This sector within the Indian stock market is quietly defying the trend.
While the broader Nifty 50 index is down by 8% year-to-date, this pocket of the market has surged 12.7% as of April 30, 2026. And, the one-year return has been close to 41%.
That kind of outperformance often comes from a sector riding a temporary theme.
But this time, the story is different.
I am talking about the capital markets sector. The sector that is powering the Indian financial system. And, the return profile I discussed above is of the Nifty Capital Markets index.
The index consists of companies such as BSE Ltd., MCX, CDSL, asset management companies, and brokerage platforms.
They are quietly monetizing something much bigger as the economy shifts from a savings economy to an investment economy.
The Financial Toll Roads Powering India’s Financial Switch
Capital market platforms are not traditional financial companies. They operate much like financial toll roads.
For example, an exchange earns money when participants trade. A depository earns money when participants hold, pledge, and transfer securities. Asset management companies earn money when people invest through them. Similarly, clearing and settlement infrastructure earns money when transactions move through the system.
In simpler terms, their business model is built around participation and activity. The more investors enter the market, the more transactions happen, and the more these platforms earn. Like a toll road.
Right now, India’s financial ecosystem is expanding at a pace these businesses have rarely seen before.
The Structural Shift Driving India’s Capital Market Boom
Multi-year compounding opportunities in the market rarely come from cyclical trends. They emerge when behavioral shifts become structural.
That is exactly what is happening in India’s financial markets today.
For decades, the wealth of Indian households was largely concentrated in traditional instruments such as fixed deposits. But over the last few years, that behavior has started rapidly changing.
- The rise in demat accounts shows this transformation clearly. The number of unique demat accounts rose from 3.88 crore in 2020 to over 12 crore in 2026. That’s more than a threefold increase in just six years.
Of this, nearly one-fourth of the demat accounts belong to women participants. This shows broad participation. Every new demat account permanently expands the financial ecosystem. - The mutual fund industry is also seeing a similar trend. Monthly SIP inflows have surged almost four times to over ₹32,000 crore in March 2026 from ₹8,500 crore in February 2020. This suggests that for Indian households, investment is moving from a one-time activity to a monthly activity.
- According to the Economic Survey 2025-26, the share of equity and mutual funds in household savings has increased from 2% in FY12 to 15.2% in FY25. Indian households are no longer saving; they are increasingly investing.
- Similarly, deposits in banks and post offices were 59% of financial savings in FY12. Now, it is 35%. It proves diversification away from deposits and deeper participation in capital markets.
However, despite the structural shift, India’s financialization story may still be in its early stages.
Compared to developed markets like the US, where nearly 60% of households own equities in some form, the penetration is still lower in India.
How Capital Market Platforms Are Benefiting From This Shift?
This structural shift is directly translating into higher activity across capital market platforms. Every new investor entering the market creates incremental activity across multiple layers of the ecosystem.
As new demat accounts are opened and SIPs are registered, it is leading to a rise in trading volume in exchanges. Simultaneously, settlement transactions are also increasing.
Each of these activities is generating revenue for multiple different capital market platforms.
In many ways, these companies are not just benefiting from a market cycle. They are benefiting from the formalization and financialization of Indian household savings itself.
That’s why earnings are compounding fast in these businesses.
Sales and Profit Growth Trends
| 5-Yrs Compounded Sales Growth (%) | 5-Yrs Compounded Profit Growth (%) | |
| BSE Ltd. | 50 | 68 |
| MCX | 23 | 25 |
| CDSL | 27 | 18 |
| NSDL | 27 | 15 |
| CAMS | 17 | 22 |
| KFin Technologies | 22 | 50 |
Growth due to rising participation is one side of the story. But what makes these businesses especially powerful is the operating leverage embedded in their model.
Operating Leverage Is the Real Earnings Engine
The most powerful characteristic of capital market platforms is operating leverage. These businesses require significant upfront investment in building the technology infrastructure, compliance systems, cybersecurity, and exchange connectivity.
But once these systems are in place, the incremental cost of processing additional transactions becomes relatively low.
For example, BSE doesn’t have to spend double the infrastructure cost to process 2X higher transaction volumes. As a result:
- Operating margins expand
- Free cash flow generation improves
- And, return ratios remain structurally high
Strong Operating Margin Trends (in %)
| FY21 | FY22 | FY23 | FY24 | FY25 | FY26 | |
| BSE Ltd. | 32 | 41 | 34 | 45 | 58 | 64 |
| MCX | 47 | 44 | 28 | 9 | 60 | 71 |
| CDSL | 62 | 66 | 57 | 60 | 58 | 51 |
| NSDL | 44 | 31 | 25 | 22 | 26 | 28 |
| CAMS | 42 | 47 | 43 | 44 | 46 | 45 |
| KFin Technologies | 44 | 45 | 41 | 43 | 44 | 41 |
The chart highlights the strong operating leverage embedded in capital market infrastructure businesses. Companies like BSE Ltd. expanded operating margins sharply from 32% in FY21 to 64% in FY26.
CAMS and KFin Technologies have maintained their operating margins within a range of 41% to 47%.
CDSL has attributed the margin contraction to higher operating expenses due to technology upgrades, compliance costs, and employee expenses, which grew faster than revenues.
