According to reports from Investec, Angel One's derivatives business has experienced significant challenges, with average daily derivatives contracts declining 23% month-on-month in August compared with July. The brokerage believes this deterioration is primarily attributed to the new Closing Auction Session (CAS), which has contributed considerably to the latest trading activity decline. As reported by Investec, the derivatives activity had already been moderating before CAS came into effect, but the new system has intensified the pressure on the brokerage's trading volumes. August derivatives activity has fallen sharply, but analysts believe the CAS-related disruption is still in its early stages, with the immediate outlook remaining challenging.
Investec expects the second quarter to be a washout for Angel One, followed by a gradual recovery as market participants adapt to the new CAS system. According to the brokerage's analysis, trading activity could normalise to Q1FY27 levels by Q4FY27. The firm has retained its 'Buy' rating on Angel One while valuing the stock at 22x P/E ratio. However, Investec has cut revenue and PAT estimates by 4% and 9% respectively for FY27E-29E due to the expected impact of the new trading system. The brokerage expects Q2 might be a washout while anticipating a gradual recovery as traders and other market participants adapt to the new system.
The derivatives weakness extends beyond the CAS implementation, as reported by Investec. 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. These challenges include regulatory measures such as 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. The weakness in derivatives is not entirely a CAS story, with trading activity having been under pressure for several quarters following regulatory and government measures aimed at curbing speculation and retail losses.
Investec acknowledges the key risk to its recovery thesis - if August's lower activity levels turn out to represent the new normal, the earnings impact could be materially greater. The brokerage estimates that FY28E PAT could face a 14% downgrade in such a scenario. However, Investec continues to see value at 19x FY28E PAT on its revised estimates, maintaining its 'Buy' rating on Angel One. The brokerage believes the market is dealing with "teething problems" rather than a permanent reset in derivatives activity, with CAS being another disruption layered onto an already moderating market rather than the sole cause of the slowdown.
