Shares of Central Depository Services (India) Ltd (CDSL) have been experiencing a significant decline since they turned ex-bonus on August 23, 2024. After hitting a record high of ₹1,664.40 on the same day, the stock has slipped by 9% over four consecutive sessions. Despite this downward trend, the stock saw a slight recovery in the current trading session, with a 0.81% increase, bringing the price to ₹1,443 against the previous close of ₹1,431.40 on the NSE. Notably, CDSL is not listed on the BSE.
Trading Activity and Market Sentiment
On the NSE, a total of 40.62 lakh shares of CDSL changed hands, resulting in a turnover of ₹585.78 crore. The stock has a beta of 0.9, indicating relatively low volatility over the past year, which makes the recent price movement more noteworthy.
Technical Analysis and Market Outlook
In terms of technical indicators, the Relative Strength Index (RSI) of CDSL stands at 59.7, suggesting that the stock is neither overbought nor oversold. This neutral RSI indicates that the market is not showing extreme sentiment, either bullish or bearish, at the current levels.
Jigar S Patel, a manager at Anand Rathi, expects CDSL’s stock to trade within a range of ₹1,350 to ₹1,550 in the short term. According to Patel, the stock finds support at ₹1,400 and faces resistance at ₹1,485. A decisive close above the ₹1,485 level could trigger a further upside toward ₹1,550.
Kushal Gandhi, a Technical Analyst at StoxBox, observed that CDSL’s recent price action is a result of profit-booking after reaching life highs of ₹1,664. The stock has retraced to its shorter-term moving average, which is currently acting as immediate support. Gandhi cautioned that the RSI on both daily and higher timeframes indicates a potential waning of momentum. He advised against buying CDSL at the current market price, suggesting that confirmation of a continued uptrend would only come with a decisive close above ₹1,665.
Brokerage Recommendations
ICICI Securities has revised its rating on CDSL from ‘Hold’ to ‘Reduce.’ The brokerage firm pointed out that the stock trades at a steep 53 times its one-year forward earnings per share (EPS), making the risk-reward ratio less favorable. Despite this downgrade, ICICI Securities has raised its price target for CDSL from ₹1,118 to ₹1,320.
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The brokerage highlighted concerns about the sustainability of earnings growth, given the high base effect. Additionally, ICICI Securities noted that if the market is anticipating a significant increase in cash volumes due to restrictions in options trading, this is likely to occur more in the intraday segment than in delivery trades. Since CDSL benefits primarily from higher volumes in the delivery segment, the brokerage remains cautious about the stock’s future prospects. It also pointed out a trend where delivery as a percentage of total cash trades has declined from 26% in FY18 to 21% in FY24, which could further impact CDSL’s revenue growth.
Ex-Bonus and Financial Performance
CDSL’s stock turned ex-bonus in a 1:1 ratio on August 23, marking the first bonus issue by the company, which was approved by the board in July 2024. The bonus shares are expected to be issued by September 1, 2024.
Financially, CDSL reported a robust 82% rise in net profit for the quarter ended June 2024, with profits climbing to ₹134.20 crore, up from ₹73.57 crore in the same quarter of the previous year. Revenue also surged by 72% year-on-year, reaching ₹257.38 crore compared to ₹149.68 crore in Q1 of the previous year.
What Should Investors Do?
Given the mixed signals from technical indicators, brokerage advice, and the recent financial performance, investors should approach CDSL with caution. While the stock’s long-term prospects remain strong due to its role as a central depository in the Indian market, short-term volatility and profit booking could continue to impact the stock’s performance. Investors with a long-term horizon might consider holding their positions, particularly if the stock stabilizes above key support levels. However, those with a shorter-term focus might want to wait for clearer signs of a trend reversal before making any new investments.
