The Indian broking industry is estimated to post a moderate growth of 5-10% in FY2019 with an estimated revenue projected at Rs. 19,500-20,000 crore. This is on the back of a strong FY2018 with industry turnover of Rs. 18,000-19,000 crore and Y-o-Y growth of over 30%. As per an ICRA industry report, while on one hand, the volatility in the markets is expected to encourage trading turnover, on the other hand, the recent corrections in valuations, coupled with the cautious investor stance, would have a bearing on industry revenues.
The markets reported a resurgence in the current fiscal after a slide in February and March 2018, before witnessing a correction from September 2018. Concerns like rising interest rates, systemic liquidity tightening, heightened concerns on the credit quality of non-banking financial companies (NBFCs) and weak investor sentiment further impacted the markets. On an aggregate basis, the equity markets reported a turnover of Rs. 1,191 lakh crore in H1 FY2019, registering a growth of 55% over Rs. 770 lakh crore in the corresponding period in the previous fiscal. The average daily turnover (ADTO) increased to Rs. 9.53 lakh crore from Rs. 6.21 lakh crore during the same period and was Rs. 7.04 lakh crore in FY2018.
Commenting on the industry trend, Samriddhi Chowdhary, Vice President and Co-Head – Financial Sector Ratings, ICRA said, “The recovery in the first half of this fiscal was not broad-based and remained largely limited to the large-cap segment. While the flagship indices of the two exchanges touched an all-time high in August 2018, rising to about 5% over the earlier high achieved in January 2018, the mid and small-cap indices on the two exchanges trailed ~5-20% behind the peak level seen in January. The underperformance of mid and small-cap securities had a bearing on retail investor participation, particularly in the cash segment, with the investors yet to recoup their losses. The decline in delivery volumes in the cash segment also points towards the growing shift towards trading as opposed to investment-oriented transactions.”
The retail participation, which had emerged as a key theme in the context of Indian capital markets over the past few years, is expected to moderate to an extent with investors recouping the losses arising from the market corrections. However, the large untapped market in this segment, which is a growth driver for the long term, would help cushion the impact to some extent. The broking yields are expected to contract further, given the competitive pressures and the increase in low-yielding derivatives and the non-delivery segment. This, in turn, is expected to result in moderation of profitability from core broking operations in the current fiscal after a year of super normal profits. Services like margin funding and distribution of financial services could help support the income profile of full-service brokerage houses given the price-based competition from discount brokerage houses.
