Brokerage industry growth to moderate sharply after two great years

The broking industry is expected to wrap up the year ending March 31 clocking high growth, offsetting the impact of low yields, but is poised to fall back in the coming year to single-digit levels.

The industry is projected to grow 28-33% to clock gross revenue of Rs 27,000-28,000 crore in 2021-22, building on the performance of the previous fiscal year, supported by favourable capital markets and record transaction volumes, according to ratings firm ICRA.

“While cash broking yields witnessed some improvement with an increase in the share of delivery-based turnovers, blended yields continued to reel under pressure, given the significant increase in volume contribution from low-yielding index options. Nonetheless, the healthy growth in the turnover has more than offset the impact on broking yields during this fiscal,” ICRA said.

However, growth is expected to moderate to 5-7% for FY23 with an expected gross revenue of Rs 28,500-29,000 crore, ICRA said.

 The growth has been supported by strong performance of the domestic capital markets in the current fiscal year, building on the trend observed in the previous year. Market traction has been supported by better-than-expected corporate earnings, pickup in economic activity, healthy participation from retail and domestic institutions and a record number of initial public offerings (IPOs).

Healthy liquidity, rising internet penetration and optimism related to Covid-19 vaccination also continued to support the market momentum. The equity markets reported an aggregate turnover of around Rs 11,422 lakh crore during the nine months through December 31, 2021, registering a growth of 171% over the year-ago period.

The average daily turnover increased to Rs 63.07 lakh crore in the nine-month period of FY22 from Rs 22.46 lakh crore in the comparable period last fiscal year and Rs 27.92 lakh crore in FY21 (sporting a growth of 126%). After a sluggish performance during FY18-19, the small-cap and mid-cap indices registered a resurgence, outperforming the large-cap indices.

The market, however, has witnessed a correction in the current quarter, with benchmark indices trailing below their peak (mid-January) by around 10%.

Going forward, the market is expected to remain volatile. While the transaction volume has reported a month-on-month growth primarily led by the derivative segment, a prolonged subdued capital market could have a bearing on the cash segment turnovers and other allied business.

In the commodity market, average daily turnover rose just 6% to Rs 39,000 crore in 9MFY22 driven by energy derivatives. Bullion continued to contribute 40% to the total volumes in 9MFY22, followed by energy (37%), base metals (16%) and agricultural commodities (7%).

The currency segment witnessed a marginal decline in the average daily turnover to Rs 60,000 crore in 9MFY22, after reporting a flat performance with an average daily turnover of Rs 68,000 crore in FY2021 and FY2020, with foreign portfolio investors turning net sellers.

While there has been healthy expansion of active clients and demat accounts overall, there has been a shift between different set of players with discount brokerage houses become more prominent driven by the surge in retail participation.

The market share of discount brokerages in terms of National Stock Exchange (NSE) active clients increased to 52% as of December 2021 from 1% as of March 2016. On the other hand, bank brokers, which held a market share of over 33% as of March 2016, witnessed a sharp decline in the same period to around 18% as of December 2021. The share of traditional brokers in total active NSE clients contracted to 30% from 65%.