Why is Angel One stock rising despite massive drop in Q2 profit?

Introduction

Angel One (a leading retail / discount brokerage in India) has recently reported a sharp year-on-year profit decline in its Q2 (July-September) results, yet there are signs of positive movement in its share price. This disconnect between fundamentals and market reaction raises the interesting question: Is the stock rising despite weak earnings, and if so, why? In this essay, I explore the financials, investor reaction, possible explanations, and the risks that may affect whether this optimism is sustainable.

What Really Happened in Q2: The Earnings Story

The Downside: Profit Decline & Revenue Pressure

By most accounts, Angel One’s Q2 performance was disappointing when compared year-on-year:

• Its consolidated net profit fell nearly 50 % YoY, from ~₹423 crore in Q2 FY25 to ~₹211.7 crore in Q2 FY26.
• On a quarter-on-quarter basis, there was recovery: profit rose ~85 % from Q1 FY26 → Q2 FY26 (₹114.5 crore → ₹211.7 crore)
• Operating margins and PAT margins saw compression: PAT margin shrank from ~27.95 % (a year ago) to ~17.62 %
• Revenue fell YoY: Q2 revenue was ~₹1,201.8 crore vs ~₹1,514.7 crore a year ago — a decline of ~20.66 %
• The drop in top-line suggests weakening in trading volume / client activity, dampening the core brokerage business.

Thus from a fundamental performance lens, Q2 was broadly weak: lower profit, lower revenue, and pressure on margins.

The Upside: Sequential Recovery & Expansion in Adjacent Businesses

Despite the negative YoY metrics, there are counters that investors may point to:

• On a quarter-on-quarter basis, things look better: ~5.37 % revenue growth QoQ, and margins improving vs Q1.
• Growth in non-core or adjacent lines:
    • The wealth management / AUM business reportedly recorded gains.
    • Credit disbursals (for margin funding / lending) nearly doubled in that quarter.
    • The number of SIPs / mutual fund accounts expanded, reflecting the firm pushing into other financial services beyond pure broking.
• The company’s management claims “momentum across businesses remains strong,” indicating belief in structural diversification.

These above-trend growth areas are likely being seen by some investors as a partial hedge against the slump in core broking revenue.

Is the Stock Actually Rising?

We must check: is Angel One’s stock showing a meaningful rise, or is it just a short-term uptick?

• Some news reports indicate modest share price appreciation following Q2 results. For instance, the stock “rallied 4 %” on the BSE after the Q2 profit announcement.
• However, other reports show that over the last one year, the stock has fallen ~24 %, underperforming the broader market.
• The YoY decline in stock price suggests that any rise is more of a short-term rebound than a sustained uptrend.
• Also, earlier in FY25, the stock had shown rallies even when profits dipped (e.g. when it declared a dividend, shares jumped ~5 %), highlighting how investor sentiment can swing on non-earnings triggers.

In sum: yes, there is evidence of a positive stock response to recent events, but this must be viewed in the context of a longer-term downtrend and substantial volatility.

Why Might the Stock Be Rising Despite Weak Fundamentals?

It may seem counterintuitive, but there are several possible reasons why markets can rally a stock even when fundamentals disappoint.

1. Forward-looking Expectations / Market Anticipation

Investors may believe that the worst is over and that the company will recover in coming quarters. The sequential improvement in revenue and margins can be seen as evidence of a turnaround in motion. The market often “looks ahead” rather than at past results.

2. Value Reversion & Oversold Conditions

Given the stock’s steep decline over the past year, some market participants may view it as oversold. A bounce-back from depressed levels may be a technical recovery, driven by bargain hunters or market speculation, rather than a reflection of revived fundamentals.

3. Diversification & Non-Broking Growth Prospects

The expansion into wealth management, credit / lending, SIPs, and advisory can generate hope that the company is moving beyond being solely dependent on volatile trading revenues. If investors believe these segments can scale meaningfully, they may price in future upside.

4. Institutional Buying & Shareholding Patterns

If large institutional investors or mutual funds increase their stake (believing in the long-term story), that can contribute to price support. Some reports do indicate rising mutual fund and foreign institutional holdings.

5. Other Market & Sentiment Factors

• Broader market rally or sector rotation into financial / fintech / brokerage space could lift Angel One irrespective of its specific results.
• Dividend or capital return announcements can sometimes override weak operating metrics, as we saw in past quarters when the stock responded to dividend news.
• Optimism around macroeconomic drivers (e.g. increased equity market activity, investor participation, regulatory changes favorable to the broking business) might buoy sentiment.

Thus, a mixture of technical, strategic, and sentiment factors might be at play in causing the stock to rise despite weak Q2.

Risks & Challenges to That Optimism

The fact that the stock is rallying doesn’t guarantee the optimism will hold. Some key risks must be considered.

1. Sustainability of Growth in New Areas
   The non-broking verticals (wealth, lending, credit) might face challenges scaling profitably. If they don’t generate sufficient margins, investors may lose faith in the diversification story.
2. Continued Pressure on Core Revenue
   Unless trading volumes and client activity recover significantly, the core brokerage business may remain weak. The YoY drop in revenue shows this is a headwind.
3. Margin Erosion & Cost Increases
   Wage inflation, technology spending, borrowing costs, regulatory expenses, and compliance costs could bite into margins further.
4. Regulatory Risks
   The brokerage / discount broking sector is subject to regulatory change (market rules, margin requirements, transaction fees). Any adverse regulation could hurt core operations.
5. Competition & Zero-brokerage Models
   New entrants or existing players offering zero or minimal brokerage fees might erode Angel One’s market share and pricing power.
6. Valuation Risk / Over-optimism
   If investor expectations run ahead of what the company can deliver, a failure to meet growth targets may lead to sharp downside re-ratings.

Conclusion

In conclusion, yes, Angel One’s stock appears to be rising — at least in the short term — despite a massive drop in Q2 profit. But this rise is nuanced: it is partly a recovery from oversold territory, partly driven by hope in the company’s diversification into wealth / credit / advisory, and partly influenced by broader market sentiment.

However, the underlying fundamentals still show serious weaknesses: revenue decline, margin pressure, and a steep YoY profit drop. Whether the stock’s upward move will be sustained depends on whether the company can convincingly show reversal in its core business, scale the newer segments profitably, and manage costs and regulatory risks.