Since March 2020, the Indian stock market has delivered a remarkable performance. After the Nifty 50 bottomed at 7,610, it surged 205%, reaching 26,285 by November 27, 2025—an annual growth rate of nearly 22%.

For capital markets companies, this rally isn’t just a number—it’s the backbone of their business model.

The Cyclical Truth

Historically, the capital markets sector outperforms during market rallies. The NIFTY Capital Markets Index carries a one-year beta of 1.42 relative to the Nifty 50, meaning it rises faster when the market gains but also falls more sharply during downturns. Long-term correlation remains strong at 0.6, validating the sector as a leveraged play on market sentiment.

• Trading activity spikes during bullish phases, boosting transaction fees.
• Firms with large treasury investment books also profit directly from rising markets, amplifying returns.

Q2 Reality Check

The Q2 FY26 dip highlighted the sector’s vulnerability:

• Motilal Oswal Financial Services Ltd: Treasury gains dropped from ₹1,067 crore in Q1 to just ₹18 crore in Q2.
• HDFC AMC: Other Income fell from ₹233 crore to ₹96 crore, reflecting mark-to-market investment losses.
• BSE Ltd: Softer trading volumes weighed on revenues.

Not all were equally affected. Wealth management firms like 360 ONE WAM Ltd proved resilient, benefiting from recurring revenue streams tied to distribution and assets under management rather than market swings.

Regulatory Headwinds

The sector has also faced regulatory scrutiny:

• SEBI is reviewing mutual fund pricing cap requests.
• Policy clarity on weekly derivatives expiries has helped stabilize sentiment.

Commodities and Foreign Investors

• Gold and silver trends continue to follow global movements, benefiting platforms like MCX through higher investor participation.
• Foreign investors remain focused on earnings growth and valuations when allocating capital.

All Eyes on Q3

The Nifty has rebounded 7% in Q3, signaling potential upside for capital markets firms. High-beta factors like treasury books and retail trading activity, which hurt earnings in Q2, are likely to act as a slingshot for Q3 performance.

Bottom Line: History shows that when the market rally returns, the earnings of companies that build and sustain the market often roar back with it. For investors, the capital markets sector remains a leveraged play on market optimism and participation.