Shares of Central Depository Services (India) Ltd settled 3.87 per cent lower at Rs 1,307.30 on Tuesday. At this closing level, the stock has declined 9.60 per cent so far in the calendar year 2026.

HDFC Securities has now upgraded the stock to 'Buy' from 'Add' and raised its 12-month target price. "After a soft FY26, in which revenue growth decelerated to 5.8 per cent YoY (vs 3-year CAGR of 27 per cent) and EBITDA margin contracted ~651 bps to 51.2 per cent, we believe CDSL is at the cusp of a volume-led growth recovery. The two key headwinds are now behind. The pricing cuts in transaction charges and KYC (create and fetch), which dented KYC blended realisations by ~8-10 per cent, are fully in the base, and the heavy phase of technology and regulatory-led spending has largely played out," the domestic brokerage stated.

HDFC Sec pointed to strong IPO activity in the September quarter (Q2 FY27) as against the June quarter (Q1 FY27).

"Primary market activity has turned decisively, with ~50 mainboard IPOs in Q2 FY27 vs nine in Q1 FY27, and BO account additions have recovered to ~1 lakh/day from a trough of ~70K/day in March 2026. We expect ~10mn new accounts in Q2 FY27E (5.8mn in Q1 FY27), the best quarterly addition in eight quarters. This should revive transaction revenue (almost flat for five quarters), KYC revenue and IPO/corporate action income (+18 per cent YoY in FY27E vs -1.9 per cent in FY26), while a widening issuer base compounds the annual issuer charge annuity (~40 per cent of revenue)," it also said.

"With cost intensity normalising, we expect EBITDA margin to expand by 117/246bps YoY to 52.3/54.8 per cent in FY27/28E, driving EBITDA/PAT CAGR of 21/22 per cent over FY26-29E, ahead of the historical average of ~18 per cent. We raise revenue estimates by 3-5 per cent and PAT estimates by 5-9 per cent. The stock has underperformed over the past one year(-15 per cent) and is presently trading at a ~42x FY28E, which is a ~7 per cent discount to its historical five-year average one-year forward P/E multiple of ~45x (vs ~52x during the growth phase). This, in our view, prices in the FY26 slowdown but not the recovery," it further stated.

The brokerage increased its target price to Rs 1,620 from Rs 1,450 earlier, implying a potential upside of 23.92 per cent.