Rising Capital Efficiency
(Return on Capital Employed – ROCE – in %)
| FY21 | FY22 | FY23 | FY24 | FY25 | FY26 | |
| BSE Ltd. | 8 | 14 | 12 | 23 | 47 | 58 |
| MCX | 16 | 14 | 13 | 7 | 43 | 71 |
| CDSL | 31 | 40 | 30 | 40 | 42 | 32 |
| NSDL | 26 | 24 | 23 | 22 | 24 | 23 |
| CAMS | 42 | 56 | 46 | 48 | 54 | 49 |
| KFin Technologies | 15 | 34 | 29 | 30 | 33 | 30 |
The sharp improvement in ROCE for companies like MCX, from 16% in FY21 to 71% in FY26, shows how quickly profitability can scale once market participation and trading activity start rising.
At the same time, businesses like CDSL and CAMS consistently maintain 30 – 50% ROCE levels, highlighting the strength of asset-light business models, where earnings can grow without requiring large capital investments.
Network Effects and Moats
Capital market infrastructure businesses also benefit from powerful market structure advantages.
Market participants naturally prefer trading where activity is already high, trading volumes are highest, bid-ask spreads are tighter, and price discovery is more efficient.
As more participants join, the platform becomes even more attractive for others. This creates a reinforcing network effect.
For example, NSE dominates equity derivatives volumes in India. Higher liquidity leads to tighter spreads and faster execution. That attracts institutions and traders again.
This reason is why large exchanges and market infrastructure platforms often become dominant over time.
And, unlike other digital businesses, capital market infrastructure platforms operate under significant regulatory barriers, making the entry of new players extremely difficult.
All these factors translate to a powerful moat for businesses in this sector.
The Next Leg of Growth May Come Beyond Core Trading
Growing investor participation and transaction activity are driving the current growth phase, but there is still a long way to go.
But capital market platforms are already preparing for the next leg of growth. Increasingly, they are focusing on deeper monetization of the financial ecosystem itself.
Beyond core trading services, businesses are diversifying into high-margin segments, such as:
- Derivatives
- Market data
- Analytics
- And, institutional connectivity services
For instance, BSE provides various index services through its subsidiary, Asia Index Private Limited. It also offers custom index solutions for mutual funds and ETFs.
The income from index-related services for BSE increased from ₹14.9 Cr in FY24 to ₹ 26.9 Cr in FY25, a growth of nearly 81%.
Similarly, income from the sale of market data and information products increased to ₹50.4 cr in FY25 from ₹43.14 Cr in FY24.
CAMS is expanding beyond its core mutual fund Registrar and Transfer Agent (RTA) business. One of the key emerging growth drivers is its insurance repository services. Through partnerships with insurance providers, it is helping to issue insurance policies in electronic format.
The advantage is that these businesses already control the underlying financial infrastructure layer. As the ecosystem scales further, new revenue streams come with relatively limited incremental costs, strengthening operating leverage even more over time.
Great Businesses, But Valuations Matter
The structural story around capital market platforms remains strong. But that does not make the sector risk-free.
Regulatory Overhang
One of the biggest risks is regulatory intervention. A large share of exchange profitability today is linked to derivatives trading activity.
For example, from just ₹20 lakh in Q1FY24, BSE’s total revenue from the equity derivative segment increased to ₹1,128 crore in Q4FY26, over 70% of the total income.
Any tightening of regulations around derivative trading can directly impact transaction volumes and earnings growth.
Hidden Cyclicality
While the long-term financialization trend remains structural, trading activity itself can still be cyclical.
During prolonged market corrections or weak investor sentiment, transaction volumes can slow sharply. Since these businesses operate with high operating leverage, earnings growth can also moderate quickly during low-activity periods.
Valuations
Elevated P/E Multiples Across the Sector
| P/E | 5-yr Median PE | Median Industry PE | |
| BSE Ltd. | 64 | 57.1 | 64.04 |
| MCX | 84.2 | 58.7 | 64.04 |
| CDSL | 57.7 | 55.5 | 44.85 |
| NSDL | 46.1 | 64.8 | 44.85 |
| CAMS | 43.6 | 42.4 | 44.85 |
| KFin Technologies | 44.8 | 49.2 | 44.85 |
The valuation trend indicates that the market is assigning premium multiples to capital market infrastructure businesses because investors expect the structural growth story to continue for years.
BSE and MCX are trading well above their historical median P/E levels, suggesting that the market is pricing in:
- sustained growth in trading activity,
- continued financialization of savings,
- and strong operating leverage-led earnings growth.
At the same time, CDSL and CAMS continue to command premium valuations because of their asset-light business models, high cash generation, and consistently strong return ratios.
The broader takeaway is important:
The market is no longer valuing these businesses as traditional financial companies. Increasingly, they are being valued more like platform or infrastructure businesses with long-duration growth potential.
However, elevated valuations also imply that expectations are high. Any slowdown in trading volumes, demat account growth, IPO activity, or earnings momentum could lead to sharp derating in stock prices.
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Deepan Datta has spent over a decade studying stocks and mutual funds. His passion is to uncover interesting stories in the financial markets and share them through his writings with investors at large. He is focused on delivering clear, easy to understand and research-backed insights. Deepan began his career as a Research Associate at S&P Global, where he developed a strong foundation in financial research and data analysis.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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