Shares of Central Depository Services (India) Ltd (CDSL), the only listed depository in India, came under investors’ radar recently. The stock was trading over half a percent lower at ₹1,036.80 apiece, on the NSE.
CDSL shares came under selling pressure earlier this week after its promoter BSE on June 14 sold 4.54% stake in the company through a block deal.
However, analysts see more upside in the stock amid strong fundamentals and growth potential amid a robust business model.
As CDSL generates revenues from transaction charges, settlement charges and account maintenance charges paid by depository participants, analysts said believe a rise in trading activities in the stock market to be positive for the depository.
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The listed exchange BSE sold 47.44 lakh shares of CDSL for ₹468 crore at ₹985.98 apiece, the block deal data on NSE showed. The stake sale came after BSE board in February approved the divestment in CDSL through the Offer for Sale (OFS) route in order to meet market regulator Securities & Exchange Board of India’s (Sebi) norms.
At the end of March 2023, BSE held a 20% stake in CDSL. However, according to the Sebi (Depositories and Participants) Regulations, a stock exchange is permitted to hold only 15% stake in a depository.
However, optimism in CDSL shares was fuelled after recent data showed new demat account openings in India rose the most in nine months in May, fuelled by a broader market rally and record derivatives volumes.
The total number of demat accounts stood at 11.81 crore at the end of the month, up by 21.5 lakh or 32% from April. This figure was in line with the average new account additions per month in FY23, a report by brokerage house Motilal Oswal showed.
In terms of total demat accounts, CDSL continued to gain market share, it said.
Read here: Fresh demat account openings hit 9-month high in May
“The growth in demat account opening is likely to continue, which along with rising volumes in the capital market bodes well for CDSL. Moreover, no listed peer, insurance KYC being done through CDSL and big hopes from NSE IPO will be key growth drivers for CDSL stock,” said Avinash Gorakshakar, Director Research, Profitmart Securities.
He believes CDSL has good business and income visibility and expects 50% upside in the stock in the next two years.
CDSL is one of the two depositories in the country, along with National Securities Depository Ltd (NSDL). It allows investors to store and exchange assets electronically and to settle trades on stock exchanges by opening a Demat account.
During the quarter ended March 2023, CDSL’s net profit declined 18% YoY to ₹63 crore, while its revenue declined 8.7% YoY to ₹124 crore.
CDSL share price has fallen over 6% in the last one year period, but the stock has jumped over 277% in three years. The rally was on the back of a surge in retail demat account openings and heightened investor participation in the capital market during COVID restrictions.
At 1:10 pm, CDSL shares were trading 0.76% lower at ₹1,035.00 apiece on the BSE.
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Updated: 16 Jun 2023, 01:17 PM IST