JP Morgan Bullish on India's Capital Market Growth
Global financial giant JP Morgan has commenced coverage on India's capital market sector, expressing a positive long-term outlook. The firm highlights India's ongoing financialisation trend and consistently strong Systematic Investment Plan (SIP) inflows as key drivers for the sector's resilience and growth.
Despite the Nifty 50 delivering modest returns over the past two years (0.8% CAGR in rupee terms, -3.2% in USD terms) and significant foreign portfolio investor (FPI) selling totaling $36 billion (Rs 3.3 trillion) in FY25-26, SIPs have emerged as the sector's primary demand anchor. In FY26, SIPs contributed a substantial 77% to total equity and balanced net inflows.
SIP Flows Anchor Sector Amid Market Volatility
Monthly industry SIP flows surged by 48% to Rs 31,000 crore (approximately $3.3 billion) in May 2026. Cumulative equity and balanced fund net inflows reached Rs 9.43 lakh crore ($109 billion). JP Morgan anticipates these inflows will continue, supported by favorable tax and policy adjustments, including a 12.5% long-term capital gains tax on equity and changes to debt mutual fund taxation that enhance equity's appeal.
The firm notes that the Nifty's relatively flat performance over the last two years underscores sustained retail participation even through market volatility. Stock selection by JP Morgan prioritizes business model quality, regulatory exposure, and valuation metrics.
Derivatives Market Sees Structural Surge
Exchange volumes have experienced structural growth, predominantly driven by index options. The industry's average daily premium turnover escalated dramatically from Rs 1,000 crore in FY14 to Rs 69,900 crore in FY26, a trend bolstered by the proliferation of weekly expiries and increased retail and algorithmic participation.
In the commodities segment, MCX witnessed a cycle-driven surge, with FY26 futures average daily turnover climbing 138% year-on-year to Rs 64,200 crore, fueled by stronger bullion and energy prices. JP Morgan sees limited risk to derivative volumes from potential restrictions on retail participation.
JP Morgan's Top Overweight Picks
JP Morgan has initiated coverage with an 'overweight' rating on several key players in the capital market space, preferring them for their strong business models and growth potential. The top picks include:
- Angel One: Target Price Rs 420
- CAMS (Computer Age Management Services): Target Price Rs 950
- ICICI AMC: Target Price Rs 4,090
- NAM India: Target Price Rs 1,360
- HDFC AMC: Target Price Rs 3,250
Neutral and Underweight Ratings
For other companies, JP Morgan has assigned different ratings:
- Neutral Ratings:
- BSE (Bombay Stock Exchange): Target Price Rs 4,330
- Kfin Technologies: Target Price Rs 980 (awaiting a better entry point)
- Underweight Ratings:
- CDSL (Central Depository Services Limited): Target Price Rs 1,200
- MCX (Multi Commodity Exchange): Target Price Rs 2,560
The report highlights that exchanges and depositories benefit from stronger pricing power and operating leverage. Brokers gain from scale, while asset managers are considered less cyclical due to their linkage to assets under management. Mutual fund RTAs (Registrar and Transfer Agents) typically exhibit lower pricing power and operating leverage.
Key Triggers and Risks for the Sector
Key triggers identified by JP Morgan for the capital market sector include sustained market-share gains, margin improvement driven by operating leverage, SIP flows consistently exceeding Rs 300 billion, and minimal impact (less than 1 basis point) from post-Total Expense Ratio (TER) implementation yield outcomes.
Conversely, significant risks include SIP inflows falling below Rs 25,000 crore for a prolonged period, adverse regulatory changes leading to a 20% decline in derivative volumes or cancellation of weekly expiries, and futures or premium turnover deviating more than 15% from assumptions during periods of high volatility.