Swastika Investmart Q2 FY26: Sharp Profit Decline Amid Revenue Pressures

The results paint a concerning picture for the capital markets intermediary. Net sales for Q2 FY26 stood at ₹27.94 crores, reflecting a modest 6.11% sequential improvement from Q1 FY26's ₹26.33 crores but a significant 30.88% year-on-year contraction from ₹40.42 crores in Q2 FY25. This revenue erosion stems from reduced trading volumes and lower client activity across equity and derivatives segments, a challenge afflicting many mid-tier brokerages amid heightened market uncertainty.

Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) came in at ₹6.46 crores for Q2 FY26, yielding an operating margin of 23.12%, marginally up from 22.33% in Q1 FY26 but down sharply from 30.33% in Q2 FY25. The margin compression of 721 basis points year-on-year reflects the dual pressures of revenue decline and relatively sticky employee costs, which stood at ₹7.68 crores in Q2 FY26 compared to ₹9.72 crores a year earlier. Whilst the company has undertaken cost rationalisation measures, the pace of expense reduction has lagged the revenue contraction, squeezing profitability.

Financial Performance: Struggling Against Headwinds

The quarterly financial trajectory reveals a business under strain. On a half-yearly basis for H1 FY26, the company generated net sales of ₹54.27 crores, down from ₹78.94 crores in H1 FY25—a 31.24% decline. Consolidated net profit for H1 FY26 stood at ₹6.56 crores versus ₹13.50 crores in H1 FY25, representing a 51.41% year-on-year contraction. This deterioration underscores the cyclical nature of the brokerage industry, where earnings are highly correlated with market turnover and volatility.

Profit after tax (PAT) margin for Q2 FY26 came in at 12.03%, relatively stable compared to 12.50% in Q1 FY26 but down from 17.89% in Q2 FY25. The company's ability to maintain double-digit PAT margins despite revenue pressures is commendable, reflecting disciplined cost management. However, the absolute profit decline remains a concern for investors seeking earnings growth.

Interest costs for Q2 FY26 stood at ₹1.59 crores, marginally higher than ₹1.50 crores in Q1 FY26 but lower than ₹2.21 crores in Q2 FY25, indicating some deleveraging. Depreciation remained stable at ₹0.22 crores. Tax expense came in at ₹1.37 crores, translating to an effective tax rate of 28.96%, slightly below the previous quarter's 29.46% but higher than the year-ago rate of 26.05%.

Operational Challenges: Margin Pressures and Cost Management

The company's return on equity (ROE) stands at 16.77% on an average basis, which remains healthy and indicative of reasonable capital efficiency. However, the latest ROE figure of 9.91% signals a sharp deterioration, reflecting the impact of declining profitability on shareholder returns. For a capital markets intermediary, maintaining high ROE is critical, as it demonstrates the ability to generate attractive returns on invested capital without excessive leverage.

Return on capital employed (ROCE) presents a more troubling picture, registering at -27.44% for the latest period. This negative ROCE suggests that the company's operating profits (adjusted for other income) are insufficient to cover the capital deployed in the business, a red flag for long-term value creation. The negative ROCE contrasts starkly with the positive ROE, indicating that shareholder funds are being eroded by operational inefficiencies or one-time charges.

On the balance sheet front, Swastika Investmart maintains a relatively conservative capital structure. As of March 2025, the company had shareholder funds of ₹112.20 crores, comprising share capital of ₹3.49 crores and reserves of ₹104.41 crores. Long-term debt stood at zero, reflecting an unleveraged balance sheet. However, current liabilities of ₹241.74 crores—primarily trade payables of ₹224.10 crores—dwarf current assets of ₹291.83 crores, resulting in a net working capital position that requires careful monitoring.

