.com/market/angel-one-set-to-end-zero-brokerage-model-3628242/

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I am surprised and confused by today’s move.
At best stock should have been near zero in the light of a bad and one good news.

About the good news, other brokers like Zerodha have decided not to increase brokerage so increasing brokerage can have a negative impact on cash activity.

At present, 85% of revenue comes from FnO, not sure how much revenue can this increase in brokerage bring.

Any explanations of today’s movement?

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Most probably because the sebi mandates were expected since July or before and has been priced in while angelones price hike news is new and its positive impact is getting factored in .

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Yes, I am also confused. It’s good that I didn’t sell anything.

Angel One has 65% of revenue coming from broking. Out of which, 85% comes from F&O. This means broking has impact on 55% of the revenues.

But, here is what I can deduce from today’s movement.

  1. There is no overhang on the stock anymore. This is a classic situation of threat being more powerful than execution.

  2. There is some chance that traders will absorb the changes. My hypothesis is following -

  • Lot size increase will impact the option buyers less compared to option sellers. Lets say buyers have money enough to buy 25 unit lot. Let us say now the lot size is increased to 60-65 to meet 15 Lac criteria. The buyers can either bring more money or go for call/put options which are cheaper. (Slightly far away ones)
  • The sellers are typically a bit large ticket-size traders. They may absorb the increase in lot size. The traders who have money for one lot only, may switch to buying side.

My take is that the impact can be limited also. There is a chance and we know how addictive F&O trading is. Even after all this, there will be some impact for sure and only time will tell how it pans out.

But I feel retail will lose more after this because of demand supply mismatch. More buyers, less sellers leading to higher option premium. Retailers being forced to buy far away options.

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