Industry Context: Navigating a Challenging Brokerage Landscape

The Indian capital markets intermediary space has witnessed significant disruption over the past five years, with the rise of discount brokers fundamentally altering the competitive dynamics. Traditional full-service brokerages like Swastika Investmart face pressure from both ends: discount brokers offering zero-commission trading and large institutional players with superior technology platforms and research capabilities.

Market volatility during the first half of FY26 has been a double-edged sword. Whilst heightened volatility typically drives trading volumes, sustained market corrections can lead to risk aversion among retail investors, reducing overall activity. The company's 30.88% year-on-year revenue decline in Q2 FY26 suggests that client attrition or reduced trading intensity has outweighed any benefits from increased volatility.

Regulatory changes, including stricter margin requirements and enhanced disclosure norms, have also increased compliance costs for smaller brokerages. Swastika Investmart's employee costs of ₹7.68 crores in Q2 FY26, though down from ₹9.72 crores a year earlier, still represent a significant fixed cost base that limits operating leverage during revenue downturns.

Peer Comparison: Valuation Discount Despite Superior ROE

Relative to its peer group of micro-cap capital markets intermediaries, Swastika Investmart trades at a price-to-earnings (P/E) ratio of 10.77 times trailing twelve-month earnings, below the peer average of approximately 15 times. This valuation discount appears justified given the company's deteriorating financial trends and negative short-term outlook.

However, Swastika Investmart's average ROE of 16.77% stands out favourably, significantly exceeding the peer average of around 7%. This higher ROE reflects the company's historical ability to generate strong returns on equity capital, though recent performance suggests this advantage is eroding. The price-to-book value (P/BV) ratio of 1.07 times is in line with peers like Almondz Global (1.06x) but below IL&FS Investment Managers (1.18x) and Indbank Merchant (1.71x).

Dividend yield at 0.87% is modest, with the company having declared a dividend of ₹0.60 per share with an ex-dividend date of June 20, 2025. This compares unfavourably to IL&FS Investment Managers' 10.13% yield, suggesting that Swastika Investmart is retaining earnings for growth or facing capital constraints that limit payout capacity.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current market price of ₹69.33, Swastika Investmart trades at a P/E ratio of 10.77 times, representing a significant discount to the broader capital markets sector's P/E of 22 times. The stock's price-to-book value of 1.07 times suggests it is trading close to its net asset value, with limited premium for future growth prospects.

The company's valuation grade has been classified as "Very Attractive" by proprietary assessment models, having oscillated between "Attractive" and "Very Attractive" over the past several months. This attractive valuation reflects the stock's 67.37% decline from its 52-week high of ₹212.50, bringing it within 0.55% of its 52-week low of ₹68.95. The sharp de-rating suggests the market has priced in significant near-term headwinds and execution risks.

However, attractive valuations alone do not constitute a buying opportunity. The stock's negative financial trend, bearish technical setup, and deteriorating operational metrics suggest that the current valuation may reflect a "value trap" rather than a genuine opportunity. For the valuation to become compelling, the company would need to demonstrate stabilising revenues, margin recovery, and a credible path to restoring ROE and ROCE to historical levels.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

The shareholding pattern as of December 2025 reveals a stable promoter holding of 59.88%, unchanged from the previous two quarters. This stability followed significant fluctuations in earlier periods, with promoter holding declining from 63.25% in December 2024 to 55.02% in March 2025 before recovering to current levels. The absence of further promoter stake reduction in recent quarters suggests confidence in the business's long-term prospects, though it could also reflect limited liquidity for stake sales.

More concerning is the complete absence of institutional investor interest. Foreign institutional investors (FIIs), mutual funds, insurance companies, and other domestic institutional investors (DIIs) collectively hold 0% of the company's equity as of December 2025. This lack of institutional participation reflects the stock's micro-cap status, limited liquidity, and the perception of elevated business risks. The 40.12% non-institutional shareholding comprises retail investors and non-institutional entities, a segment that typically exhibits higher volatility in ownership patterns.

Stock Performance: Severe Underperformance Across All Timeframes

The stock's price performance has been dismal across virtually all timeframes, significantly underperforming both the broader market and its sector. Over the past year, Swastika Investmart has declined 61.63%, whilst the Sensex gained 7.73%, resulting in a negative alpha of 69.36 percentage points. This underperformance accelerated in recent months, with the stock falling 27.55% over three months versus a 2.51% decline in the Sensex.

The stock's risk-adjusted return over the past year stands at -1.35, with volatility of 45.61%—more than four times the Sensex's 11.25% volatility. This high volatility combined with negative returns places the stock firmly in the "high risk, low return" category. The adjusted beta of 1.50 indicates that Swastika Investmart is 50% more volatile than the broader market, amplifying both upside and downside moves.

Compared to the capital markets sector, which delivered a 20.71% return over the past year, Swastika Investmart underperformed by a staggering 82.34 percentage points. This severe underperformance relative to peers underscores company-specific challenges beyond broader sectoral headwinds.

Technical Analysis: Bearish Trend with Limited Support

From a technical perspective, Swastika Investmart remains in a confirmed bearish trend, having changed to bearish from mildly bearish on January 12, 2026, at ₹75.45. The stock trades below all key moving averages, including the 5-day (₹74.66), 20-day (₹75.33), 50-day (₹79.03), 100-day (₹89.98), and 200-day (₹108.96) moving averages, signalling sustained downward momentum.

Technical indicators across timeframes paint a uniformly negative picture. The MACD shows mildly bullish signals on a weekly basis but remains bearish monthly. RSI indicates bullish momentum weekly but offers no clear signal monthly. Bollinger Bands signal bearish conditions across both weekly and monthly timeframes, whilst the KST oscillator registers bearish to mildly bearish readings. Dow Theory analysis suggests mildly bearish trends across both weekly and monthly periods.

Immediate support lies at ₹68.95, the 52-week low, which the stock is currently testing. A breach of this level could trigger further selling pressure. On the upside, immediate resistance sits at ₹75.33 (20-day moving average), followed by major resistance at ₹89.98 (100-day moving average). The 200-day moving average at ₹108.96 represents a strong resistance zone, whilst the 52-week high of ₹212.50 remains a distant target requiring a fundamental business turnaround.

Investment Thesis: Quality Concerns Overshadow Valuation Appeal

Swastika Investmart's investment proposition presents a complex picture of conflicting signals. The company's quality grade has been downgraded to "Below Average" from "Average" earlier in 2025, reflecting deteriorating long-term financial performance. The 5-year sales growth of 12.02% and EBIT growth of 12.61% are respectable but insufficient to offset near-term challenges. The average ROE of 16.77% demonstrates historical capital efficiency, but the latest ROE of 9.91% and negative ROCE of -27.44% indicate rapid deterioration.

The financial trend remains firmly negative, with the company reporting declining revenues and profits for three consecutive quarters on a year-on-year basis. Net sales for the latest six months have grown at -47.83%, whilst profit before tax less other income has fallen 37.39% quarterly. These negative trends, combined with bearish technical indicators, create a challenging environment for any near-term recovery.

The proprietary investment score of 17 out of 100 places the stock in the "Strong Sell" category, reflecting the confluence of negative factors: bearish technical trend, negative financial trajectory, and significant underperformance versus the market over the past year. This score has remained unchanged at 17 since July 23, 2025, when it was downgraded from "Sell" (score of 34) to "Strong Sell".

Key Strengths & Risk Factors

Outlook: What to Watch

The path forward for Swastika Investmart hinges on its ability to stabilise revenues and restore profitability to historical levels. Key monitoring points include quarterly revenue trends, margin trajectory, client acquisition metrics, and any strategic initiatives to differentiate the firm in an increasingly competitive landscape. The company's debt-free balance sheet provides a cushion to weather near-term challenges, but without a credible turnaround plan, the current valuation discount may persist or widen further.